10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 000-51115

Avantair, Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-1635240
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4311 General Howard Drive

Clearwater, Florida 33762

(Address of principal executive offices) (Zip Code)

(727) 539-0071

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of February 14, 2013, there were 40,903,717 shares of the registrant’s common stock, $0.0001 par value per share, outstanding.

CERTAIN DEFINITIONS

Unless the context indicates otherwise, the terms “Avantair”, “the Company”, “we”, “our” and “us” refer to Avantair, Inc. and, where appropriate, its subsidiaries. The term “Registrant” means Avantair, Inc.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements relating to future events and the future performance of the Company, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes,” or similar language. Our actual results could differ materially from the information contained in these forward-looking statements as a result of various factors, including, but not limited to, the factors outlined in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, particularly under the heading “Risk Factors,” the factors outlined in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012, particularly under the heading “Risk Factors,” the factors outlined in this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2012, particularly under the heading “Risk Factors,” and the factors outlined below:

(1) our inability to generate sufficient net revenue in the future;

(2) our inability to fund our operations and capital expenditures;

(3) our inability to raise capital or meet cash flow projections, including our inability to raise funds through the issuance of convertible notes and warrants or through other financings;

(4) extensive government regulation, including, but not limited to, the operational requirements of the Federal Aviation Administration;

(5) our inability to generate sufficient cash flows to meet our debt service obligations or other financial obligations;

(6) our inability to obtain new or retain current acceptable program participant contracts;

(7) the potential impact to our business, financial condition and results of operations if our pilot group is successful in unionizing;

(8) the inability to strategically eliminate more costly aircraft from our fleet and that such action may not see a corresponding decrease in the cost of flight operations;

(9) the inability to achieve lower maintenance costs through the use of third party maintenance operators;

(10) the loss of key personnel;

(11) our inability to effectively manage our growth;

(12) our inability to acquire additional aircraft and parts from our single manufacturer;

(13) competitive conditions in the fractional aircraft industry;

(14) the failure or disruption of our computer, communications or other technology systems;

(15) changing economic conditions;

(16) increases in fuel costs; and,

(17) our failure to attract and retain qualified pilots and other operations personnel.

The risks described above and in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012 and in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or operating results. We do not undertake, and expressly disclaim, any obligation to update this forward-looking information, except as required by applicable law.

The forward-looking statements relating to future events and the future performance of the Company, include, without limitation, statements regarding: the ability of the Company to meet its primary operating strategy to achieve positive cash flows by continuing the Company’s cost savings initiatives; the timeline for the Company achieving positive cash flows; the Company’s plans, beginning in the third fiscal quarter of 2013, to strategically eliminate more costly aircraft from its fleet, and as a result, the Company’s expectation to see a corresponding decrease in its cost of flight operations, which includes maintenance costs; the Company’s expectation of lower maintenance costs as a result of driving increased efficiencies through the use of third party aircraft maintenance operators to provide increased levels of maintenance contract services of its fleet; the Company’s belief that the effect of the operational stand down will negatively impact its cash receipts, liquidity and retention of program participants in the near term; the Company’s assumption that it will continue as a going concern; the Company’s expectation that it will seek to raise additional capital in additional offerings, the terms of such additional offerings and the Company’s expectation that it will seek to consummate such additional offerings through March 2013; the Company’s ability to obtain shareholder approval for any necessary increases in the authorized shares of common stock related to the offerings; and the Company’s expectation about whether its pilot group will successfully unionize and, if its pilot group is successful, the effects of such unionization.

Table of Contents

PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of December 31, 2012 (unaudited) and June 30, 2012 (Note 2)	1
	Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2012 and 2011 (unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2012 and 2011 (unaudited)	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
PART II – OTHER INFORMATION		39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	43

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

AVANTAIR, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in Thousands, Except Share Data)

	December 31, 2012 (Unaudited)			June 30, 2012 (Note 2)
ASSETS
Current Assets
Cash and cash equivalents	$	1,400		$	5,302
Accounts receivable, net of allowance of $1,046 and $1,340, respectively		9,091			11,707
Inventory		111			155
Current portion of aircraft costs related to fractional share sales		3,960			8,458
Prepaid expenses and other current assets		7,075			3,830
Total current assets		21,637			29,452
Long-Term Assets
Aircraft costs related to fractional share sales, net of current portion		585			1,691
Property and equipment, net		38,552			40,136
Cash - restricted		2,267			2,226
Deposits on aircraft		7,334			7,193
Goodwill		1,141			1,141
Other assets		10,052			9,443
Total long-term assets		59,931			61,830
Total assets	$	81,568		$	91,282
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable	$	9,415		$	9,051
Accrued liabilities		10,698			6,393
Customer deposits		3,514			3,115
Short-term debt		5,679			12,000
Current portion of long-term debt		3,745			4,652
Current portion of deferred revenue related to fractional aircraft share sales		4,938			9,995
Unearned management fee, flight hour card and membership revenue		52,649			60,015
Total current liabilities		90,638			105,221
Long-Term Liabilities
Long-term debt, net of current portion		16,934			13,753
Senior secured convertible promissory notes		742			—
Derivative liabilities		3,051			—
Deferred revenue related to fractional aircraft share sales, net of current portion		6,089			8,179
Deferred revenue related to membership revenue, net of current portion		31			213
Other liabilities		2,769			2,465
Total long-term liabilities		29,616			24,610
Total liabilities		120,254			129,831
COMMITMENTS AND CONTINGENCIES
Series A convertible preferred stock, $.0001 par value, authorized 300,000 shares; 152,000 shares issued and outstanding		14,845			14,799
STOCKHOLDERS’ DEFICIT
Preferred stock, $.0001 par value, authorized 700,000 shares; none issued or outstanding		—			—
Common stock, Class A, $.0001 par value, 75,000,000 shares authorized, 40,903,717 and 26,497,468 shares issued and outstanding, respectively		4			3
Additional paid-in capital		60,884			57,830
Accumulated deficit		(114,419	)		(111,181	)
Total stockholders’ deficit		(53,531	)		(53,348	)
Total liabilities and stockholders’ deficit	$	81,568		$	91,282

The accompanying notes are an integral part of the condensed consolidated financial statements.

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AVANTAIR, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Amounts in Thousands, Except Share Data)

(Unaudited)

	Three Months Ended December 31,						Six Months Ended December 31,
	2012			2011			2012			2011
Revenue
Fractional aircraft shares sold	$	2,764		$	6,774		$	6,824		$	13,616
Lease revenue		1,084			596			1,982			951
Management and maintenance fees		22,079			20,994			43,697			41,267
Flight hour card and club membership revenue		5,100			8,767			13,852			17,762
Flight activity and other ancillary billing		3,460			4,611			9,467			9,435
Other revenue		1,005			1,206			2,543			2,890
Total revenue		35,492			42,948			78,365			85,921
Operating expenses
Cost of fractional aircraft shares sold		2,313			5,808			5,841			12,415
Cost of flight operations		19,381			19,073			40,643			38,451
Cost of fuel		6,229			9,336			16,019			18,999
General and administrative expenses		6,900			5,606			12,135			11,691
Selling expenses		584			1,639			1,610			3,578
Depreciation and amortization		1,137			1,148			2,588			2,078
Employee termination and other costs		(31	)		28			69			28
Gain on receipt of used share		(180	)		—			(180	)		—
Gain on sale of asset		(22	)		—			(22	)		—
Loss on sale of asset		—			—			477			—
Total operating expenses		36,311			42,638			79,180			87,240
Income (loss) from operations		(819	)		310			(815	)		(1,319	)
Other income (expenses)
Interest and other income		12			14			30			80
Interest expense		(815	)		(1,240	)		(1,807	)		(2,296	)
Change in fair value of derivative liabilities		59			—			59			—
Gain on debt extinguishment		—			—			—			439
Total other expenses		(744	)		(1,226	)		(1,718	)		(1,777	)
Net loss		(1,563	)		(916	)		(2,533	)		(3,096	)
Preferred stock dividend and accretion of expenses		(384	)		(373	)		(749	)		(745	)
Net loss attributable to common stockholders	$	(1,947	)	$	(1,289	)	$	(3,282	)	$	(3,841	)
Loss per common share:
Basic and diluted	$	(0.06	)	$	(0.05	)	$	(0.11	)	$	(0.15	)
Weighted-average common shares outstanding:
Basic and diluted		32,848,369			26,450,305			29,755,264			26,436,770

The accompanying notes are an integral part of the condensed consolidated financial statements.

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AVANTAIR, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)

	Six Months Ended December 31,
	2012			2011
OPERATING ACTIVITIES:
Net loss	$	(2,533	)	$	(3,096	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		2,588			2,078
Amortization of deferred interest related to capital lease obligation		—			77
Amortization of capitalized interest		—			(404	)
Gain on receipt of used share		(180	)		—
Gain on sale of asset		(22	)		—
Accretion of discount on indebtedness		177			—
Change in fair value of derivative liabilities		(59	)		—
Loss on sale of asset		477			—
Stock-based compensation		313			355
Bad debt expense		174			436
Other		29			—
Changes in operating assets and liabilities:
Accounts receivable		340			3,344
Inventory		224			62
Aircraft costs related to fractional share sales		5,604			12,145
Prepaid expenses and other current assets		(1,998	)		(297	)
Cash - restricted		(39	)		(1	)
Deposits on aircraft		(141	)		937
Other assets		191			(1,325	)
Accounts payable		364			1,088
Accrued liabilities		3,616			6,860
Customer deposits		399			1,336
Deferred revenue related to fractional aircraft share sales		(6,824	)		(12,843	)
Unearned management fee, flight hour card and club membership revenue		(7,548	)		205
Other liabilities		304			12
Net cash (used in) provided by operating activities		(4,544	)		10,969
INVESTING ACTIVITIES:
Proceeds from the sale of asset		—			3
Capital expenditures		(526	)		(2,560	)
Net cash used in investing activities		(526	)		(2,557	)
FINANCING ACTIVITIES:
Borrowings under senior secured convertible promissory notes		2,800			—
Borrowings under long-term debt		—			2,000
Dividends paid		—			(699	)
Principal payments on short-term debt		(250	)		(500	)
Principal payments on long-term debt		(1,382	)		(2,578	)
Net cash provided by (used in) financing activities		1,168			(1,777	)
Net (decrease) increase in cash and cash equivalents		(3,902	)		6,635
Cash and cash equivalents, beginning of the period		5,302			5,643
Cash and cash equivalents, end of the period	$	1,400		$	12,278
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	1,806		$	2,296
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING AND INVESTING ACTIVITIES:
Accretion of Series A convertible preferred stock	$	46		$	46
Dividends accrued on Series A convertible preferred stock	$	703		$	388
Common shares surrendered in lieu of payroll taxes	$	—		$	10
Aircraft purchased under short-term notes payable	$	—		$	—
Aircraft acquired through capital lease	$	4,770		$	6,100
Shares acquired in exchange for fractional lease	$	754		$	—
Shares acquired in non-cash, reciprocal transfer	$	1,348		$	—
Shares acquired in non-cash, non-reciprocal transfer	$	180		$	—
Warrants/restricted stock issued in connection with capital/operating leases	$	5,960		$	—
Additional aircraft cost in connection with modification of capital lease	$	151		$	—
Conversion of short-term note payable to capital lease	$	—		$	5,200
Conversion of short-term note payable to operating lease	$	5,750		$	—
Flight hour cards issued in consideration for repurchase of fractional aircraft shares	$	—		$	69
Short-term notes payable repayment upon completion of aircraft delivery rights transfer	$	—		$	1,300

The accompanying notes are an integral part of the condensed consolidated financial statements.

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AVANTAIR, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – OPERATIONS AND MANAGEMENT’S PLANS

Avantair, Inc. and its subsidiaries (the “Company” or “Avantair”) are in the business of providing private aviation services through three primary flight service programs:

(i) the sale of fractional ownership interests through the Fractional Ownership program;

(ii) the lease of fractional interests through the Axis Lease program; and

(iii) the sale of flight hour cards through the Edge Card program.

Collectively, participants in each of these programs are referred to herein as “program participants”. These services are provided to program participants on the Company’s managed aircraft fleet for business and personal use. Avantair’s core strategic focus is providing its program participants with the highest level of safety, service and satisfaction. In addition to providing private aviation services, Avantair provides limited fixed based operation (“FBO”) services in Clearwater, Florida. In January 2013, the Company ceased its FBO operations at its Camarillo, CA facility and entered into a sublease agreement with an unrelated third party. The Company will retain a portion of one hangar which may be used for maintenance of the Company’s aircraft. The sublease agreement transferred all FBO operations to the unrelated third party and established a base rent schedule that reflects the reduced occupancy of the facility. Effective December 2011, the Company closed its limited FBO services in Caldwell, New Jersey. The Company also leases a facility in Dallas, Texas, which is used to perform maintenance on the Company’s aircraft.

The Company’s primary operating strategy is to achieve positive cash flows by continuing the Company’s cost savings initiatives, flight operation cost reductions associated with strategically eliminating more costly aircraft from its fleet and lowering maintenance costs as a result of driving increased efficiencies through the use of third party aircraft maintenance operators to provide increased levels of maintenance contract services for its fleet. Revenue by product category can be found in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012 and 2011, respectively. Sales by product category are as follows:

	Unit Sales for the Three Months Ended				Unit Sales for the Six Months Ended
	December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
New Fractional Ownership program shares sold		—		1		—		2
Axis Lease program shares leased		9		16		25		42
Axis Club Memberships(1)		—		—		—		1
Flight hour cards		51		84		124		192

⁽¹⁾ Replaced by Axis Lease program in March 2011

As of December 31, 2012, Avantair managed 56 aircraft within its fleet, which is comprised of 43 fractionally-owned aircraft, 6 company-owned core aircraft and 7 leased and company-managed aircraft.

On October 25, 2012, the Company made an announcement regarding the voluntary stand down of its operations in order to complete a comprehensive review of records and supporting maintenance documentation and an inspection of its aircraft fleet. This voluntary action was taken in coordination with the Federal Aviation Administration. During the stand down, which lasted approximately three weeks, the Company furloughed a portion of its employees. Beginning November 8, 2012 the Company started recalling its employees and commenced operating some of its aircraft on November 11, 2012 with a return to service of a majority of its fleet by November 19, 2012. The effect of the operational stand down negatively impacted the Company’s cash receipts, liquidity and retention of program participants. Separate of charter and costs associated with retention of program participants, the Company incurred approximately $1.2 million for consulting, Federal Aviation Administration, furlough, legal, communication and other costs.

Beginning in the second quarter of fiscal year 2013, the Company initiated steps to raise additional capital through multiple offerings of securities. On November 30, 2012, the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) providing for the issuance of an aggregate of up to $10.0 million in principal amount of senior secured convertible promissory notes (the “Notes”) and warrants to purchase up to an aggregate of 40,000,000 shares of common stock (the “Warrants”) The securities offered will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. At the initial closing,

4

which occurred on November 30, 2012, the Company issued to certain members of the Company’s Board of Directors and their affiliates Notes in an aggregate principal amount of $2.8 million and Warrants to purchase an aggregate of 11,200,000 common shares (the “Initial Closing”). At an additional closing, which occurred on February 1, 2013, the Company issued to ten accredited investors, that are also participants in the fractional ownership program, Notes in an aggregate principal amount of $712,500 and Warrants to purchase an aggregate of 2,850,000 common shares. In addition, on January 17, 2013, the Company, the holders of the Notes and Warrants and Barry Gordon, as collateral agent, entered into the Amendment to Note and Warrant Purchase Agreement, Senior Secured Convertible Promissory Notes, Warrants, Security Agreement and Registration Rights Agreement (the “Note Financing Amendment”). The Notes bear interest at an initial rate of 2.0% per annum, which will increase to 12.0% per annum if the Company is unsuccessful in obtaining stockholder approval by March 31, 2013 to increase the Company’s authorized shares of common stock so that a sufficient number of shares are reserved for the conversion of the Notes. Holders of the Notes may, at their option, elect to convert all outstanding principal and accrued but unpaid interest on the Notes into shares of common stock at a conversion price of $0.25 per share, but may convert only a portion of such Notes if an inadequate number of authorized shares of common stock is available to effect such optional conversion. Holders of the Notes are entitled to certain anti-dilution protections. The Company may prepay the Notes on or after November 28, 2014. The Notes have a maturity date of November 28, 2015, unless the Notes are earlier converted or an event of default or liquidation event occurs. The Warrants are exercisable at an exercise price of $0.50 per share, which exercise price is subject to certain anti-dilution protections, however the Warrants may not be exercised unless a sufficient number of authorized shares of common stock are available for the exercise of the Warrants. The Warrants expire on November 30, 2017. The Company may seek to raise additional capital in additional closings in which the Company may seek to issue Notes and Warrants, or in subsequent offerings through March 2013. The terms of these proposed offerings may vary from the terms of the Notes and Warrants that were issued in the Note and Warrant financing. The issuance of some or all of these securities will further substantially dilute the Company’s existing stockholders as will subsequent issuances that will be triggered under anti-dilution and similar provisions of the Company’s outstanding securities. There can be no assurance that the Company will be successful in completing additional closings of the Note and Warrant financing or subsequent offerings or obtaining stockholder approval for any necessary increases in the authorized shares of common stock related to these offerings. If the Company is unable to complete such offerings or if the amount raised is not adequate, there can be no assurance that the Company can continue operations or meet its ongoing obligations and commitments. In addition, the Company is working with its vendors, lessors and lenders, to extend payment terms as the Company seeks to raise additional capital.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Reporting

The accompanying unaudited interim condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the interim condensed financial statement rules and regulations of the Securities and Exchange Commission. In the opinion of management, these financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the condensed consolidated financial statements as required by Regulation S-X, Rule 8-03. The interim condensed consolidated operating results are not necessarily indicative of the results for a full year or any interim period. The condensed consolidated balance sheet as of June 30, 2012 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

Basis of Presentation

All material intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the successful recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business. As of December 31, 2012, the Company’s recurring net losses resulted in a working capital deficit of approximately $69.0 million and a stockholders’ deficit of approximately $53.5 million. In addition to the cost of acquiring aircraft, the Company’s primary expenses are related to fuel, aircraft repositioning (i.e., moving an aircraft from one location to another location to accommodate a program participant’s requirements), flight operations and pilot expenses, maintenance, charters, insurance and selling, general and administrative expenses.

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Reclassifications

Management has reclassified various expenses within the operating expense section of the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2011. These reclassifications are primarily as follows:

• Payroll taxes and benefit costs of approximately $1.0 and $1.9 million have been reclassified and apportioned to cost of flight operations and selling expenses from general and administrative expenses for the three and six months ended December 31, 2011;

• Third-party fuel sale costs of approximately $0.4 and $0.9 million have been reclassified to cost of fuel from general and administrative expenses for the three and six months ended December 31, 2011; and

• Cost of used shares of less than $0.1 and $0.2 million have been reclassified to cost of fractional aircraft share sales from general and administrative expenses for the three and six months ended December 31, 2011.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying disclosures. These estimates and assumptions are based upon management’s best knowledge of current events and actions that the Company may take in the future. The Company is subject to uncertainties such as the impact of future events, economic, environmental and political factors and changes in the Company’s business environment. Therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s condensed consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in the reported financial condition and results of operations. If material, the effects of changes in estimates are disclosed in the notes to the condensed consolidated financial statements. Significant estimates and assumptions by management affect: the recording of revenue arrangements with multiple deliverables, the allowance for doubtful accounts, the carrying value of long-lived assets, the amortization period of long-lived assets, the provision for income taxes and related deferred tax accounts, certain accrued expenses and contingencies, warrant valuations and management’s assessment of its ability to continue as a going concern.

In January 2011, the Company changed its estimate of its depreciable life of its core aircraft to 20 years from its original seven year life. This change in estimate was based upon an evaluation of the aircrafts’ actual service life. This change in estimate was adopted prospectively, in accordance with ASC 250 “Accounting Changes and Error Corrections”, (“ASC 250”).

The Company’s strategy is to maintain and operate its aircraft for at least 10 years. The 20 year life is representative of the full service life of the aircraft, not an increase in the period that the Company intends to maintain and operate the aircraft.

Cash-restricted

Restricted cash includes cash where the Company’s ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations. The Company agreed to restrict approximately $2.3 million and $2.2 million in cash at December 31, 2012 and June 30, 2012, respectively, to secure letters of credit related to deposits for leases, provide security for credit card charge backs and to secure fuel purchases. Management believes that these amounts will be restricted for at least one year and, accordingly, has classified such cash as long-term.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts of approximately $1.0 million and $1.3 million as of December 31, 2012 and June 30, 2012, respectively, for estimated losses arising from the inability of its program participants to make required payments. For the six months ended December 31, 2012, the Company increased the allowance for doubtful accounts by $0.2 million and wrote off $0.5 million of accounts receivable balances against the allowance for doubtful accounts. The Company’s estimate is based on factors surrounding the credit risk of certain clients, historical collection experience and a review of the current status of accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change if the financial condition of the Company’s program participants were to deteriorate resulting in a reduced ability to make payments or program participants fail to make payments as a result of the recent stand down of the fleet.

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Inventory

Fuel inventory is valued at the lower of cost (determined by the first-in, first-out method) or market.

Property and Equipment

Property and equipment is recorded at cost and primarily consists of aircraft which are not fractionalized. Depreciation and amortization is computed using the straight-line method over the following useful lives:

Aircraft	5 - 20 years
Office equipment and furniture and fixtures	5 - 7 years
Flight management software/hardware	5 years
Vehicles	5 years
Improvements	Lesser of estimated useful life or the term of the lease

Cost and related accumulated depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are credited or charged to income.

Expenditures for maintenance and repairs of property and equipment are expensed as incurred. Major improvements and interest costs relating to borrowings made for the acquisition of aircraft are capitalized. Modifications that enhance the operating performance or extend the useful lives of airframes or engines on core aircraft are capitalized and depreciated over the remaining estimated useful life of the asset or the remaining lease term, whichever is shorter.

The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360 “Property, Plant and Equipment” (“ASC 360”). Although the Company recognizes that it has incurred net losses since inception, these net losses have been much less significant than in prior periods. Additionally, there has been no material deterioration in the total program participant base and related program participant contracts, though the Company has seen a decrease in new fractional share sales corresponding with the Company’s February 2011 introduction of its Axis Lease program. Due to a voluntary stand down of its operations (see Note 1), the Company performed an interim impairment analysis on its property and equipment to determine whether it is more likely than not that the projected future undiscounted cash flows of certain assets is less than the carrying amount during the first quarter of fiscal year 2013. After assessing the factors prescribed by ASC 360, the Company concluded that the projected future undiscounted cash flows of certain assets was more than the carrying amount and as a result, there is no indication of impairment.

Goodwill

The Company accounts for goodwill and other intangible assets under ASC 350 “Intangibles – Goodwill and Other” (“ASC 350”). ASC 350 eliminates the amortization of goodwill and certain other intangible assets and requires an evaluation of impairment by assessing qualitative factors, and if necessary, applying a fair-value based test. The goodwill impairment test requires qualitative analysis to determine whether is it more likely than not that the fair value of a reporting unit is less than the carrying amount, including goodwill. An indication of impairment through analysis of these qualitative factors initiates a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of the Company’s reporting units based on discounted cash flow models using revenue and profit forecasts and comparing the estimated fair values with the carrying values of the Company’s reporting units which include the goodwill. If the estimated fair values are less than the carrying values, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of the Company’s “implied fair value” requires the Company to allocate the estimated fair value to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to the corresponding carrying value.

The Company performs its annual goodwill impairment testing in the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Application of the goodwill impairment test requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Company, estimation of aircraft in use, the useful life over which cash flows will occur, and determination of cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment.

Due to the voluntary stand down of its operations (see Note 1), the Company performed an interim goodwill impairment analysis to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount, including goodwill during the first quarter of fiscal year 2013. After assessing the qualitative factors prescribed by ASC 350, the Company concluded that the fair value of the reporting unit was more than the carrying amount. As a result, there is no indication of impairment and further testing as a result of the voluntary stand down is not required.

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Revenue Recognition

The Company is engaged in the sale, lease and management of fractional ownership interests of professionally piloted aircraft for personal and business use and access to its aircraft fleet through 15, 25 or 50 hour flight hour cards. When a program participant purchases a fractional share or enters into a lease of a fractional share through the Company’s Axis Lease program (introduced in February 2011), they are also required to enter into a management and maintenance agreement, which grants the program participant the right to the use of the aircraft for a specified number of hours each year. Under the terms of the management and maintenance agreement, the Company agrees to manage, operate and maintain the aircraft on behalf of the program participant in exchange for a fixed monthly fee.

Flight activity and other ancillary billing includes revenue related to billings to the program participants for reimbursable costs incurred by the Company. These reimbursable costs include, but are not limited to, fuel, flight fees, maintenance costs required by Airworthiness Directives or Service Bulletins as mandated by the FAA and not covered by the regular maintenance provided for in the management and maintenance agreement, aircraft upgrades and other ancillary charges. Flight activity and other ancillary billing are recorded on a gross basis as revenue in accordance with ASC 605-45 “Principal Agent Considerations” (“ASC 605-45”).

Fractional Aircraft Shares Sold

Fractional shares are typically sold as one-sixteenth shares and require upfront payment for an undivided interest in the aircraft. Upon the purchase of a fractional share, the owner receives title to their interest in the aircraft. The ownership period is indefinite. Revenue for these types of transactions is included in fractional aircraft shares sold in the accompanying condensed consolidated statements of operations.

Revenue from the sale of fractional aircraft shares sold before July 1, 2010 was deferred at the time of sale and is recognized ratably over the term of the related management and maintenance agreement in accordance with ASC 605-25 “Multiple-Element Arrangements” (“ASC 605-25”). Revenue from the sale of fractional shares sold after June 30, 2010 are recognized at the time of sale upon adoption of Accounting Standards Update (“ASU”) 2009-13 “Multiple-Deliverable Revenue Arrangements”, which updates ASC 605-25. There were no fractional aircraft shares sold during the three months ended December 31, 2012 requiring recognition under this guidance.

During fiscal year 2011, the Company initiated a promotion that offered the sale of select fractional shares which provided a repurchase guarantee at the expiration of the related seven year management and maintenance agreements. The guarantee may be exercised at the owner’s option for a determined percent of the original purchase price. The Company discontinued this residual guarantee program in October 2011. Sales through this promotion have been accounted for as operating leases in accordance with ASC 840 “Leases” and the related revenue earned (less the guaranteed residual value) is recognized ratably over the term of the management and maintenance agreement. At December 31, 2012, guarantees under this program totaled approximately $4.3 million and are included in deferred revenue related to fractional aircraft share sales.

Lease Revenue

Lease revenue includes fractional share lease revenue from the Company’s Axis Lease program. The lease of a fractional share allows a program participant to lease an interest in the aircraft from the Company in exchange for a monthly lease charge. Unlike the purchase of a fractional ownership interest, program participants do not take title to the aircraft at any point in time. Lease terms typically range from two to ten years.

Axis Lease program lease revenue is a contractual monthly fee charged over the term of the lease. Under this program, lessees are permitted to fly a set number of hours divided evenly over the number of months in the term, resulting in the Company recognizing revenue ratably over each month. In the event lessees fly more than their monthly allocated hours, the Company recognizes additional lease revenue based on the overflown hours in that month. However, the cumulative amount recognized over the lease term shall not exceed the total annual lease payment per the lease agreement.

Management and Maintenance Agreements

Fractional owners and lessees are required to enter into a management and maintenance agreement, which grants the program participant the right to use the aircraft for a specified number of hours each year for a fractional owner, and each month for a fractional lessee.

Revenue earned in connection with the management and maintenance agreements with fractional share owners is recognized monthly over the term of the agreement. If a fractional share owner prepays their management and maintenance fee for a period of one year or longer, the prepayment is recorded as unearned revenue and amortized into revenue on a monthly basis.

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Revenue earned in connection with the management and maintenance agreements with Axis Lease program lessees is recognized monthly over the lease term. If an Axis Lease program lessee prepays their management and maintenance fee for a period of one year or longer, the prepayment is recorded as unearned revenue and amortized monthly over the lease term.

Under either circumstance, revenue is recognized ratably over each month. In the event lessees fly more than their monthly allocated hours, the Company recognizes additional management and maintenance revenue based on the overflown hours in that month; however, the cumulative amount recognized over the lease term shall not exceed the total annual management and maintenance fee payment per the lease agreement.

Flight hour card and Axis Club Membership Revenue

Flight hour card revenue. The Company sells access to its aircraft fleet through either 15, 25 or 50 hour flight hour cards for flight time without the requirement to purchase an ownership interest in an aircraft. The card holder pays the Company the entire amount in advance of access to the aircraft fleet. The Company defers the entire amount paid and recognizes revenue on an incremental basis as flight hours are flown.

Axis Club Membership revenue. In February 2009, the Company initiated the Axis Club Membership program. The Axis Club Membership program offered program participants access to blocks of flight time at a discount from standard flight hour card rates for a set, three year membership fee. The program required that Axis Club members purchase a minimum of three, 25-hour blocks of flight hour cards. Axis Club Membership fees were paid in advance, deferred and recognized as revenue over the shorter of the three year membership term or the period of time it took the maximum number of cards to be purchased. Payment for flight hour cards sold through the Axis Club Membership program were collected from members in advance of access to the aircraft fleet, deferred and recognized as revenue on an incremental basis as flight hours were flown. The Axis Club Membership program was replaced by the Axis Lease program effective March 2011.

Flight Activity and Other Ancillary Billing

Flight activity and other ancillary billing include revenue related to billings to the program participants for reimbursable costs incurred by the Company. These reimbursable cost include, but are not limited to, fuel, flight fees, maintenance costs required by Airworthiness Directives or Service Bulletins as mandated by the FAA and not covered by the regular maintenance provided for in the management and maintenance agreement, aircraft upgrades and other ancillary charges. The Company accounts for flight activity and other ancillary billing on a gross basis in accordance with ASC 605-45 as the Company meets the specified criteria as a principal in transactions between the Company and its program participants.

Other Revenue

Other revenue is comprised primarily of revenue from demonstration flights, the sale of the Company’s previously owned fractional aircraft shares, remarketing fees, and revenue from the sale of fuel and rental of hangar space at the Company’s FBO facilities. Demonstration revenue is earned when the prospective program participants are flown on an aircraft to demonstrate the quality and capabilities of the aircraft. The Company charges the prospective program participant an hourly rate and requires payment prior to the demonstration flight. The Company recognizes revenue related to these demonstration flights when the flight is completed. Revenue from the sale of the Company’s previously owned fractional aircraft shares are recorded similar to the sale of new fractional aircraft shares. Remarketing fees are recognized when the Company sells third party, used aircraft shares on a program participant’s behalf. FBO related revenue from fuel sales and hangar rentals are recorded when goods are delivered or services are rendered.

Referral Incentive Hours

The Company accounts for the additional hours granted to program participants under the referral incentive program by expensing costs as they are incurred. Such costs have not been material to date.

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Aircraft Costs Related To Fractional Sales

Aircraft costs relating to the sale of fractional aircraft shares sold before July 1, 2010 were deferred at the time of sale and are recognized ratably over the term of the related management and maintenance agreement in accordance ASC 605-25. The short-term portion of these costs represents twelve months of unamortized expenses for the twelve month period following the period being filed. The long-term portion of these costs represents unamortized expenses greater than 12 months following the period being filed.

Aircraft costs relating to the sale of fractional shares sold after June 30, 2010 are recognized at the time of sale upon adoption of ASU 2009-13, which updates ASC 605-25. There were no fractional aircraft shares sold during the three months ended December 31, 2012 requiring recognition under this guidance.

During fiscal year 2011, the Company initiated a promotion that offered the sale of select fractional shares which provided a repurchase guarantee at the expiration of the related seven year management and maintenance agreements. The guarantee may be exercised at the owner’s option for a determined percent of the original purchase price. The Company discontinued this residual guarantee program in October 2011. Sales through this promotion have been accounted for as operating leases in accordance with ASC 840 “Leases” and the related costs were capitalized to property and equipment and depreciated over the 20 year useful life of the aircraft.

Maintenance Expense Policy

Costs related to maintenance performed on both fractionalized and core aircraft related to engine overhauls, landing gears, refurbishments and other maintenance services that enhance the useful life of the aircraft are capitalized and depreciated or amortized over the useful life of the improvement. Other maintenance activities that do not enhance the useful life of the aircraft are expensed as incurred. Maintenance is performed in-house or by third party vendors, as applicable.

Fractionalized aircraft improvements are capitalized as other assets in the accompanying condensed consolidated balance sheets and amortized over the lesser of the useful life of the improvement or the aircraft. The amortization of these costs is expensed in cost of flight operations in the accompanying condensed consolidated statements of operations.

Core aircraft improvements are capitalized as property and equipment in the accompanying condensed consolidated balance sheets and depreciated over the lesser of the useful life of the improvement, life of the aircraft or lease term. The depreciation of these costs is expensed in depreciation and amortization in the accompanying condensed consolidated statements of operations.

The change in depreciable lives from 7 to 20 years will not lead to increased maintenance costs. Therefore no increases have been factored into the Company’s most recent impairment analysis. See the Property and Equipment section above.

Income Taxes

Income taxes are accounted for under the asset and liability method in accordance with ASC 740 “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance is established to reduce deferred tax assets to the amounts expected to be realized. The Company calculated an annual effective tax rate to determine the interim period income tax provisions. However, no tax liability was accrued for the three or six months ended December 31, 2012, as the Company expects to have sufficient operating loss and tax credit carryforwards to cover any taxable income.

Effective July 1, 2007, the Company adopted the provisions of ASC 740 relating to uncertain tax positions. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company has identified its federal tax return and State of Florida tax return as “major” tax jurisdictions, as defined in ASC 740. The Company evaluations were performed for the tax years ended 2005 through 2011. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.

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Stock-Based Compensation

The Company has one stock-based compensation plan, the Amended and Restated 2006 Long-Term Incentive Plan (“2006 Long-Term Incentive Plan,” or the “Plan”), which the Company’s shareholders approved, for employees, certain non-employees and non-employee directors. Stock-based awards under this plan may consist of common stock, common stock units, stock options, cash-settled or stock-settled stock appreciation rights, restricted stock and other stock-based awards. The Company issues common stock to satisfy stock option exercises or vesting of stock awards.

The Company accounts for stock-based compensation to employees and directors in accordance with ASC 718 “Compensation-Stock Compensation” (“ASC 718”), which requires the recognition of compensation expense for employee stock options and other stock-based payments. Under ASC 718, expense related to employee stock options and other share-based payments is recognized over the relevant service period based on the fair value of each stock option grant. In addition, the Company recognizes in its condensed consolidated statements of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and directors. Compensation expense for stock-based awards is recognized over the requisite service period, usually the vesting period on a straight-line basis, while compensation expense for liability-based awards (those usually settled in cash rather than stock) is measured at fair-value at each balance sheet date until the award is settled.

Stock-based compensation expense related to the Plan, which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations, was approximately $0.2 million and $0.3 million for the three and six months ended December 31, 2012, respectively, and was approximately $0.2 million and $0.4 million for the three and six months ended December 31, 2011, respectively. There were no related income tax benefits recognized in the accompanying condensed consolidated statements of operations for the three months ended December 31, 2012 and 2011. As of December 31, 2012, the Company had 742,676 shares of restricted stock and 1,679,317 stock options outstanding.

Accounting for Derivative Instruments

The Company accounts for derivative instruments in accordance with ASC 815 “Derivatives and Hedging” (“ASC 815”), which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts. The Company also considers ASC 815, which provides criteria for determining whether freestanding contracts that are settled in a company’s own stock, including common stock warrants, should be designated as either an equity instrument, an asset or as a liability under ASC 815.

The Company evaluated the conversion feature embedded in its Series A Convertible Preferred Stock based on the criteria of ASC 815 to determine whether the conversion feature would be required to be bifurcated from the Preferred Stock and accounted for separately as a derivative. Based on management’s evaluation, the embedded conversion feature did not require bifurcation and derivative accounting as of December 31, 2012.

Additionally, the Company evaluated the conversion feature embedded in its senior secured convertible promissory notes based on the criteria of ASC 815 to determine whether the conversion feature would be required to be bifurcated from the senior secured convertible promissory note and accounted for separately as a derivative. Based on management’s evaluation, the embedded conversion feature meets the requirements of derivative accounting under ASC 815. The Company recorded this conversion feature at its fair value in accordance with ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). The embedded conversion feature was valued at $0.09 per Note using the Monte Carlo method. Increases or decreases in the fair value of the conversion feature are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

The Company evaluated the detachable Warrants based on the criteria of ASC 815 to determine whether the Warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the detachable Warrants meet the requirements of derivative accounting under ASC 815. The Company recorded the detachable Warrants at their fair value in accordance with ASC 820. The detachable Warrants were valued at $0.10 per warrant using the Monte Carlo method. Increases or decreases in the fair value of the Warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

The Company is currently a party to various lease agreements with Midsouth, Mr. Fuller, or other entities controlled by Mr. Fuller for the lease of seven aircraft (“Aircraft Leases”). The original terms of the Aircraft Leases range from fifteen (15) months to one hundred twenty (120) months and the aggregate monthly lease payments for the Aircraft Leases total approximately $528,000.

On November 30, 2012, the Company entered into an Amended and Restated Restricted Stock Agreement with Mr. Fuller (the “Amended HF Restricted Stock Agreement”), which amended and restated the Restricted Stock Agreement dated August 16, 2012 with Mr. Fuller pursuant to which the Company previously issued to Mr. Fuller 200,000 shares of fully-vested restricted stock at a price of $1.50 per share to reduce the principal balance of an aircraft to be financed by $0.3 million. Under the Amended HF

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Restricted Stock Agreement, Mr. Fuller agreed to a reduction in the interest portion of the lease payments under the Aircraft Leases in the aggregate amount of approximately $1.8 million over fifteen months, with a reduction in lease payments in the amount of approximately $0.2 million per month beginning in November 2012 through January 2013, and approximately $0.1 million per month for twelve consecutive months thereafter, ending on January 31, 2014. Pursuant to Amendment No. 1 to the N180HM lease agreement, Mr. Fuller also agreed to extend the term of the lease for an additional sixty (60) months, or until November 30, 2017, on similar terms, except that Mr. Fuller will have the sole option to terminate the lease agreement and sell the aircraft and the Company agrees that it will issue to Mr. Fuller a number of units (as defined below) equal to the result of dividing (A) the difference between $1.5 million and the numerical value of the then current payoff amount as outlined in the lease agreement for the aircraft by (B) 0.25. For purposes of this provision, a unit will consist of one share of the Company’s common stock (the “Issued Stock”) (subject to adjustment as described below) and one warrant to purchase a share of the Company’s common stock at $0.50 (a “Warrant Share”). Mr. Fuller also agreed to extend the term of the Floor Plan Agreement originally entered into in September 2011 for an additional eight (8) months, or until August 30, 2013. In consideration of the foregoing, the Company issued 8,200,000 shares of fully-vested restricted stock to Mr. Fuller, 1,000,000 shares of which related to the $0.3 million reduction in the principal balance of an aircraft to be financed and 7,200,000 shares related to the approximate $1.8 million reduction in the interest portion of the lease payments of the aircraft leases and Amendment No. 1 to the N180HM lease agreement, as well as a warrant (the “HF Warrant”) to purchase 8,400,000 shares of common stock in substantially the same form as the Warrants. The Amended HF Restricted Stock Agreement also contains certain antidilution protections. The Company evaluated the HF Warrant based on the criteria of ASC 815 to determine whether the warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the warrants issued in connection with the HF Warrant meet the requirements of derivative accounting under ASC 815. The Company recorded the warrants at their fair value in accordance with ASC 820. The warrants were valued at $0.04 per warrant using the Monte Carlo method. Increases or decreases in the fair value of the warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

Effective September 28, 2012, the terms of the Company’s management agreements with certain entities (collectively, “LW Air”), controlled by Lorne Weil, a director of the Company, were amended so that the Company was not required to pay the owner additional amounts unless usage of the aircraft exceeds 1,350 hours per year, retroactive to the beginning of each management agreement. Simultaneous with this transaction, the Company issued an Amended and Restated Warrant (the “LW Warrant”) to Lorne Weil, a director of the Company, to purchase 2,373,620 shares of common stock at an exercise price of $1.00 per share.

On November 30, 2012, the Company entered into Amendment No. 1 to the LW Warrant (the “Warrant Amendment”) with Lorne Weil. The LW Warrant provided certain anti-dilution protections, which would have been triggered in connection with the issuance of the Notes and Warrants. The Warrant Amendment provides for, among other things, revised antidilution rights so the antidilution provisions set forth in the LW Warrant would not apply in connection with the issuance of the Notes and Warrants; a reduction in the exercise price to $0.50 per share; and an increase in the number of shares of common stock issuable upon exercise of the LW Warrant to 3,560,430 shares of common stock. The Company evaluated the Warrant Amendment based on the criteria of ASC 815 to determine whether these warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the Warrant Amendment meets the requirements of derivative accounting under ASC 815. The Company recorded these warrants at their fair value of $0.03 per warrant using the Monte Carlo Method, in accordance with ASC 820. Increases or decreases in the fair value of these warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

Effective September 28, 2012, the terms of the Company’s management agreements with LW Air were amended to irrevocably reduce the owner’s monthly proceeds pursuant to each of the aircraft management agreements by $25,000 per month for a period of twelve consecutive months beginning in August 2012, or $0.3 million per aircraft, the aggregate reduction of LW Air’s monthly proceeds totaling $1.5 million, with respect to all five of the aircraft owned by LW Air. Simultaneous with this transaction, the Company entered into a Restricted Stock Agreement (the “LW Restricted Stock Agreement”), dated as of September 28, 2012, pursuant to which the Company issued to LW Air 2,000,000 shares of fully-vested restricted stock at a price of $0.75 per share, subject to certain antidilution rights, for an aggregate value of $1.5 million.

On November 30, 2012, the Company entered into Amendment No. 1 to the LW Restricted Stock Agreement with LW Air (“Amendment No. 1”). The LW Restricted Stock Agreement provided that the shares issued would be entitled to antidilution protections, which would have required the issuance of additional shares to LW Air in connection with the issuance of the Notes and Warrants. Amendment No. 1 provides for, among other things, revised antidilution rights so the antidilution provisions in the LW Restricted Stock Agreement would not apply in connection with the issuance of the Notes and Warrants ; the issuance of 4,000,000 additional shares of fully-vested restricted stock to LW Air on November 30, 2012 and warrants to purchase an aggregate of 6,000,000 shares of common stock (the “Additional LW Warrant”) on November 30, 2012, in substantially the same form as the Warrants. The Company evaluated the Additional LW Warrant based on the criteria of ASC 815 to determine whether these warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the Additional LW Warrant met the requirements of derivative accounting under ASC 815. The Company recorded the Additional LW Warrant at their fair value of $0.08

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per warrant using the Monte Carlo Method, in accordance with ASC 820. Increases or decreases in the fair value of these warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

On November 30, 2012, the Company issued a Warrant (the “HF Overfly Warrant”) to Mr. Fuller, to purchase 645,200 shares of common stock at an exercise price of $0.50 per share. The HF Overfly Warrant was issued in lieu of paying additional amounts owed to Mr. Fuller pursuant to certain Aircraft Leases as a result of the aircraft exceeding certain hourly usage limitations. The Company evaluated the HR Overfly Warrant based on the criteria of ASC 815 to determine whether these warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the HF Overfly Warrant met the requirements of derivative accounting under ASC 815. The Company recorded the warrants at their fair value of $0.04 per warrant using the Monte Carlo method, in accordance with ASC 820. Increases or decreases in the fair value of these warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

Fair Value Measurements

The Company has adopted the provisions of ASC 820 which defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period.

The fair value of the Company’s assets and liabilities that qualify as financial instruments under ASC 820, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, unearned management fees and flight hour card revenue and short-term debt, are carried at cost, which approximates fair value due to the short-term maturity of these instruments. Long-term obligations approximate fair value, given management’s evaluation of the instruments’ current rates compared to market rates of interest and other factors.

The Company measures fair value basis based on the following key objectives:

• The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date;

• A three-level hierarchy (“Valuation Hierarchy”) for fair value measurements;

• Consideration of the Company’s creditworthiness when valuing liabilities; and

• Disclosures about instruments measured at fair value.

The Valuation Hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the Valuation Hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of the Valuation Hierarchy and the distribution of the Company’s financial assets within it are as follows:

• Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

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The derivative liabilities are measured at fair market value on a recurring basis. The table below summarizes the fair market values of the derivative liabilities as of December 31, 2012 (in thousands):

	Fair Market Value at December 31, 2012
	Level 1		Level 2		Level 3
Senior secured convertible promissory notes embedded conversion feature	$	—	$	—	$	960
Warrants		—		—		1,142
HF Warrant		—		—		336
Warrant Amendment		—		—		107
Additional LW Warrant		—		—		480
HF Overfly Warrant		—		—		26
Total Derivative Liabilities	$	—	$	—	$	3,051

The following table summarizes, as of December 31, 2012, the derivative activity subject to Level 3 inputs which are measured on a recurring basis using the Monte Carlo method (in thousands):

	Level 3 Fair Market Value Measurements
	Balance at November 30, 2012 (date of issuance)		Change in Fair Value of Derivative Liability1			Balance at December 31, 2012
Senior secured convertible promissory notes embedded conversion feature	$	960	$	—		$	960
Warrants		1,142		—			1,142
HF Warrant		336		—			336
Warrant Amendment		166		(59	)		107
Additional LW Warrant		480		—			480
HF Overfly Warrant		26		—			26
Total Derivative Liabilities	$	3,110	$	(59	)	$	3,051

¹  The Company has concluded that the fair value of the derivative liabilities at December 31, 2012 was not materially different than the fair value at November 30, 2012. Therefore, there was no change in the fair value of the derivative liability recorded in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012, except as noted in the table above.

²  The 2,373,620 warrants issued in connection with the LW Warrant on September 28, 2012 were originally recorded as equity at a value of approximately $166,000. On November 30, 2012, these warrants were modified in accordance with the Warrant Amendment in the amount of 3,560,430 warrants. Simultaneous with this transaction, the Company deemed these warrants to be derivative liabilities and their value was reclassified from Additional Paid-In Capital to Derivative Liabilities in the accompanying condensed consolidated balance sheet as of December 31, 2012. The warrants were revalued using the Monte Carlo method (see note 4, Equity Transactions) as of November 30, 2012 with the decrease in fair value recorded in Change in fair value of derivative liabilities in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012.

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Loss Per Share

Basic and diluted loss per share applicable to common stock is computed using the weighted average number of common shares outstanding during the period. Shares used in calculating basic and diluted loss per share exclude common stock equivalents for warrants, stock-based compensation, senior secured convertible promissory notes and Series A Convertible Preferred Stock, as these common stock equivalents are anti-dilutive. In future periods, if the Company reports net income attributable to common stockholders and the common stock equivalents for the warrants, stock-based compensation, senior secured convertible promissory notes and Series A Convertible Preferred Stock are dilutive, the common stock equivalents will be included in the weighted average shares computation and dividends related to our Series A Convertible Preferred Stock will be added back to net income attributable to common stockholders to calculate diluted earnings per share.

For the three and six months ended December 31, 2012, a total of 55,870,501 share-equivalents of potentially dilutive securities were excluded from the calculation of diluted loss per share. These securities were comprised of the following:

• 3,560,430 warrants issued to Lorne Weil in conjunction with the Warrant Amendment;

• 6,000,000 warrants issued to LW Air in conjunction with Amendment No. 1 with LW Air;

• 8,400,000 warrants issued to Mr. Fuller in conjunction with the HF Warrant;

• 645,200 warrants issued to Mr. Fuller in conjunction with the HF Overfly Warrant;

• 50,000 warrants issued to EarlyBirdCapital, Inc. (“EBC”) in consideration for services rendered in connection with an aircraft lease agreement with a third party;

• 250,000 warrants issued to EBC in consideration for financial consulting and/or investment banking services rendered in connection with the Note and Warrant financing;

• 11,200,000 detachable warrants issued in connection with the Initial Closing;

• 11,200,000 shares of common stock resulting from the potential conversion of the Notes issued in connection with the Initial Closing;

• 1,679,317 options to purchase shares of common stock which were outstanding during the periods but were not included in the computation of diluted loss per common share because the options’ exercise prices were greater than the average market price of the common shares, and therefore, their effect would be anti-dilutive as calculated under the treasury method promulgated by ASC 260 “Earnings Per Share” (“ASC 260”).

• 12,142,878 shares of common stock reserved for issuance upon the conversion of the outstanding shares of Series A Convertible Preferred Stock; and

• 742,676 shares of unvested restricted stock which were not included in the computation as all necessary conditions for vesting had not yet been satisfied in accordance with ASC 260’s contingently issuable shares provision.

For the three and six months ended December 31, 2011, a total of 8,613,797 share-equivalents of potentially dilutive securities were excluded from the calculation of diluted loss per share. These securities were comprised of the following:

• 2,373,620 warrants issued to Lorne Weil in conjunction with the LW Warrant;

• 437,887 warrants outstanding as of December 31, 2011 issued to EBC in consideration for services rendered as placement agent for the Company’s June, September and October 2009 private placements;

• 1,376,100 options to purchase shares of common stock which were outstanding during the periods but were not included in the computation of diluted loss per common share because the options’ exercise prices were greater than the average market price of the common shares and, therefore, their effect would be anti-dilutive as calculated under the treasury method promulgated by ASC 260;

• 4,251,857 shares of common stock reserved for issuance upon the conversion of the outstanding shares of Series A Convertible Preferred Stock; and

• 174,333 shares of unvested restricted stock which were not included in the computation because all necessary conditions for vesting had not been satisfied in accordance with ASC 260’s contingently issuable shares provision.

Comprehensive Income (Loss)

The Company adheres to the provisions of ASC 220, “Comprehensive Income” (“ASC 220”). This pronouncement establishes standards for reporting and display of comprehensive income or loss and its components (revenue, expense, gain and loss). In accordance with ASC 220, items requiring recognition as components of comprehensive income (loss) are required to be classified by their nature. Furthermore, the Company is required to display the accumulated balances of other comprehensive income (loss) separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. For the three months ended December 31, 2012 and 2011, there were no items that gave rise to other comprehensive income (loss), and net loss equaled comprehensive loss.

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Recently Issued Pronouncements

The Company does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.

NOTE 3 – COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company conducts a major part of its operations from leased facilities, which include airplane hangars and administrative offices. The 15 year hangar lease in Clearwater, Florida, which began in April 2006, is classified as an operating lease and was amended in September 2011 under Amendment Number One to the Hangar Lease Agreement (“Amendment Number One”). In accordance with Amendment Number One, the Company renegotiated its Clearwater, Florida lease to reduce its ongoing rent expense and fuel flow fees. Under the terms of Amendment Number One, the initial lease term was extended by five months and expires in September 2021. In January 2011, the Company entered into a three year operating lease agreement for a facility in Dallas, Texas, which is used to perform maintenance on the Company’s aircraft. In December 2011, the Company terminated its Caldwell, New Jersey lease and ceased its limited FBO operations at that facility. Simultaneously, the Company agreed to maintain a portion of an aircraft hangar in Caldwell, New Jersey for $2,000 per month. This hanger lease, which is classified as an operating lease, which would have expired in October 2018, was terminated in August 2012 pursuant to a 90 day mutual termination clause. In January 2013, the Company entered into the Fourth Amendment to Lease (the “Amendment”) on its facility located in Camarillo, CA. The Amendment included the establishment of a base rent schedule per month through December 31, 2014 and the return of $250,000 representing one of the letters of credit in effect prior to the Amendment. Further, in January 2013, the Company ceased its FBO operations at the Camarillo facility and entered into a sublease agreement with an unrelated third party. The Company will retain a portion of one hangar which may be used for maintenance of the Company’s aircraft. The sublease agreement transferred all FBO operations to the unrelated third party and established a base rent schedule that reflects the reduced occupancy of the facility. This hangar lease, which is classified as an operating lease, expires in September 2021.

During the second quarter of fiscal year 2010, the Company transferred its rights to purchase four Piaggio Avanti II aircraft to LW Air pursuant to the existing aircraft purchase agreement between the Company and Piaggio America, Inc. Simultaneous with each of these transactions, the Company entered into an eight-year management agreement for each aircraft. Pursuant to each agreement between the parties, the Company manages the aircraft by arranging, on behalf of LW Air, short-term leases for use of the aircraft at a specified dry lease rate per flight hour. In each agreement, the Company guaranteed to LW Air monthly cash proceeds out of rental income and/or advances against future rental income equal to $80,000, and the Company is entitled to retain as a management fee all rental income in excess of the amounts payable to the owner, up to a maximum of $56,500 per month. Because the Company did not begin to fully lease the aircraft in the fractional program for several months, the Company did not make approximately $760,000 in payments to the owner. Accordingly, effective July 1, 2010, the terms of each management agreement were amended to reduce the maximum management fee the Company was entitled to retain to $44,000 per month for each aircraft for the eight months ended February 28, 2011, after which the maximum management fee charged continued to be $56,500 per month for each aircraft. Because management fees under each agreement may be earned only on average rental hours up to 100 hours per month, it is anticipated that actual management fees under each agreement will not exceed $25,000 per month. The Company is also required to pay LW Air additional amounts if usage of the aircraft exceeds 1,200 hours per year at a specified rate per flight hour. The Company accounts for the management agreements as operating leases. The Company accrued $375,000 for services rendered by a third party in connection with these transactions. The fee is being amortized to aircraft lease expense over the term of the agreements.

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Effective December 2010, the Company entered into an aircraft rental agreement with a third party to lease a Pilatus aircraft to be used in the Company’s maintenance operations. Pursuant to this agreement, the Company is obligated to pay $12,961 per month for three years, which provides 300 flight hours per year to the Company. The Company accounts for this agreement as an operating lease. Effective July 2012, the parties terminated the aircraft rental agreement and entered into a Settlement Agreement and Mutual Release (“settlement agreement”) related to the aircraft. In connection with the settlement agreement, the Company is required to pay approximately $0.2 million relative to additional usage of the aircraft, together with maintenance costs required pursuant to the aircraft rental agreement. The costs incurred in conjunction with the settlement agreement were accrued and recognized in fiscal year 2012.

During July 2011, the Company entered into an aircraft lease agreement with three third parties for the Company to lease a Piaggio Avanti II aircraft. Pursuant to the aircraft lease agreement, the Company is obligated to pay a total of $50,000 per month for ten years. The Company is also required to pay the owner additional amounts if usage of the aircraft exceeds 1,300 hours per year at a specified rate per flight hour. In addition, the Company is obligated to provide the lessors a total of 125 flight hours per year during the term of the agreement. The Company accounts for this agreement as an operating lease.

In October 2011, the Company transferred its rights to purchase one Piaggio Avanti II aircraft to LW Air pursuant to the existing aircraft purchase agreement between the Company and Piaggio America, Inc. Simultaneous with this transaction, the Company entered into an eight-year management agreement for the aircraft. Pursuant to the agreement between the parties, the Company will manage the aircraft by arranging, on behalf of the owner, short-term leases for use of the aircraft at a specified dry lease rate per flight hour. The Company has guaranteed to the owner monthly cash proceeds out of rental income and/or advances against future rental income equal to $75,000, and the Company will be entitled to retain as a management fee all rental income in excess of the amounts payable to owner, up to a maximum of $51,500 per month. Because management fees may be earned only on average rental hours up to 100 hours per month, it is anticipated that actual management fees will not exceed $30,000 per month. The Company is also required to pay the owner additional amounts if usage of the aircraft exceeds 1,200 hours per year at a specified rate per flight hour. The Company considered various financing alternatives prior to entering into this transaction and believes that this agreement was the most beneficial for the Company. The Company accrued $124,000 for services rendered by a third party in connection with this transaction. The fee is being amortized to aircraft lease expense over the term of the agreement.

Effective March 2012, the Company entered into an aircraft rental agreement with a third party to lease a Pilatus aircraft to be used in the Company’s maintenance operations. Pursuant to this agreement, the Company is obligated to pay $22,000 per month for one year, which provides 500 flight hours to the Company over the one year term. The Company accounts for this agreement as an operating lease. In October 2012, the lease ended.

In August 2012, the Company entered into a seven year Aircraft Lease Agreement with a third party, related to a Piaggio Avanti II previously financed through a Midsouth Floor Plan financing agreement. Pursuant to the Aircraft Lease Agreement, the Company is obligated to provide the lessor a total of 400 flight hours per year during the term of the agreement. The transaction was evaluated in accordance with ASC 840-40 “Sale-Leaseback Transactions” (“ASC 840-40”). Based on the Company’s evaluation, the transaction met the specified criteria requiring immediate loss recognition due to a net difference between the relinquished asset and related liability. The loss is recorded as a loss on sale of asset in the accompanying condensed consolidated statements of operations. Additionally, as consideration for finder’s fee services provided by a third party in connection with this transaction, the Company recorded $115,000 in August 2012 for services and issued warrants to purchase 50,000 shares of common stock. The fee and related value of the warrants are being amortized to aircraft lease expense over the term of the agreement. The warrants were valued using the Black-Scholes option-pricing model.

Effective September 28, 2012, LW Air and the Company amended the management agreements for each aircraft managed by the Company and owned by LW Air so that the Company is not required to pay LW Air additional amounts unless usage of the aircraft exceeds 1,350 hours per year, retroactive to the beginning of each management agreement. Simultaneous with this transaction, the Company issued the LW Warrant to Lorne Weil to purchase 2,373,620 shares of common stock at an exercise price of $1.00 per share. The original warrant issued to LW Air dated October 19, 2009, for the purchase of 2,373,620 shares of the Company’s common stock, was terminated and replaced by the LW Warrant.

On November 30, 2012, the Company entered into the Warrant Amendment with Lorne Weil. The LW Warrant provided certain anti-dilution protections, which would have been triggered in connection with the issuance of the Notes and Warrants. The Warrant Amendment provides for, among other things, revised antidilution rights so the antidilution provisions set forth in the LW Warrant would not apply in connection with the issuance of the Notes and Warrants; a reduction in the exercise price to $0.50 per share; and an increase in the number of shares of common stock issuable upon exercise of the LW Warrant to 3,560,430 shares of common stock. The remaining balance of the original warrant, LW Warrant and the Warrant Amendment will be recognized ratably over the remaining lease term.

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Effective September 28, 2012, the terms of the Company’s management agreements with LW Air were amended to irrevocably reduce the LW Air’s monthly proceeds pursuant to each of the aircraft management agreements by $25,000 per month for a period of twelve consecutive months beginning in August 2012, or $0.3 million per aircraft, the aggregate reduction of LW Air’s monthly proceeds totaling $1.5 million, with respect to all five of the aircraft owned by LW Air. Simultaneous with this transaction, the Company entered into the LW Restricted Stock Agreement, dated as of September 28, 2012, pursuant to which the Company issued to LW Air 2,000,000 shares of fully-vested restricted stock at a price of $0.75 per share, subject to certain antidilution rights, for an aggregate value of $1.5 million. The restricted stock had a fair value of $0.40 per share and will be recognized ratably through July 2013 in cost of flight operations.

On November 30, 2012, the Company entered into Amendment No. 1 with LW Air. The LW Restricted Stock Agreement provided that the shares issued would be entitled to certain antidilution protections, which would have required the issuance of additional shares to LW Air in connection with the issuance of the Notes and Warrants. Amendment No. 1 provides for, among other things, revised antidilution rights so the antidilution provisions in the LW Restricted Stock Agreement would not apply in connection with the issuance of the Notes and Warrants ; the issuance of 4,000,000 additional shares of fully-vested restricted stock to LW Air at a price of $0.38 per share on November 30, 2012, subject to certain antidilution rights, and warrants to purchase an aggregate of 6,000,000 shares of common stock in accordance with the Additional LW Warrant on November 30, 2012, in substantially the same form as the Warrants. The restricted stock had a fair value of $0.15 per share and will be recognized ratably through December 2017 in cost of flight operations.

In addition, the Company leases transportation equipment and data processing equipment under operating leases with most equipment having three year terms.

Purchase Commitments

As of December 31, 2012, the Company had contractual commitments to purchase 48 additional Piaggio Avanti II aircraft through calendar year 2013 with a mutual understanding that the aircraft delivery dates and any related payments can be extended. The total commitment, if exercised during the period, including a proposed price escalation, is valued at approximately $305.1 million, net of deposits paid on future aircraft deliveries of $6.4 million.

On June 20, 2008, the Company assigned its rights and obligations to purchase twenty Embraer Phenom 100 (“Phenom 100”) aircraft positions to Share 100 Holding Co., LLC (“Share 100”), a wholly-owned subsidiary of Avantair, Inc. On the same date, the Company entered into a membership interest purchase agreement with Executive Air Shares Corporation (“EAS”), in which EAS purchased the Class A membership of Share 100 and the Company retained the Class B membership. EAS, as Class A member, has the rights and obligations to purchase the Phenom 100 aircraft with positions one through eighteen and to fund payment due in connection with these aircraft. EAS paid Share 100 approximately $2.47 million in connection with these transactions and made an additional $750,000 capital contribution to Share 100 in December 2008, all of which was, immediately distributed to the Company. The Company as Class B member, has the rights and obligations to purchase the Phenom 100 aircraft with positions nineteen and twenty and to fund payment due in connection with these aircraft. EAS had the option to purchase aircraft nineteen and twenty which was to have been exercised by October 1, 2010; if exercised, EAS would reimburse the Company for all payments made relative to these aircraft and provide all remaining funds required. In the event that EAS did not exercise the option to purchase aircrafts nineteen and twenty by October 1, 2010, the Company would have the right and obligation to purchase the nineteenth and twentieth aircraft. The Company entered into agreements with EAS to extend the exercise requirement in November 2010, April 2011, and November 2011, which extended the exercise requirement to April 2011, December 2011 and June 2012, respectively. On May 25, 2012, the exercise requirement was extended an additional twelve months to June 1, 2013. If EAS defaults under its obligations to purchase aircraft positions one through eighteen, EAS will forfeit all deposits paid for the undelivered aircraft, including the funds distributed to the Company. If the Company defaults under its obligations to purchase any undelivered aircraft following a breach by EAS, or if the Company fails to purchase the last two aircraft positions, the Company’s maximum exposure to Embraer would be the amounts due for undelivered aircraft at the time, which as of December 31, 2012 was valued at $43.4 million, net of deposits paid on undelivered aircraft of $2.0 million.

Financing Commitments- Short-term

In April 2009, the Company entered into two Floor Plan Agreements with Midsouth Services, Inc. (“Midsouth”) to replace Midsouth’s existing Floor Plan Agreements dated July 31, 2008. The new Floor Plan Agreements extended credit to the Company in an increased amount of $11.6 million to be used towards the purchase of new Piaggio P-180 aircraft. The Floor Plan Agreements covered an amount not to exceed $5.8 million for a term of twelve months. The Company has the sole option to terminate one of the Floor Plan Agreements during the term with ninety days written notice. The Company agreed to pay Midsouth a monthly fee of $82,500 for the first Floor Plan Agreement and $75,000 for a second Floor Plan Agreement. During December 2010, the Company repaid the first Floor Plan Agreement in the amount of $5.8 million and during September 2011, the Company converted the second Floor Plan Agreement in the amount of $5.2 million into a Capital Lease. See Capital Lease Transactions below.

In March 2011, the Company negotiated financing terms pursuant to a Floor Plan Financing Agreement with Midsouth which shall be used towards the purchase of new Piaggio P-180 aircraft for resale in the fractional program. The March 2011 agreement is

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similar to the previous arrangements between Midsouth and the Company in that Midsouth agreed to extend credit to the Company for the purchase of fractional aircraft for a term of the later of: (1) twelve months or (2) until the date on which the net purchase price for the aircraft financed pursuant to the Floor Plan Agreement is paid. The Company has agreed to pay Midsouth a monthly fee of $65,000 following the commencement of the term pursuant to the Floor Plan Agreement. The aircraft purchase agreement related to the aircraft currently financed pursuant to the Floor Plan Financing Agreement, which was recently modified by the Company, requires the Company to purchase the aircraft from the lender on or before July 12, 2012. In August 2012, the Company converted the Floor Plan Agreement in the amount of $6.0 million into an Operating Lease with another third party, see Operating Lease Commitments in the preceding paragraphs.

In April 2011, the Company entered into a 12% short-term note payable with Midsouth to finance $0.5 million deposits for one new Piaggio Avanti II aircraft. The Company agreed to pay Midsouth a monthly fee of $5,000 following the commencement of the term pursuant to the Aircraft Deposit Agreement. The term of the agreement, as extended in July 2011, is five months or until the Company takes delivery of the aircraft. During October 2011, the Company repaid the short-term note payable in the amount of $0.5 million.

In September 2011, the Company took delivery of one new Piaggio Avanti P-180 aircraft, for resale in the Fractional Ownership program, financed through a Floor Plan Financing Agreement with Midsouth (the “Floor Plan Agreement”). The Floor Plan Agreement is similar to the previous arrangements between Midsouth and the Company with a term of the later of: (1) fifteen months or (2) until the date on which the net purchase price for the aircraft financed pursuant to the Floor Plan Agreement is paid. The Company initially agreed to pay Midsouth a monthly fee of $72,500 following the commencement of the term pursuant to the Floor Plan Agreement. The aircraft purchase agreement related to the aircraft currently financed pursuant to the Floor Plan Agreement originally required the Company to purchase it from the lender on or before December 31, 2012. On November 30, 2012, Midsouth agreed to extend the term of the Floor Plan Agreement for an additional eight months, or until August 30, 2013. In consideration of the foregoing, the Company issued 8,200,000 shares of fully-vested restricted stock to Mr. Fuller as well as the HF Warrant to purchase 8,400,000 shares of common stock. In connection with the reductions in the capital lease payments pursuant to the Amended HF Restricted Stock Agreement (see Capital Lease Transactions below), Midsouth agreed to a reduction in the monthly fee from $72,500 per month to $25,490 per month beginning November 2012 through January 2013 and to $46,264 per month for twelve consecutive months thereafter, ending on January 31, 2014. As of December 31, 2012, borrowings outstanding under the Floor Plan Agreement totaled $6.0 million.

Financing Commitments – Long-term

Long-term debt consists of the following as of December 31, 2012 (in thousands):

Midsouth Services, Inc.	$	20,690
Iberia Bank		1,259
		21,949
Less current portion		(3,745	)
Less discount on capital leases		(1,270	)
Long-term debt	$	16,934

Capital Lease Transactions

Midsouth Services, Inc.

The Company has seven Aircraft Leases with Midsouth. On November 30, 2012, the Company entered into the Amended HF Restricted Stock Agreement. Under the Amended HF Restricted Stock Agreement, Midsouth agreed to a reduction in the interest portion of the lease payments for the Aircraft Leases in the aggregate amount of approximately $1.8 million over fifteen months, with reductions in the lease payments of approximately $0.2 million per month beginning in November 2012 through January 2013, and approximately $0.1 million per month for twelve consecutive months thereafter, ending on January 31, 2014. In consideration of the foregoing, the Company issued 8,200,000 shares of fully-vested restricted stock to Mr. Fuller as well as the HF Warrant to purchase 8,400,000 shares of common stock in substantially the same form as the Warrants. The restricted stock had a fair value of $0.15 per share and will be recognized ratably through December 2017 in interest expense. The Amended HF Restricted Stock Agreement also contains certain antidilution protections.

The Company evaluated the Aircraft Leases with Midsouth to determine if they qualified for continued treatment as capital leases under ASC 840 “Leases”. After applying the criteria for treatment as a capital lease, the Company determined that all Aircraft Leases still qualified as capital leases.

In July 2006, the Company entered into a lease agreement, pursuant to which Midsouth leased a core aircraft to the Company. The original lease agreement was accounted for as an operating lease. In April 2009, the Company amended the original lease

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agreement, pursuant to which the Company was required to pay $74,900 per month, at 11.0% interest per annum until August 2011, the expiration of the amended lease agreement. The Company accounted for this amendment as a capital lease in the accompanying condensed consolidated balance sheets. In addition, the Company agreed to purchase the leased aircraft for approximately $3.0 million from Midsouth within sixty days following the expiration of the amended lease agreement. In August 2011, the Company entered into a second amendment to the aircraft lease agreement to extend the lease term for five years, and decrease monthly payments to $62,500. On November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, Midsouth agreed to further decrease the monthly payments on the lease to $40,000 beginning in November 2012 through January 2013 and to $40,779 for twelve consecutive months thereafter, ending on January 31, 2014. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a discount on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. Upon expiration of the five year term, the Company may purchase, at its sole discretion, the aircraft at a purchase price of approximately $0.3 million. The obligation outstanding at December 31, 2012 totaled approximately $2.4 million.

On October 10, 2007, the Company entered into a lease agreement pursuant to which Midsouth leased a core aircraft to the Company. Under the lease agreement, Midsouth provided funding for the $4.7 million purchase of a pre-owned Piaggio P-180 aircraft. Midsouth leases the aircraft exclusively to the Company under a five year lease at 15.0% interest per annum. The monthly lease payments for the term of the lease were originally established at $89,000. On November 30, 2012, pursuant to Amendment No. 1 to the N180HM Lease Agreement, Mr. Fuller agreed to extend the term of the lease for an additional sixty months, or until November 30, 2017, except that Mr. Fuller shall have the sole option to terminate the lease agreement and sell the aircraft and the Company agrees that it shall issue to Mr. Fuller a number of units equal to the result of dividing (A) the difference between $1.5 million and the numerical value of the then current payoff amount as outlined in the lease agreement for the aircraft by (B) 0.25. For purposes of this provision, a unit shall consist of one share of the Company’s Issued Stock (subject to certain adjustments) and one Warrant Share. Additionally, on November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, Midsouth agreed to decrease the monthly payments on the lease to $40,000 beginning in November 2012 through January 2013 and to $43,850 for twelve consecutive months thereafter, ending on January 31, 2014. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a premium on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. At the end of the five year lease term, the lease obligation will be fully satisfied and title shall transfer to the Company free and clear of all liens and encumbrances. The Company also has the option to purchase the aircraft anytime during the lease term at the then current guaranteed residual value as set forth on the amortization schedule without penalty. The Company accounts for this lease as a capital lease in the accompanying condensed consolidated balance sheets. The obligation outstanding at December 31, 2012 totaled approximately $2.3 million.

In April 2009, the Company entered into a lease agreement, pursuant to which Midsouth leases a Piaggio P-180 aircraft to the Company for a ten year lease term at an initial rate of $75,000 per month, at 15.0% interest per annum. The Company is required to provide Midsouth with 100 hours of flight time per year during the lease term. Hours have been accounted for at their fair value and are liquidated as hours are flown. On November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, Midsouth agreed to decrease the monthly payments on the lease to $45,000 beginning in November 2012 through January 2013 and returning to $75,000 per month thereafter. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a discount on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. Midsouth has the sole option to terminate the lease at the end of the fifth year of the lease term and require the Company to purchase the leased aircraft for approximately $3.8 million within ninety days of that date. If this option is not exercised by Midsouth, the lease will continue for the remaining five years of the lease term and, at the end of the ten year lease, the Company will be required to purchase the aircraft from Midsouth for $0.3 million. The obligation outstanding at December 31, 2012 totaled approximately $4.2 million.

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In September 2011, simultaneous with the termination of the Floor Plan Finance Renewal Agreement and Renewal Guaranteed Aircraft Purchase Agreement for a Piaggio P-180 aircraft, the Company entered into a Lease Agreement, pursuant to which Midsouth leases a Piaggio P-180 aircraft to the Company for a five year lease term at an initial rate of $75,000 per month, at 15.0% interest per annum. The termination of the Floor Plan Financing Agreement and subsequent entrance into the Lease Agreement was evaluated in accordance with ASC 470. Based on the Company’s evaluation, the debt transaction met the specified criteria causing the transaction to be recorded in accordance with “Debt Modification and Extinguishment” guidance within ASC 470. As a result, the Company recognized a gain on debt extinguishment of $0.4 million, which is included in the accompanying condensed consolidated statements of operations. On November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, Midsouth agreed to decrease the monthly payments on the lease to $45,000 beginning in November 2012 through January 2013 and returning to $75,000 per month thereafter. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a discount on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. Following the expiration of the term of the Lease Agreement, the Company has agreed to purchase the leased aircraft for approximately $3.4 million from Midsouth. The Company accounts for this lease as a capital lease in the accompanying condensed consolidated balance sheets. The obligation outstanding at December 31, 2012 totaled approximately $4.5 million.

In October 2011, the Company entered into a five year lease agreement with Midsouth for $2.0 million, related to one used aircraft previously financed by a Wells Fargo Equipment Finance, Inc. promissory note. The lease agreement initially required the Company to make principal payments ranging from $24,000 to $29,500 plus interest of 13% per annum. On November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, Midsouth agreed to decrease the monthly principal payments on the lease by $16,000 beginning in November 2012 through January 2013 and by $15,781 for twelve consecutive months thereafter, ending on January 31, 2014. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a premium on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. Following the expiration of the term of the lease agreement, the Company has agreed to purchase the leased aircraft for approximately $0.4 million from Midsouth. The Company accounts for this lease as a capital lease in the accompanying condensed consolidated balance sheets. The obligation outstanding at December 31, 2012 totaled approximately $1.7 million.

In May 2012, the Company entered into a two year lease agreement with Midsouth for $1.2 million, related to one used aircraft previously financed by a Wells Fargo Equipment Finance, Inc. promissory note. Under the terms of the agreement, the Company will make monthly lease payments to Midsouth in the amount of $55,319, which includes variable interest of 9.9% per annum (based on 4.9% over a floor of a 5% prime rate). On November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, Midsouth agreed to decrease the monthly payments on the lease to $50,000 beginning in November 2012 through January 2013 and to $52,645 for twelve consecutive months thereafter, ending on January 31, 2014. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a discount on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. Following the expiration of the lease agreement, the Company will receive title to the aircraft. The Company accounts for this lease as a capital lease in the accompanying condensed consolidated balance sheets. The obligation outstanding at December 31, 2012 totaled approximately $0.9 million.

In July 2012, the Company entered into a ten year lease agreement with Midsouth for $4.6 million, related to one used Piaggio Avanti II. The lease agreement initially required the Company to make monthly lease payments to Midsouth in the amount of $55,171, which includes variable interest of 9.9% per annum (based on 4.9% over a floor of a 5% prime rate). Additionally, the Company issued 200,000 shares of fully-vested restricted stock at a price of $1.50 per share in connection with this lease agreement. The restricted stock had a fair value of $0.65 per share and was capitalized into property and equipment, along with the principal amount of the loan of $4.6 million, and will be depreciated over the ten year lease agreement. On November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, the Company issued 1,000,000 million shares of fully-vested restricted stock at a price of $0.25 per share. The restricted stock had a fair value of $0.15 per share and was recorded as a discount against the principal amount of the loan and will be depreciated over the ten year lease. Additionally, Midsouth agreed to decrease the monthly payments on the lease to $43,000 beginning in November 2012 through January 2013 and returning to $55,171 per month thereafter. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a discount on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. Following the expiration of the lease agreement, the Company has the option to purchase the aircraft at the then fair market value. The obligation outstanding at December 31, 2012 totaled approximately $4.4 million.

The capital lease obligations are included in long-term debt in the accompanying condensed consolidated balance sheets.

Wells Fargo Equipment Finance, Inc.

In February 2005, the Company entered into financing arrangements for the purchase of two aircraft under two notes payable with Wells Fargo Equipment Finance, Inc. The notes were payable in monthly installments ranging from $10,644 to $38,480 with interest ranging from 5.96% to 6.12% per annum, through 2012. The notes were collateralized by both aircraft. In January 2012, in connection with the sale of one of the collateralized aircraft, the Company repaid one promissory note in the amount of approximately $790,000. In March 2012, the Company repaid the remaining promissory note in the amount of approximately $1.2 million. Accordingly, as of December 31, 2012, there were no obligations outstanding under these financing arrangements.

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Iberia Bank

In August 2007, the Company and Iberia Bank, formerly Century Bank F.S.B., executed a $2.2 million note agreement for the purchase of one aircraft. The note is payable in monthly installments of $27,175 with interest of 8.25% per annum, through August 3, 2012. The note is collateralized by the aircraft. In September 2012, the Company extended the term of this loan to December 2013, which reduced the monthly installments to $26,769. The extension of the note agreement was evaluated in accordance with ASC 470. Based on the Company’s evaluation, the transaction did not meet specified criteria causing the transaction to be recorded in accordance with “Debt Modification and Extinguishment” guidance within ASC 470. The obligation outstanding at December 31, 2012 totaled approximately $1.3 million.

Wells Fargo

On October 31, 2007, the Company and Wells Fargo entered into a financing arrangement for the purchase of one used aircraft at a total purchase price of approximately $4.5 million (inclusive of the value of a flight hour card of 100 hours). Financing was obtained from Wells Fargo through a note payable of $3.9 million. This note was to be repaid monthly over 7 years at an interest rate equal to the LIBOR rate plus 4.0%. In October 2011, the Company repaid the promissory note in the amount of $1.4 million. Accordingly, as of December 31, 2012, there were no obligations outstanding under this financing arrangement.

Senior Secured Convertible Promissory Notes

On November 30, 2012, the Company entered into the Purchase Agreement providing for the issuance of an aggregate of up to $10.0 million in principal amount of Notes and Warrants to purchase up to an aggregate of 40,000,000 shares of the Company’s common stock at the Initial Closing and subsequent offerings (together, the “Financing”). At the Initial Closing, which occurred on November 30, 2012, the Company issued $2.8 million in aggregate principal amount of Notes and Warrants to purchase an aggregate of 11,200,000 shares of the Company’s common stock, to certain members of the Company’s Board of Directors and their affiliates. On February 1, 2013, the Company completed an additional closing in which the Company issued to ten accredited investors, that are also participants in the fractional ownership program, Notes in an aggregate principal amount of $712,500 and Warrants to purchase an aggregate of 2,850,000 shares. In addition, on January 17, 2013, the Company, the holders of the Notes and Warrants and Barry Gordon, as collateral agent, entered into the Note Financing Amendment. The Notes and Warrants offered will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.

The Notes bear interest at an initial rate of 2.0% per annum which will increase to 12.0% per annum if the Company is unsuccessful in obtaining stockholder approval by March 31, 2013 to increase the Company’s authorized shares of common stock so that a sufficient number of shares are reserved for the conversion of the Notes. Holders of the Notes may, at their option, elect to convert all outstanding principal and accrued but unpaid interest on the Notes into shares of common stock at a conversion price of $0.25 per share but may convert only a portion of such Notes if an inadequate number of authorized shares of common stock is available to effect such optional conversion. Holders of the Notes are entitled to certain anti-dilution protections. The Company may prepay the Notes on or after November 28, 2014. The Notes have a maturity date of November 28, 2015, unless the Notes are earlier converted or an event of default or liquidation event occurs.

The Notes were valued using an income and residual approach at November 30, 2012 at a price of $24.93 per $100 of outstanding debt. The carrying value of the senior secured convertible promissory notes as of December 31, 2012 was as follows (amounts in thousands):

Par value of senior secured convertible promissory notes	$	2,800
Discount related to embedded conversion feature1		(960	)
Discount related to detachable warrants2		(1,142	)
Accretion of discounts3		44
Carrying value of senior secured convertible promissory notes	$	742

¹  The Notes contain an embedded conversion feature that the Company has determined is a derivative requiring bifurcation in accordance with the provisions of ASC 815. The embedded conversion feature of the Notes was valued at approximately $0.09 per Note using the Monte Carlo method at November 30, 2012. The fair value of the embedded conversion feature of approximately $960,000 was

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recorded as a derivative liability with the offset recorded as a discount on the Notes and included as a component of Senior secured convertible promissory notes in the accompanying condensed consolidated balance sheet as of December 31, 2012. The Company determined that the fair value of the embedded conversion feature at December 31, 2012 was not materially different than the fair value at November 30, 2012. Therefore, no change in fair value of the embedded conversion feature was recorded in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012.

²  The Notes contain detachable Warrants that the Company has determined are derivatives requiring bifurcation in accordance with the provisions of ASC 815. The detachable Warrants were valued at approximately $0.10 per warrant using the Monte Carlo method at November 30, 2012. The fair value of the detachable Warrants of approximately $1.1 million was recorded as a derivative liability with the offset recorded as a discount on the Notes and included as a component of Senior secured convertible promissory notes in the accompanying condensed consolidated balance sheet as of December 31, 2012. The Company determined that the fair value of the detachable Warrants at December 31, 2012 was not materially different than the fair value at November 30, 2012. Therefore, no change in fair value of the detachable Warrants was recorded in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012.

³  Accretion of the discount on the embedded conversion feature of approximately $31,000 was recorded to interest expense for the three months ended December 31, 2012 using the effective interest method. Accretion of the discount on the detachable Warrants of approximately $13,000 was recorded to interest expense for the three months ended December 31, 2012 using the effective interest method.

Aircraft Incident

In November 2011, one of the Company’s fractionally-owned aircraft, a 2007 Piaggio P-180, was involved in an incident (“Aircraft Incident”), following which the aircraft was declared a total loss by the Company’s insurer. Only minor injuries were sustained by the passengers and crew. The Company was required to maintain insurance on the aircraft that covered its replacement value, which was estimated to be $4.8 million. During December 2011, the Company received $6.5 million of insurance proceeds which were initially recorded as an accrued liability as of December 31, 2011. The additional insurance proceeds were a result of the Company insuring its aircraft in excess of the replacement value to reimburse the Company for expenses associated with a reduction in available aircraft in its fleet, including, but not limited to, costs incurred for chartered flights, repositioning aircraft to accommodate owner’s requirements, and maintenance costs associated with higher flight hours on the remaining fleet. These proceeds offset similar expenses during the third and fourth quarters of fiscal year 2012 and the first quarter of fiscal year 2013. The fractional ownership documents permit the Company to replace the aircraft on behalf of the fractional owners with another aircraft that is substantially similar and has a market value approximately equal to or greater than the market value of the 2007 Piaggio P-180 involved in the Aircraft Incident. During the third and fourth quarters of fiscal year 2012, the Company purchased the fractional owners’ interest in the aircraft, and simultaneously, the fractional owners of the 2007 Piaggio P-180 entered into new fractional ownership documents for a substantially similar replacement aircraft interest. During the third and fourth quarters of fiscal year 2012, the Company paid a total of approximately $4.8 million and transferred 16.0 fractional shares in connection with this incident. During the first quarter of fiscal year 2013, the Company paid approximately $0.4 million in connection with this incident. As of December 31, 2012, the insurance proceeds liability was zero. In accordance with ASC 225 “Income Statement” (“ASC 225”), there was no gain or loss recognized in connection with the loss of this aircraft.

Employee Termination and Other Costs

During the third quarter of fiscal year 2012, the Company developed and implemented plans to improve sales performance and deliver efficiencies within the finance department. These plans were evaluated and recorded in accordance with ASC 420 “Exit or Disposal Cost Obligations” (“ASC 420”). In connection with the changes in the sales and finance departments, the Company incurred various costs and obligations, including severance payouts to employees and other related charges. The Company expects total costs associated with these activities to be approximately $1.0 million. As of December 31, 2012, the liability attributable to unpaid employee termination and other expense was less than approximately $0.1 million, representing a reduction of approximately $0.1 million from the unpaid employee termination and other expense liability as of June 30, 2012, which was $0.2 million. The reduction in liability represents amounts paid during the six month period ended December 31, 2012. This liability is included in accrued liabilities in the accompanying condensed consolidated balance sheet.

NOTE 4 – EQUITY TRANSACTIONS

Capital Stock

As of December 31, 2012, the Company had 40,903,717 shares of its common stock outstanding and 639,516 shares of common stock available for future issuance under the Company’s 2006 Long-Term Incentive Plan. As of December 31, 2012, the Company had 152,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Shares”) outstanding. The Company has 12,142,878 shares of common stock reserved on its books and records for issuance upon the conversion of the outstanding Series A Preferred Shares. As a result of the sale of shares consummated on June 30, 2009, September 25, 2009 and October 16, 2009, the conversion price of the Series A Preferred Shares was reduced from $5.15 to $3.57. As a result of the grant of fully-vested restricted stock in July 2012 and September 2012 related to a new capital lease and an amendment of an operating lease, the conversion price of the Series A

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Preferred Shares was reduced from $3.57 to $3.35. As a result of November 2012 amendments to the July 2012 and September 2012 grants of fully-vested restricted stock related to a new capital lease and an amendment of an operating lease, and new grants of restricted stock in November 2012 related to a reduction in interest on capital lease and floor plan payments, as well as the Notes and Warrants issued pursuant to the Initial Closing, the conversion price of the Series A Preferred Shares was reduced from $3.35 to $1.25.

During the six months ended December 31, 2012, the Company accrued, but did not pay, dividends on preferred stock of approximately $0.7 million. The Company does not expect to pay dividends on preferred stock for the foreseeable future. As a result of not paying the preferred stock dividend, the dividend rate increased from 9.0% to 9.5% as of December 31, 2012. Continued non-payment of the preferred stock dividends will result in further increases to the dividend rate.

Restricted Shares and Stock Options

By recommendation of the Compensation Committee and approval by the Board of Directors, and in accordance with an Employment Agreement executed July 14, 2011, the Company granted equity compensation to Stephen Wagman, President, pursuant to the Company’s Amended and Restated 2006 Long-Term Incentive Plan, as follows:

• 30,000 shares of restricted stock granted in July 2011, subject to a three year vesting period, with one-third of the shares vesting upon each of the first three anniversaries of the date of the Employment Agreement, subject to Mr. Wagman’s continued employment with the Company on each vesting date. The fair value at the date of grant was $1.90 per share.

• 425,000 stock options granted in July 2011, exercisable at $2.25 per share, subject to a three year vesting period, with one-third of the shares vesting upon each of the first three anniversaries of the date of the Employment Agreement, subject to Mr. Wagman’s continued employment with the Company on each vesting date and the Company achieving certain financial target goals.

In September 2012, by recommendation of the Compensation Committee and approval by the Board of Directors, the Company granted equity compensation to certain employees, pursuant to the Company’s Amended and Restated 2006 Long-Term Incentive Plan, as follows:

• 600,000 shares of restricted stock to the Company’s executives and management team, subject to performance-based vesting measures; and

• 595,650 stock options to employees of the Company, subject to a three year vesting schedule, with one-third vesting on each successive anniversary date of grant. The fair value of the stock options was $0.42 per share.

In February 2012, the Company granted deferred equity compensation to each of its seven Non-Employee Directors, pursuant to the Amended and Restated 2006 Long-Term Incentive Plan, as follows:

• 60,000 shares of restricted stock granted which shall convert into shares of the Company’s common stock on a one-for-one basis upon the earliest of (i) the date of the Non-Employee Director’s cessation of service with the Company, or (ii) the date of a change in control of the Company and 80,000 shares of restricted stock, which shares shall be nontransferable until the earlier of the date of the Non-Employee Director’s cessation of service with the Company or the date of change in control of the Company.

Stock-based compensation expense related to the plan, which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations, was approximately $0.2 million and $0.3 million for the three and six months ended December 31, 2012 and was approximately $0.2 million and $0.4 million for the three and six months ended December 31, 2011, respectively.

Warrants

The following assumptions were used in valuing the warrants under the Monte Carlo method on their respective dates of issuance. The Monte Carlo method is a theoretical forward-looking valuation model.

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	EarlyBirdCapital Warrants						LW Air Warrants						Hugh Fuller Warrants						Senior Secured  Convertible Promissory Notes
	Third Party Aircraft Purchase AgreementA			Purchase AgreementB			Additional LW WarrantC			Warrant AmendmentD			HF WarrantE			HF Overfly WarrantF			Detachable WarrantsG			Embedded Conversion FeatureH
Date of Issuance		August 3, 2012			November 25, 2012			November 30, 2012			November 30, 2012			November 30, 2012			November 30, 2012			November 30, 2012			November 30, 2012
Underlying stock value1	$	0.40		$	0.15		$	0.15		$	0.15		$	0.15		$	0.15		$	0.15		$	0.15
Exercise price2	$	0.60		$	0.50		$	0.50		$	0.50		$	0.50		$	0.50		$	0.50		$	0.25
Term3		3.06			5.00			3.00			2.88			5.00			3.00			5.00			3.00
Volatility		75.00	%		85.00	%		85.00	%		85.00	%		85.00	%		85.00	%		85.00	%		85.00	%
Interest rate1,3		0.32	%		0.70	%		0.40	%		0.40	%		0.70	%		0.40	%		0.70	%		0.40	%
Number of simulations4		One million			One million			One million			One million			One million			One million			One million			One million
Fair Value of Warrant on Date of Issuance	$	0.07		$	0.10		$	0.08		$	0.03		$	0.04		$	0.04		$	0.10		$	0.09

¹  As of the valuation date (date of issuance)

²  Per warrant agreement

³  Based on vesting period on date of issuance, amount stated in years.

⁴  The number of simulations is a parameter in the Monte Carlo model that improves the statistical accuracy of the fair value produced.

A. EarlyBirdCapital, Inc. Third Party Aircraft Purchase Agreement

On August 3, 2012, pursuant to an agreement between EBC and the Company, in consideration for services rendered in connection with an aircraft purchase agreement with a third party, the Company issued to EBC and its affiliates 50,000 warrants to purchase common stock which expire on August 2, 2015. Each warrant permits the holder to purchase one share of the Company’s common stock at an exercise price of $0.60 per share. The fair value of the warrants was estimated at $0.07 per warrant. Due to the immateriality of the amount, the Company immediately expensed the full amount to cost of flight operations during the three months ended September 30, 2012. The Company has the option to redeem warrants at any time at the price of $0.01 per warrant, provided that the volume weighted average price of the Company’s common stock has been at least 200.0% of the exercise price of a warrant for any twenty trading days during any consecutive thirty trading day period ending on the third trading day preceding the date of the notice of redemption. The holder did not exercise any of the warrants nor did the Company redeem any of the warrants on or after August 3, 2012 through December 31, 2012. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

B. EarlyBirdCapital, Inc. Purchase Agreement

On November 25, 2012, in consideration for financial consulting and/or investment banking services performed by EBC in connection with the Purchase Agreement, the Company issued warrants to EBC for the purchase of 250,000 shares of the Company’s common stock which expire on November 25, 2017. Each warrant permits the holder to purchase one share of the Company’s common stock at an exercise price of $0.50 per share. The fair value of the warrants was estimated at $0.10 per warrant using the Monte Carlo method. Due to the immateriality of the amount, the Company immediately expensed the full amount to interest expense during the three months ended December 31, 2012. The holder did not exercise any of the warrants nor did the Company redeem any of the warrants on or after November 25, 2012 through December 31, 2012. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

C. Additional LW Warrant

On November 30, 2012, the Company entered into Amendment No. 1 with LW Air. The LW Restricted Stock Agreement provided that the shares issued would be entitled to antidilution protections, which would have required the issuance of additional shares to LW Air in connection with the issuance of the Notes and Warrants. Amendment No. 1 provides for, among other things, revised antidilution rights so the antidilution provisions in the LW Restricted Stock Agreement would not apply in connection with the issuance of the Notes and Warrants; the issuance of 4,000,000 additional shares of fully-vested restricted stock to LW Air and the Additional LW Warrant to purchase an aggregate of 6,000,000 shares of common stock in substantially the same form as the Warrants. The Additional LW Warrant permits the holder to purchase shares of the Company’s common stock at an exercise price of

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$0.50 per share. The fair value of the Additional LW Warrantwas estimated at $0.08 per warrant and approximately $0.5 million will be expensed to cost of flight operations over the three year term. During the three months ended December 31, 2012, the Company expensed less than $0.1 million in cost of flight operations. The warrants underlying the Additional LW Warrant expire on November 28, 2015 and while effective, the warrants are subject to certain anti-dilution rights. The holder did not exercise any of the warrants on or after November 30, 2012 through December 31, 2012. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

D. Warrant Amendment

On September 28, 2012, LW Air and the Company amended the management agreements for each aircraft managed by the Company and owned by LW Air so that the Company is not required to pay LW Air additional amounts unless usage of the aircraft exceeds 1,350 hours per year, retroactive to the beginning of each management agreement. Simultaneous with this transaction, the Company issued the LW Warrant to Lorne Weil which replaced the warrant issued to Lorne Weil on September 28, 2012. The LW Warrant was exercisable for the purchase of 2,373,620 shares of the Company’s common stock at an exercise price of $1.00 per share. The fair value of the warrants was estimated at $0.07 per warrant.

On November 30, 2012, the Company entered into the Warrant Amendment with Lorne Weil. The LW Warrant provided certain anti-dilution protections, which would have been triggered in connection with the issuance of the Notes and Warrants. The Warrant Amendment provides for, among other things, revised antidilution rights so the antidilution provisions set forth in the LW Warrant would not apply in connection with the issuance of the Notes and Warrants; a reduction in the exercise price to $0.50 per share; and an increase in the number of shares of common stock issuable upon exercise to 3,560,430 shares of common stock. The fair value of the warrants was estimated at $0.03 per warrant and approximately $0.1 million will be expensed to cost of flight operations over the approximate three year term. During the three months ended December 31, 2012, the Company expensed less than $0.1 million in cost of flight operations, for a cumulative adjustment that was based on the fair value of the recently amended warrants, retroactive to the beginning of the original lease agreement. The remaining balance of the original warrant, LW Warrant and the Warrant Amendment will be recognized ratably over the remaining lease term. The warrants underlying the Warrant Amendment expire on October 19, 2015 and are subject to certain anti-dilution rights. Lorne Weil did not exercise any of the warrants nor did the Company redeem any of the warrants on or after September 28, 2012 through December 31, 2012. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

E. HF Warrant

On November 30, 2012, pursuant to the Amended HF Restricted Stock Agreement, Mr. Fuller agreed to a reduction in the interest portion of the lease payments for the Aircraft Leases in the aggregate amount of approximately $1.8 million over fifteen months, with reductions in lease payments in the amount of approximately $0.2 million per month beginning in November 2012 through January 2013, and approximately $0.1 million per month for twelve consecutive months thereafter, ending on January 31, 2014. Pursuant to Amendment No. 1 to the N180HM lease agreement, Mr. Fuller also agreed to extend the term of the lease for an additional sixty (60) months, or until November 30, 2017, on similar terms, except that Mr. Fuller shall have the sole option to terminate the lease agreement and sell the aircraft and the Company agrees that it shall issue to Mr. Fuller a number of units (as defined below) equal to the result of dividing (A) the difference between $1.5 million and the numerical value of the then current payoff amount as outlined in the lease agreement for the aircraft by (B) 0.25. For purposes of this provision, a unit shall consist of one share of the Company’s common stock (the “Issued Stock”) (subject to adjustment as described below) and one warrant to purchase a share of the Company’s common stock at $0.50 (a “Warrant Share”). Mr. Fuller also agreed to extend the term of the Floor Plan Agreement originally entered into in September 2011 for an additional eight (8) months, or until August 30, 2013. In consideration of the foregoing, the Company issued 8,200,000 shares of fully-vested restricted stock to Mr. Fuller, 1,000,000 shares of which related to the $0.3 million reduction in the principal balance of an aircraft to be financed and 7,200,000 shares related to the approximate $1.8 million reduction in the interest portion of the lease payments of the aircraft leases and Amendment No. 1 to the N180HM lease agreement, as well as the HF Warrant to purchase 8,400,000 shares of common stock. The Amended HF Restricted Stock Agreement also contains certain antidilution protections.

The HF Warrant will expire on November 30, 2017, and permits the holder to purchase one share of the Company’s common stock at an exercise price of $0.50 per share. The fair value of the HF Warrants was estimated at $0.04 per warrant and approximately $0.3 million will be expensed to interest expense over the five year term. During the three months ended December 31, 2012, the Company expensed less than $0.1 million in interest expense. The Company has the option to redeem the warrants at any time at the price of $0.01 per warrant, provided that the volume weighted average price of the Company’s common stock has been at least 300.0% of the exercise price of a warrant for any twenty trading days during any consecutive thirty trading day period ending on the third trading day preceding the date of the notice of redemption. Mr. Fuller did not exercise any of the warrants nor did the Company redeem any of the warrants on or after November 30, 2012 through December 31, 2012. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

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F. HF Overfly Warrant

On November 30, 2012, the Company issued the HF Overfly Warrant to Mr. Fuller, to purchase 645,200 shares of the Company’s common stock. The HF Overfly Warrant was issued in lieu of paying additional amounts owed to Mr. Fuller pursuant to certain Aircraft Leases as a result of the aircraft exceeding certain hourly usage limitations. The warrants expire on November 30, 2015. Each warrant permits the holder to purchase one share of the Company’s common stock at an exercise price of $0.50 per share. The fair value of the warrants was estimated at $0.04 per warrant and approximately less than $0.1 million will be expensed to interest expense over the three year term. During the three months ended December 31, 2012, the Company expensed less than $0.1 million in interest expense. The remaining balance of the warrants, as of December 31, 2012, will be recognized ratably over the remaining lease terms. The Company has the option to redeem warrants at any time at the price of $0.01 per warrant, provided that the volume weighted average price of the Company’s common stock has been at least 300.0% of the exercise price of a warrant for any twenty trading days during any consecutive thirty trading day period ending on the third trading day preceding the date of the notice of redemption. The holder did not exercise any of the warrants nor did the Company redeem any of the warrants on or after November 30, 2012 through December 31, 2012. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

G. Detachable Warrants

On November 30, 2012, the Company issued $2.8 million in aggregate principal amount of Notes and Warrants to purchase an aggregate 11,200,000 shares of the Company’s common stock to certain members of the Company’s Board of Directors and their affiliates. The Warrants are exercisable at a price of $0.50 per share. The fair value of the Warrants was estimated at $0.10 per Warrant and approximately $1.1 million will be expensed to interest expense over the five year term. During the three months ended December 31, 2012, the Company expensed less than $0.1 million in interest expense. The remaining balance of the Warrants, as of December 31, 2012, will be recognized ratably through the exercise date of the Warrant. The purchasers did not exercise any of the Warrants nor did the Company redeem any of the Warrants on or after November 30, 2012 through December 31, 2012. These Warrants were issued pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.

H. Embedded Conversion Feature

The Notes also contain an embedded conversion feature which the Company has determined is a derivative in accordance with the provisions of ASC 815. Accordingly, the conversion feature was recorded as a derivative liability. The fair value of the conversion feature was estimated at $0.09 per Note and approximately $1.0 million will be expensed to interest expense over the three year term. During the three months ended December 31, 2012, the Company expensed less than $0.1 million in interest expense. The remaining balance of the conversion feature, as of December 31, 2012, will be recognized ratably over the remaining term of the Notes. The purchasers did not convert any of the Notes to the Company’s common stock on or after November 30, 2012 through December 31, 2012.

NOTE 5 – SUBSEQUENT EVENTS

Effective January 8, 2013, the Company resolved the insurance claims relating to hail damage to one of the Company’s fractional aircraft that was parked on the tarmac during a severe thunderstorm in Colorado in June 2012. The Company received $2.0 million in the second quarter and an additional $0.5 million in the third quarter settling the remaining damages claims with the Company’s insurer for the repair of the aircraft.

On January 17, 2013, the Company, the holders of the Notes and Warrants and Barry Gordon, as collateral agent, entered into the Amendment to Note and Warrant Purchase Agreement, Senior Secured Convertible Promissory Notes, Warrants, Security Agreement and Registration Rights Agreement. The purpose of the Note Financing Amendment was to include Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P. and David Greenhouse (collectively, the “SSF Investors”) in the financing transaction and to amend the terms by which the documents may be amended, terminated or waived.

Effective January 21, 2013, David Haslett was appointed Chief Operating Officer of the Company. Mr. Haslett was previously Managing Director of Sportech Racing since May 2000 and was responsible for leading its sales, operations, research and development, engineering and purchasing activities. Prior to joining Sportech Racing, Mr. Haslett was Managing Director, Racecourse Division of the Horserace Totalisator Board in the United Kingdom from 1996 to 2000.

Effective January 22, 2013, the Board of Directors of the Company appointed Steven Santo, Chief Executive Officer of the Company, as Chairman of the Board of Directors. Mr. Santo has served as Chief Executive Officer and a director since 2003 and succeeds Robert Lepofsky, who will remain a director of the Company. Mr. Santo will not receive any additional compensation for his role as Chairman of the Board.

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In addition, effective January 22, 2013, the Board of Directors of the Company appointed Lorne Weil, a director of the Company, as Lead Director. Mr. Weil has served as a member of the Company’s Board of Directors since 2010. Mr. Weil will not receive any additional compensation for his participation as Lead Director. Upon Mr. Weil’s appointment as Lead Director, effective January 22, 2013, A. Clinton Allen resigned in his capacity as Vice Chairman of the Board of Directors. Mr. Allen will remain a director of the Company.

On January 22, 2013, the Board of Directors of the Company adopted the Fourth Amended and Restated By-Laws of Avantair, Inc. The Restated By-Laws provide for the new position of Lead Director, which was not included in the Company’s previous By-Laws. The details of the Fourth Amended and Restated By-Laws of the Company are contained in the Company’s Form 8-K filed with the SEC on January 25, 2013.

Effective January 29, 2013, the Company ceased its FBO operations at its Camarillo, CA facility and entered into a sublease agreement with an unrelated third party together with a consent agreement and Fourth Amendment with its landlord, reducing its letter of credit obligation to $0.5 million. In addition, the Company’s rental obligations will be offset by sublease rent at this facility. The Company will retain a portion of one hangar which may be used for maintenance of the Company’s aircraft. The sublease agreement transferred all FBO operations to the unrelated third party.

On February 1, 2013, at an additional closing, the Company issued to ten accredited investors, that are also participants in the fractional ownership program, Notes in an aggregate principal amount of $712,500 and Warrants to purchase an aggregate of 2,850,000 shares. See Note 1 for a description of the terms of the Notes and Warrants.

On December 12, 2012, the Company received a letter from the SSF Investors claiming that liquidated damages were payable by the Company to the SSF Investors under the Registration Rights Agreement dated October 16, 2009 by and among the Company, certain investors and EarlyBirdCapital, Inc., LLC. On February 6, 2013, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with the SSF Investors to resolve the matter and issued to the SSF Investors senior secured convertible promissory notes having an aggregate principal amount of approximately $1.1 million (the “SSF Notes”) and warrants to purchase an aggregate of 4,222,148 shares of common stock (the “SSF Warrants”). The SSF Notes bear interest at an initial rate of 2.0% per annum, which will increase to 12.0% per annum if the Company is unsuccessful in obtaining stockholder approval by March 15, 2013 to increase the Company’s authorized shares of common stock so that a sufficient number of shares are reserved for the conversion of the SSF Notes. Holders of the SSF Notes may, at their option, elect to convert all outstanding principal and accrued but unpaid interest on the SSF Notes into shares of common stock at a conversion price of $0.25 per share, but may convert only a portion of such SSF Notes if an inadequate number of authorized shares of common stock is available to effect such optional conversion. Holders of the SSF Notes are entitled to certain anti-dilution protections. The Company may prepay the SSF Notes on or after November 28, 2014. The SSF Notes have a maturity date of November 28, 2015, unless the SSF Notes are earlier converted or an event of default or liquidation event occurs. The SSF Warrants are exercisable at an exercise price of $0.50 per share, which exercise price is subject to certain anti-dilution protections, but the SSF Warrants may not be exercised unless a sufficient number of authorized shares of common stock are available for the exercise of the SSF Warrants. In addition, the SSF Warrants may be exercised on a cashless basis if a registration statement covering the shares underlying the SSF Warrants, or an exemption from registration, is not available for the resale of such shares underlying the SSF Warrants. The SSF Warrants expire on November 30, 2017. The Company accrued the settlement amount of $1.1 million to general and administrative expenses during the second quarter of fiscal year 2013.

As previously reported on the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 6, 2012, the Company entered into a Security Agreement dated November 30, 2012 to secure its senior secured convertible promissory notes issued in the Financing (defined below). In connection with the SSF Issuance, the SSF Notes will likewise be secured under the Security Agreement by a first priority security interest in substantially all of the assets of the Company that are not otherwise encumbered and excluding all aircraft, fractional ownership interests in aircraft, restricted cash, deposits on aircraft and flight hour cards.

In connection with the SSF Issuance, on February 6, 2013, the Company entered into a Registration Rights Agreement with SSF pursuant to which the Company has agreed to register under the Securities Act of 1933, as amended, the shares of common stock issuable upon conversion of the SSF Notes and SSF Warrants. The Company is required to file such resale registration statement on Form S-1 (or Form S-3 if the Company is eligible to use Form S-3) no later than the earlier of ten days after the Share Increase Effective Date or May 27, 2013 (“Filing Deadline”). If such registration statement is not filed with the SEC prior to the Filing Deadline, the Company will pay SSF liquidated damages payments in an amount equal to (i) 3.0% of the aggregate principal amount of the SSF Notes for the first sixty-day period following the Filing Deadline for which no registration statement is filed and (ii) thereafter 1.5% of the aggregate principal amount of the SSF Notes for each thirty-day period following the Filing Deadline for which no registration statement is filed.

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Item 2.        Management’s Discussion and  Analysis of Financial Condition and Results of Operations.

Overview

Avantair, Inc. is a Delaware corporation and was organized in 2004. Avantair, Inc. and its subsidiaries (the “Company” or “Avantair”) are in the business of providing private aviation services through three primary flight service programs:

(i) the sale of fractional ownership interests through the Fractional Ownership program;

(ii) the lease of fractional interests through the Axis Lease program; and

(iii) the sale of flight hour cards through the Edge Card program.

Collectively, participants in each of these programs are referred to herein as “program participants”. These services are provided to program participants on the Company’s managed aircraft fleet for business and personal use. The Company’s core strategic focus is providing its program participants with the highest level of safety, service and satisfaction. In addition to providing private aviation services, the Company provides limited fixed based operation (“FBO”) services in Clearwater, Florida. In January 2013, the Company ceased its FBO operations at its Camarillo, CA facility and entered into a sublease agreement with an unrelated third party. The Company will retain a portion of one hangar which may be used for maintenance of the Company’s aircraft. The sublease agreement transferred all FBO operations to the unrelated third party and established a base rent schedule that reflects the reduced occupancy of the facility. Effective December 2011, the Company closed its limited FBO services in Caldwell, New Jersey. The Company also leases a facility in Dallas, Texas, which is used to perform maintenance on the Company’s aircraft.

As of December 31, 2012, the Company operated 56 aircraft within its fleet, which is comprised of 43 fractionally-owned aircraft, 6 company-owned core aircraft and 7 leased and company-managed aircraft.

The Company generates revenue primarily through the sale and lease of fractional ownership interests in aircraft, by providing management and maintenance services related to those aircraft and through the sale of flight hour cards providing either 15, 25 or 50 hours of flight time per year. The Company markets fractional ownership interests to individuals and businesses, generally with a minimum share size of a one-sixteenth ownership interest, which the Company refers to as the Fractional Ownership program. Under management and maintenance agreements with fractional owners and lessees, the Company provides pilots, maintenance, fuel and hangar space for the aircraft in exchange for a fixed monthly fee.

In response to market conditions and to provide further alternatives for private air travel, the Company initiated the Axis Lease program effective February 2011. The Axis Lease program, which offers various lease terms up to ten years and a minimum of 50 hours per year, offers many of the same benefits as the Fractional Ownership program. The Axis Lease program requires monthly lease payments, together with a management and maintenance agreement similar to that of the Fractional Ownership program.

The Company’s Edge Card program, offers access to blocks of flight hours ranging from 15, 25 or 50 hours of flight time. Once the card holder has exhausted the hours purchased, neither the card holder nor the Company has any further obligations to each other.

The Company’s Axis Club Membership program, which was replaced by the Axis Lease program effective March 2011, offered access to blocks of flight hours for a three year membership fee of $75,000. The program required Axis Club members to purchase a minimum of three 25 hour flight hour cards over a three year period. This program also allowed for club membership fees to be applied towards the purchase of a fractional ownership interest.

The Company presently sources all of its aircraft from a single manufacturer, Piaggio America, Inc. (“Piaggio”). As of December 31, 2012, the Company had contractual commitments to purchase 48 additional Piaggio Avanti II aircraft through 2013 with a mutual understanding that the aircraft delivery dates and any related payments can be extended. The total commitment if exercised during the period, including a proposed price escalation, is valued at approximately $305.1 million, net of deposits paid on future aircraft deliveries of $6.4 million. The Company believes that the pricing structure afforded by utilizing the Piaggio Avanti aircraft allows the Company to attract a program participant desiring quality at a lower price point than its competitors. Offering the cabin cross section of a mid-size aircraft and the fuel efficiency of a turboprop, along with no hourly fees, allows the Company to lower the cost of private air travel for a broader range of individuals and businesses.

The Company’s primary sources of operating funds are the collection of the following:

• management and maintenance fees from fractional owners and lessees;

• lease fees;

• sale of fractional ownership shares; and

• sale of flight hour cards

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Revenue for sales by product category can be found in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012 and 2011, respectively. Sales units by product category are as follows:

	Unit Sales for the Three Months Ended				Unit Sales for the Six Months Ended
	December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
New Fractional Ownership program shares sold		—		1		—		2
Axis Lease program shares leased		9		16		25		42
Axis Club Memberships(1)		—		—		—		1
Flight hour cards		51		84		124		192

⁽¹⁾ Replaced by Axis Lease program in March 2011

On October 25, 2012, the Company made an announcement regarding the voluntary stand down of its operations in order to complete a comprehensive review of records and supporting maintenance documentation and an inspection of its aircraft fleet. This voluntary action was taken in coordination with the Federal Aviation Administration. During the stand down, which lasted approximately three weeks, the Company furloughed a portion of its employees. Beginning November 8, 2012, the Company started recalling its employees and commenced operating some of its aircraft on November 11, 2012 with a return to service of a majority of its fleet by November 19, 2012. The effect of the operational stand down negatively impacted the Company’s cash receipts, liquidity and retention of program participants. Separate of charter and costs associated with retention of program participants, the Company incurred approximately $1.2 million for consulting, Federal Aviation Administration (“FAA”), furlough, legal, communication and other costs.

During the first quarter of fiscal year 2012, the Company began the implementation of a series of cost saving initiatives to reduce fixed costs. These initiatives will continue to have no impact to the safety of flight operations, which is the Company’s highest priority. These initiatives continued throughout fiscal year 2012 and included:

• a reduction in force involving approximately 25 employees, primarily in the Company’s FBO operations;

• elimination of the Company’s satellite marketing office and related expenses;

• renegotiation of the Company’s Clearwater, FL lease;

• closure of the Company’s limited FBO operations in New Jersey;

• organization and personnel changes within the sales and finance departments; and

• other negotiations with key vendors designed to drive operating and performance efficiencies.

Since July 2012, the Company expanded its cost saving initiatives toward its goal of positive earnings and improved cash flows. These initiatives will continue to have no impact to the safety of flight operations, which is the Company’s highest priority. Recent cost saving initiatives include:

• improving financing terms and reducing debt service obligations related to any new, and many of the existing aircraft financing obligations;

• reducing compensation expense for Senior Management, as well as applying measures more broadly throughout the Company;

• reducing compensation to non-employee directors of the Company’s Board of Directors;

• implementing plans designed to reduce fuel expense by dissemination of process guidelines and real-time tracking of fuel usage on all flights together with renegotiation of fuel purchase contracts with key vendors;

• lower maintenance costs resulting from strategically planning scheduled maintenance checks at our facilities, which in turn will reduce third party vendor costs, and optimizing parts inventory to reduce downtime and improve efficiency;

• terminating its FBO operations at the Camarillo facility and entering into a sublease agreement with an unrelated third party which will reduce personnel costs, facility lease payments and other operating expenses; and

• continuing a series of broader efforts throughout the Company, including examination of back office functions to further reduce costs associated with shipping, supplies, travel expense and consulting fees.

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In addition to the cost savings initiatives discussed above, beginning in the third fiscal quarter of 2013, the Company is planning to strategically eliminate more costly aircraft from its fleet and, as a result, expects to see a corresponding decrease in its cost of flight operations, which includes maintenance costs. The Company also anticipates lower maintenance costs as a result of driving increased efficiencies through the use of third party aircraft maintenance operators to provide increased levels of maintenance contract services for its fleet.

Employee Termination and Other Costs

During the third quarter of fiscal year 2012, the Company developed and implemented plans to improve sales performance and deliver efficiencies within the finance department. These plans were evaluated and recorded in accordance with Accounting Standards Codification (“ASC”) ASC 420 “Exit or Disposal Cost Obligations” (“ASC 420”). In connection with the changes in the sales and finance departments, the Company incurred various costs and obligations, including severance payouts to employees and other related charges. The Company expects total costs associated with these activities to be approximately $1.0 million. As of December 31, 2012, the liability attributable to unpaid employee termination and other expense was less than $0.1 million, representing a reduction of approximately $0.1 million from the unpaid employee termination and other expense liability as of June 30, 2012, which was $0.2 million. The reduction in liability represents amounts paid during the six month period ended December 31, 2012. This liability is included in accrued liabilities in the accompanying condensed consolidated balance sheet.

Aircraft Incident

In November 2011, one of the Company’s fractionally-owned aircraft, a 2007 Piaggio P-180, was involved in an incident (“Aircraft Incident”), following which the aircraft was declared a total loss by the Company’s insurer. Only minor injuries were sustained by the passengers and crew. The Company was required to maintain insurance on the aircraft that covered its replacement value, which was estimated to be $4.8 million. During December 2011, the Company received $6.5 million of insurance proceeds which were initially recorded as an accrued liability as of December 31, 2011. The additional insurance proceeds were a result of the Company insuring its aircraft in excess of the replacement value to reimburse the Company for expenses associated with a reduction in available aircraft in its fleet, including, but not limited to, costs incurred for chartered flights, repositioning aircraft to accommodate owner’s requirements, and maintenance costs associated with higher flight hours on the remaining fleet. These proceeds offset similar expenses during the third and fourth quarters of fiscal year 2012 and the first quarter of fiscal year 2013. The fractional ownership documents permit the Company to replace the aircraft on behalf of the fractional owners with another aircraft that is substantially similar and has a market value approximately equal to or greater than the market value of the 2007 Piaggio P-180 involved in the Aircraft Incident. During the third and fourth quarters of fiscal year 2012, the Company purchased the fractional owners’ interest in the aircraft and, simultaneously, the fractional owners of the 2007 Piaggio P-180 entered into new fractional ownership documents for a substantially similar replacement aircraft interest. During the third and fourth quarters of fiscal year 2012, the Company paid a total of approximately $4.8 million and transferred 16.0 fractional shares in connection with this incident. During the first quarter of fiscal year 2013, the Company paid approximately $0.4 million in connection with this incident. As of December 31, 2012, the insurance proceeds liability was zero. In accordance with ASC 225 “Income Statement” (“ASC 225”), there was no gain or loss recognized in connection with the loss of this aircraft.

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Results of Operations

The following table sets forth key information about our financial results for the three months ended December 31, 2012 and 2011:

	Three Months Ended December 31,						Change
	2012			2011			$			%
Revenue
Fractional aircraft shares sold	$	2,764		$	6,774		$	(4,010	)		-59	%
Lease revenue		1,084			596			488			82	%
Management and maintenance fees		22,079			20,994			1,085			5	%
Flight hour card and club membership revenue		5,100			8,767			(3,667	)		-42	%
Flight activity and other ancillary billing		3,460			4,611			(1,151	)		-25	%
Other revenue		1,005			1,206			(201	)		-17	%
Total revenue		35,492			42,948			(7,456	)
Operating expenses
Cost of fractional aircraft shares sold		2,313			5,808			(3,495	)		-60	%
Cost of flight operations		19,381			19,073			308			2	%
Cost of fuel		6,229			9,336			(3,107	)		-33	%
General and administrative expenses		6,900			5,606			1,294			23	%
Selling expenses		584			1,639			(1,055	)		-64	%
Depreciation and amortization		1,137			1,148			(11	)		-1	%
Employee termination and other costs		(31	)		28			(59	)		-211	%
Gain on receipt of used share		(180	)		—			(180	)		-100	%
Gain on sale of asset		(22	)		—			(22	)		-100	%
Total operating expenses		36,311			42,638			(6,327	)
Other income (expense)
Interest and other income		12			14			(2	)		-14	%
Interest expense		(815	)		(1,240	)		425			34	%
Change in fair value of derivative liabilities		59			—			59			100	%
Total other income (expense)		(744	)		(1,226	)		482
Net loss	$	(1,563	)	$	(916	)	$	(647	)		-71	%

Three months ended December 31, 2012 compared to the three months ended December 31, 2011

Total revenue decreased by approximately $7.5 million, primarily as a result of:

• a $4.0 million decrease in fractional aircraft shares sold which was due primarily to the following:

• $3.6 million of lower revenue recognized on fractional shares sold before July 1, 2010, fully amortized prior to December 31, 2012, under ASC 605-25;

• $0.4 million of lower revenue recognized on fractional shares sold with no residual guarantee during the three months ended December 31, 2012 as there were no fractional shares sold with a residual guarantee during the three months ended December 31, 2011;

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• a $3.7 million decrease in flight hour card and club membership revenue due to club memberships expiring through 2012 and a 40% decrease in card hours as a result of the voluntary stand down of operations in the second quarter of fiscal year 2013; and

• a $1.2 million decrease in flight activity and other ancillary billing due to a 34% decrease in revenue-generating flight hours flown in the second quarter of fiscal year 2013 compared to the second quarter of fiscal year 2012 as a result of the voluntary stand down of operations in the second quarter of fiscal year 2013. This resulted in a $1.6 million decrease in flight activity billing, offset by a $0.4 million increase in FAA airworthiness directive billings during the second quarter of fiscal year 2013; and

• a $0.2 million decrease in other revenue due to a decrease in demonstration flight revenue, remarketing fees on pre-owned share sales and FBO fuel and rent revenue.

These decreases were offset by:

• a $1.1 million increase in management and maintenance fees due to a greater number of lessees paying management and maintenance fees as a result of additional sales of the Axis Lease program leases, together with an increase in the average monthly management fee per share; and

• a $0.5 million increase in Axis Lease program lease revenue, which resulted from additional sales of Axis Lease program leases.

Operating expenses decreased by $6.3 million primarily as a result of:

• a $3.5 million decrease in the cost of fractional aircraft shares sold due primarily to the following:

• $3.1 million of lower cost recognized on fractional shares sold before July 1, 2010, fully amortized prior to December 31, 2012, under ASC 605-25; and

• $0.4 million of lower cost recognized on fractional shares sold with no residual guarantee during the three months ended December 31, 2012 as there were no shares sold with a residual guarantee during the three months ended December 31, 2011; and

• a $3.1 million decrease in the cost of fuel due to a 34% reduction in revenue hours flown as a result of the voluntary stand down of operations in the second quarter of fiscal year 2013; and

• a $1.1 million decrease in selling expenses is primarily due to decreased marketing expenses and the Company’s previously discussed cost savings initiatives, which were implemented subsequent to the first quarter of fiscal year 2012.

These decreases were offset by:

• a $1.3 million increase in general and administrative expenses, primarily due to $1.2 million of one-time costs associated with the voluntary stand down and the Company recorded a one-time expense of $1.1 million for a settlement with Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P. and David Greenhouse (the “SSF Investors”), based upon the Post-Effective Amendment to the Registration Statement. These increases were offset by $1.0 million of reductions in various general and administrative expense categories; and

• a $0.3 million increase in the cost of flight operations primarily due to the following:

• a $4.4 million increase in charter expense due to demand for aircraft during peak travel periods in conjunction with reduced core and fractional aircraft availability; and

• offset by a $4.1 million decrease primarily due to lower maintenance costs, flight fees, maintenance and pilot payroll and training as a result of the voluntary stand down of operations in the second quarter of fiscal year 2013, commencement of maintenance outsourcing efforts and reduced aircraft lease expense; and

• a $0.2 million gain on a non-cash, non-reciprocal used share acquisition during the three months ended December 31, 2012, and no such transaction during the three months ended December 31, 2011.

Other income (expense) decreased by $0.5 million primarily as a result of:

• a $0.4 million decrease in interest expense due to an amended and restated Restricted Stock Agreement with Mr. Fuller (“Amended HF Restricted Stock Agreement”).

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The following table sets forth key information about our financial results for the six months ended December 31, 2012 and 2011:

	Six Months Ended December 31,						Change
	2012			2011			$			%
Revenue
Fractional aircraft shares sold	$	6,824		$	13,616		$	(6,792	)		-50	%
Lease revenue		1,982			951			1,031			108	%
Management and maintenance fees		43,697			41,267			2,430			6	%
Flight hour card and club membership revenue		13,852			17,762			(3,910	)		-22	%
Flight activity and other ancillary billing		9,467			9,435			32			0	%
Other revenue		2,543			2,890			(347	)		-12	%
Total revenue		78,365			85,921			(7,556	)
Operating expenses
Cost of fractional aircraft shares sold		5,841			12,415			(6,574	)		-53	%
Cost of flight operations		40,643			38,451			2,192			6	%
Cost of fuel		16,019			18,999			(2,980	)		-16	%
General and administrative expenses		12,135			11,691			444			4	%
Selling expenses		1,610			3,578			(1,968	)		-55	%
Depreciation and amortization		2,588			2,078			510			25	%
Employee termination and other costs		69			28			41			145	%
Gain on receipt of used share		(180	)		—			(180	)		-100	%
Gain on sale of asset		(22	)		—			(22	)		-100	%
Loss on sale of asset		477			—			477			100	%
Total operating expenses		79,180			87,240			(8,060	)
Other income (expense)
Interest and other income		30			80			(50	)		-63	%
Interest expense		(1,807	)		(2,296	)		489			21	%
Change in fair value of derivative liabilities		59			—			59			100	%
Gain on debt extinguishment		—			439			(439	)		-100	%
Total other income (expense)		(1,718	)		(1,777	)		59
Net loss	$	(2,533	)	$	(3,096	)	$	563			18	%

Six months ended December 31, 2012 compared to the six months ended December 31, 2011

Total revenue decreased by approximately $7.6 million, primarily as a result of:

• a $6.8 million decrease in fractional aircraft shares sold was due primarily to the following:

• $6.8 million of lower revenue recognized on fractional shares sold before July 1, 2010, fully amortized prior to December 31, 2012, under ASC 605-25; and

• $0.4 million of lower revenue recognized for fractional shares sold with no residual guarantee during the six months ended December 31, 2012 as there were no shares sold with a residual guarantee during the six months ended December 31, 2012; and

• offset by a $0.4 million increase related to accelerated amortization on one share that was purchased by the Company during the six months ended December 31, 2012; and

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• a $3.9 million decrease in flight hour card and club membership revenue due to club memberships expiring through 2012 and a 23% decrease in card hours flown as a result of the voluntary stand down of operations in the second quarter of fiscal year 2013; and

• a $0.3 million decrease in other revenue due to a decrease in demonstration flight revenue, remarketing fees on pre-owned share sales and FBO fuel and rent revenue.

These decreases were offset by:

• a $2.4 million increase in management and maintenance fees due to a greater number of lessees paying management and maintenance fees as a result of additional sales of the Axis Lease program leases, together with an increase in the average monthly management fee per share; and

• a $1.0 million increase due to a greater number of lessees paying lease fees as a result of additional sales of the Axis Lease program leases; and

• a less than $0.1 million increase in flight activity and other ancillary billing due to $2.1 million of FAA airworthiness directive billings offset by a $2.1 million decrease in flight activity as a result of a 17% decrease in revenue-generating flight hours resulting from the voluntary stand down of operations in the second quarter of fiscal year 2013.

Operating expenses decreased by approximately $8.1 million primarily as a result of:

• a $6.6 million decrease in the cost of fractional aircraft shares sold primarily due to the following:

• $6.2 million decrease in the cost of fractional shares sold before July 1, 2010, fully amortized prior to December 31, 2012, under ASC 605-25; and

• $0.4 million decrease in the cost of fractional shares sold with no residual guarantee during the six months ended December 31, 2012 as there were no shares sold with a residual guarantee during the six months ended December 31, 2011; and

• a $3.0 million decrease in the cost of fuel due to a 17% decrease in total flight hours as a result of the voluntary stand down of operations in the second quarter of fiscal year 2013; and

• a $2.0 million decrease in selling expenses is primarily due to decreased marketing expenses and the Company’s previously discussed cost savings initiatives, which were implemented subsequent to the first quarter of fiscal year 2012; and

• a $0.2 million increase gain on a non-cash, non-reciprocal used share acquisition during the six months ended December 31, 2012, and no such transaction during the six months ended December 31, 2011.

These decreases were offset by:

• a $2.2 million increase in the cost of flight operations primarily due to the following:

• a $5.6 million increase in charter expense due to demand for aircraft during peak travel periods in conjunction with reduced core and fractional aircraft availability, offset by insurance proceeds received for insurance claims on one of the Company’s fractional aircraft that received hail damage while parked on the tarmac during a severe thunderstorm in Colorado, and reduced flight fees and payroll expenses due to the voluntary stand down of operations and commencement of maintenance outsourcing efforts; and

• a $0.5 million increase in depreciation and amortization due primarily to accelerated depreciation of a repurchased share previously held under a lease arrangement, in July 2012; and

• a $0.5 million increase in loss on sale of asset related to a sale-leaseback transaction in the first quarter of fiscal year 2013, which was evaluated in accordance with ASC 840-40 “Sale-Leaseback Transactions” (“ASC 840-40”); There were no such transactions resulting in a loss on sale of asset for the six months ended December 31, 2011; and

• a $0.4 million increase in general and administrative expenses, primarily due to $1.2 million of one-time costs associated with the voluntary stand down and the Company recorded a one-time expense of $1.1 million for a settlement with SSF Investors, based upon the Post-Effective Amendment to the Registration Statement. These increases were offset by $1.9 million of reductions in various general and administrative expense categories.

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Other income (expense) decreased by less than approximately $0.1 million as a result of:

• a $0.5 million decrease in interest expense due to the reduction in November 2012 of the principal amount of lease payments payable to MidSouth/Mr. Fuller in accordance with the Amended HF Restricted Stock Agreement ; and

• a $0.4 million decrease in gain on debt extinguishment due to a gain recognized in the first quarter of fiscal year 2012 and no such gain recognized during the six months ended December 31, 2012.

Liquidity and Capital Resources

The Company’s primary sources of liquidity have been cash provided by operations, cash raised from its equity offering as Ardent Acquisition Corp., cash provided from its debt facilities, cash raised from the preferred and common stock offerings, cash raised from its senior secured convertible promissory notes offering and other asset-based borrowing. The Company uses its cash primarily to fund losses from operations and to fund the purchase and leasing of aircraft. Cash generated from operations has not been sufficient to provide all working capital needed to meet the Company’s requirements. At December 31, 2012 and June 30, 2012, the Company had a working capital deficit of approximately $69.0 million and $75.8 million, respectively, and a stockholders’ deficit of approximately $53.5 million and $53.3 million, respectively. In addition to the cost of acquiring aircraft, the Company’s primary expenses are related to fuel, aircraft repositioning (i.e., moving an aircraft from one location to another to accommodate program participants’ requirements), flight operations and pilot expenses, maintenance, charters, insurance and selling, general and administrative expenses At December 31, 2012 and June 30, 2012, the Company had assets of approximately $81.6 million and $91.3 million, respectively. For the three and six months ended December 31, 2012, the Company had revenue of approximately $35.5 million and $78.4 million, respectively, and net losses of approximately $1.6 million and $2.5 million, respectively. The Company has incurred losses since inception and may not be able to generate sufficient revenue from its business in the future to achieve or sustain profitability and positive cash flows. As of December 31, 2012, cash and cash equivalents were approximately $1.4 million, a decrease of $3.9 million from June 30, 2012. A net decrease in the components of working capital led to approximately $4.5 million of net cash used in operating activities. Capital expenditures for parts, software, computer equipment and office equipment resulted in approximately $0.5 million of cash used in investing activities. Principal payments on short and long-term debt, offset by proceeds received from the senior secured convertible promissory note issuance resulted in approximately $1.2 million of cash provided by financing activities.

The Company’s primary operating strategy is to achieve positive cash flows by continuing the Company’s cost savings initiatives, flight operations cost reductions associated with strategically eliminating more costly aircraft from its fleet and lowering maintenance costs as a result of driving increased efficiencies through the use of third party aircraft maintenance operators to provide increased levels of maintenance contract services for its fleet. During the first quarter of fiscal year 2012, the Company began the implementation of a series of cost saving initiatives, discussed above in “Overview”, to reduce fixed costs and since July 2012, the Company has expanded its cost saving initiatives toward its goal of positive earnings and improved cash flows. These initiatives will continue to have no impact to the safety of flight operations, which is the Company’s highest priority.

Beginning in the second quarter of fiscal year 2013, the Company initiated steps to raise additional capital through multiple offerings of securities. On November 30, 2012, the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) providing for the issuance of an aggregate of up to $10.0 million in principal amount of senior secured convertible promissory notes (the “Notes”) and warrants to purchase up to an aggregate of 40,000,000 shares of common stock (the “Warrants”) The securities offered will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. At the initial closing, which occurred on November 30, 2012, the Company issued to certain members of the Company’s Board of Directors and their affiliates Notes in an aggregate principal amount of $2.8 million and Warrants to purchase an aggregate of 11,200,000 shares (the “Initial Closing”). At an additional closing, which occurred on February 1, 2013, the Company issued to ten accredited investors, that are also participants in the fractional ownership program, Notes in an aggregate principal amount of $712,500 and Warrants to purchase an aggregate of 2,850,000 shares. In addition, on January 17, 2013, the Company, the holders of the Notes and Warrants and Barry Gordon, as collateral agent, entered into the Amendment to Note and Warrant Purchase Agreement, Senior Secured Convertible Promissory Notes, Warrants, Security Agreement and Registration Rights Agreement (the “Note Financing Amendment”). The purpose of the Note Financing Amendment was to include Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P. and David Greenhouse (collectively, the “SSF Investors”) in the financing transaction and to amend the terms by which the documents may be amended, terminated or waived. The Notes bear interest at an initial rate of 2.0% per annum, which will increase to 12.0% per annum if the Company is unsuccessful in obtaining stockholder approval by March 31, 2013 to increase the Company’s authorized shares of common stock so that a sufficient number of shares are reserved for the conversion of the Notes. Holders of the Notes may, at their option, elect to convert all outstanding principal and accrued but unpaid interest on the Notes into shares of common stock at a conversion price of $0.25 per share but may convert only a portion of such Notes if an inadequate number of authorized shares of common stock is available to effect such optional conversion. Holders of the Notes are entitled to certain anti-dilution protections. The Company may prepay the Notes on or after November 28, 2014. The Notes have a maturity date of November 28, 2015, unless the Notes are earlier converted or an event of default or liquidation event occurs. The Warrants are exercisable at an exercise price of $0.50 per share, which exercise price is subject to certain anti-dilution protections, but the Warrants may not be exercised unless a sufficient number of authorized shares of common stock are available for exercise of the Warrants. The Warrants expire on November 30, 2017. The Company may seek to raise additional capital

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in additional closings in which the Company may seek to issue Notes and Warrants, or in subsequent offerings through March 2013. The terms of these proposed offerings may vary from the terms of the Notes and Warrants that were issued in the Note and Warrant financing. The issuance of some or all of these securities, if one or more of these subsequent offerings is consummated, will further substantially dilute the Company’s existing stockholders as will subsequent issuances that will be triggered under anti-dilution and similar provisions of the Company’s outstanding securities. There can be no assurance that the Company will be successful in completing additional closings of the Note and Warrant financing or subsequent offerings or obtaining stockholder approval for any necessary increases in the authorized shares of common stock related to these offerings. If the Company is unable to complete one or more of such offerings or if the amount raised is not adequate, there can be no assurance that the Company can continue operations or meet its ongoing obligations and commitments. In addition, the Company is working with its vendors, lessors and lenders, to extend payment terms as the Company seeks to raise additional capital.

Refer to Note 3 to the accompanying condensed consolidated financial statements for a summary of the Company’s financing arrangements.

Off-Balance Sheet Arrangements

At December 31, 2012, the Company did not have any material commercial commitments (except for those noted in Note 3 “Commitments and Contingencies – Purchase Commitments” in the accompanying condensed consolidated financial statements), including guarantees or standby repurchase obligations, or any relationships with unconsolidated entities or financial partnerships, including entities often referred to as structured finance or special purpose entities or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

As discussed in our Form 10-K for the fiscal year ended June 30, 2012, the discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. The Company believes that of its significant accounting policies, the following may involve a higher degree of judgment and estimation. The judgments, or the methodology on which the judgments are made, are reviewed with the Audit Committee.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The information called for by this Item is omitted in reliance upon Item 305(e) of Regulation S-K.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of December 31, 2012, under the direction of the Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2012, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes to Internal Control over Financial Reporting

As of June 30, 2012, the Company’s management assessed the effectiveness of the Company’s internal controls using the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s assessment, as of June 30, 2012, management believes the Company’s internal controls over financial reporting were not effective based on those criteria. As a result, management identified the following material weakness in the Company’s internal control over financial reporting:

• the Company did not have a control in place for quarterly balance sheet reconciliation reviews with senior financial leadership;

• the Company’s detective control requiring review of journal entries for completeness and accuracy was not operating effectively; and

• the Company’s detective control requiring a monthly review of the consolidated statement of operations was not operating effectively.

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The above control deficiencies, together with the span of time for which the control deficiencies occurred and the misstatements that were identified in the Company’s June 30, 2011 fiscal year-end and fiscal year 2012 and 2011 interim financial statements, led management to conclude that the control deficiencies that existed during the June 30, 2012 and 2011 fiscal years and the quarters within those fiscal years, meet the criteria of a material weakness.

The Company commenced a remediation plan and completed the following actions during the three months ended September 30, 2012:

• The Company replaced the financial leadership that was in place when the control deficiencies occurred with a finance team that has broad public company accounting and finance experience;

• The finance team in place discovered and reported the errors of the previous financial leadership;

• The finance team examined every balance sheet account and improved every balance sheet account reconciliation;

• Reports were developed and procedures improved to properly account for fuel, un-vouchered receipts and capitalization of core aircraft costs; and

• A formal quarterly balance sheet review process was implemented to address the missing control identified above.

There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the three and six months ended December 31, 2012, other than the items identified above, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, the Company is party to various legal proceedings in the normal course of business. It is expected that these claims would be covered by insurance subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. As of December 31, 2012, there were no legal proceedings which the Company would anticipate having a material adverse effect on its financial position, results of operations or cash flows.

Item 1A. Risk Factors.

Information regarding risk factors appears in Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, which was filed with the SEC on September 28, 2012, and in Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012, which was filed with the SEC on November 16, 2012. There have been no material changes from the risk factors previously disclosed in that Annual Report on Form 10-K and Quarterly Report on Form 10-Q except:

Risks Related to Our Business

The Company may face challenges as it seeks to maintain sufficient liquidity, reduce its operating and other expenditures and raise additional funds. The Company may not be able to raise those funds or reduce its operating and other expenditures to expected levels.

The Company has experienced negative cash flow since its inception. The Company’s net cash used in operations for the six months ended December 31, 2012 was approximately $4.5 million and as of December 31, 2012, the Company had cash and cash equivalents of $1.4 million. As of December 31, 2012, the Company had incurred an aggregate of approximately $30.7 million in short and long-term indebtedness to third party lenders, including $2.8 million in senior secured convertible promissory notes. Much of this indebtedness is secured by certain of the Company’s assets. The Company’s business may not generate sufficient cash flow from operations or from other sources sufficient to enable it to repay its indebtedness and to fund its other liquidity needs, which could have a material adverse effect on its business, results of operations and financial condition.

In order to fund the Company’s operations, the Company will need to incur borrowings or raise capital through the sale of debt or equity securities including through the issuance of senior secured convertible promissory notes, or Notes, and warrants, or Warrants, described in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.” The Company’s ability to borrow or access the capital markets for future offerings, including the senior secured convertible promissory note and warrant financing, may be limited by its financial condition as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond its control. The Company’s ability to obtain future financing is subject to the value of its unencumbered assets, the value of which is limited. In addition, the Company may seek to raise additional capital in additional closings of senior secured convertible promissory notes and warrants or in subsequent offerings. The terms of these proposed offerings may vary from the terms of the senior secured convertible promissory notes and warrants issued by the Company in November 2012 and February 2013. The Company anticipates that it will seek to consummate additional closings of senior secured convertible promissory notes and warrants through March 2013. There can be no assurance that the Company will be successful in completing these offerings or obtaining stockholder approval for any necessary increases in the authorized shares of common stock related to these offerings. If the Company is unable to complete one or more of such offerings or if the amount raised is not adequate, there can be no assurance that the Company can continue operations or meet its ongoing obligations and commitments. The Company’s failure to obtain the funds necessary for the operation of the business could have a material adverse effect on its business, results of operations and financial condition.

In addition, since early fiscal year 2012 through February 2013, the Company has engaged in cost saving initiatives. There can be no assurance that continued implementation of these cost savings initiatives will be successful or sufficient. The Company’s inability to continue to engage in cost savings initiatives will have a material adverse effect on its business, results of operations and financial condition.

Avantair recently experienced a voluntary stand down of its operations to complete reviews of its aircraft maintenance records and inspection of its aircraft in coordination with the Federal Aviation Administration (FAA) which could have an adverse impact on the Company’s ability to operate its aircraft and cause Avantair to incur substantial additional costs to continue flight operations.

On October 25, 2012, the Company made an announcement regarding the voluntary stand down of its operations in order to complete a comprehensive review of records and supporting maintenance documentation and an inspection of its aircraft fleet. This voluntary action was taken in coordination with the FAA. During the stand down, which lasted approximately three weeks, the Company furloughed a portion of its employees. Beginning November 8, 2012, the Company started recalling its employees and commenced

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operating some of its aircraft on November 11, 2012 with a return to service of a majority of its fleet by November 19, 2012. The effect of the operational stand down negatively impacted the Company’s cash receipts, liquidity and retention of program participants. Separate of charter and costs associated with retention of program participants, the Company incurred approximately $1.2 million for consulting, FAA, furlough, legal, communication and other costs. There can be no assurance that the Company will not incur additional costs in connection with the stand down, which may have a material adverse effect on the Company’s business, results of operations and financial condition.

The Company’s pilots will have the opportunity to vote to join a labor union in February 2013. If successful, the unionization of the Company’s pilots could disrupt our operations and harm our business.

The Company’s pilots will have the opportunity to vote to join a labor union in February 2013. The Company respects its employees’ right to unionize or not to unionize. However, if the Company’s pilots are successful in organizing a union, it could result in increased labor costs or reduced operating efficiency for the Company, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

Risks Related to Our Common Stock

There will be a substantial number of shares of the Company’s common stock available for sale in the future that will be substantially dilutive to its current stockholders and may cause a decrease in the market price of its common stock.

As of December 31, 2012, the Company had 40,903,717 shares of common stock outstanding, 639,516 shares of common stock available for future issuance under its Amended and Restated 2006 Long-Term Stock Incentive Plan (“2006 Long-Term Stock Incentive Plan”) and warrants to purchase 30,105,630 shares outstanding. In addition, as of December 31, 2012, the Company has 152,000 shares of Series A Convertible Preferred Stock outstanding. As of December 31, 2012, the Company has 12,142,878 shares of common stock reserved for issuance upon the conversion of the outstanding shares of Series A Convertible Preferred Stock. Beginning in the second quarter of fiscal year 2013, the Company initiated steps to raise additional capital through multiple offerings of securities. The securities offered will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. At the Initial Closing, which occurred on November 30, 2012, the Company issued $2.8 million in aggregate principal amount of Notes and Warrants to purchase 11,200,000 shares of the Company’s common stock. At an additional closing, which occurred on February 1, 2013, the Company issued an additional $712,500 in aggregate principal amount of Notes and Warrants to purchase 2,850,000 shares of common stock to ten accredited investors, that are also participants in the fractional ownership program, Notes in an aggregate principal amount of $712,500 and Warrants to purchase an aggregate of 2,850,000 shares. The Company may seek to raise additional capital in additional closings of the Notes and Warrants or subsequent offerings. The terms of these proposed offerings may vary from the terms of the Notes and Warrants. If one or more of these closings or offerings is consummated, the issuance of some or all of these securities will further substantially dilute the Company’s existing stockholders as will additional issuances that will be triggered under anti-dilution and similar provisions of the Company’s outstanding securities. Any dilution of the common stock may cause a decrease in the market price of the common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

LW Warrant and Warrant Amendment

On September 28, 2012, LW Air, which is controlled by Lorne Weil who is a director of the Company, and the Company amended the management agreements for each aircraft managed by the Company and owned by LW Air so that the Company is not required to pay LW Air additional amounts unless usage of the aircraft exceeds 1,350 hours per year, retroactive to the beginning of each management agreement. Simultaneous with this transaction, the Company issued an Amended and Restated Warrant (the “LW Warrant”) with Lorne Weil for the purchase of 2,373,620 shares of the Company’s common stock at an exercise price of $1.00 per share. The LW Warrant replaced the original warrant dated October 19, 2009 that was issued to Lorne Weil for the purchase of 2,373,620 shares of the Company’s common stock. The LW Warrant expires on October 19, 2015 and is subject to certain anti-dilution rights. On November 30, 2012, the Company amended the LW Warrant (the “Warrant Amendment”) which increased the number of shares for which the LW Warrant is exercisable from 2,373,620 shares to 3,560,430 shares of common stock and reduced the exercise price of the LW Warrant from $1.00 per share to $0.50 per share. The Warrant Amendment also amended the antidilution rights so the antidilution provisions of the LW Warrant set forth in the warrant would not apply in connection with the Notes and Warrants. The LW Warrant and Warrant Amendment were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

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LW Restricted Stock Agreement and Additional LW Warrant

Effective September 28, 2012, the terms of the Company’s management agreements with LW Air were amended to irrevocably reduce LW Air’s monthly proceeds pursuant to each of the aircraft management agreements by $25,000 per month for a period of twelve consecutive months beginning in August 2012, or $0.3 million per aircraft, the aggregate reduction of LW Air’s monthly proceeds totaling $1.5 million, with respect to all five of the aircraft owned by LW Air. Simultaneous with this transaction, the Company entered into a Restricted Stock Agreement (the “LW Restricted Stock Agreement”), dated as of September 28, 2012, pursuant to which the Company issued to LW Air 2,000,000 shares of fully-vested restricted stock at a price of $0.75 per share, subject to certain antidilution rights, for an aggregate value of $1.5 million.

On November 30, 2012, the Company entered into Amendment No. 1 to the LW Restricted Stock Agreement with LW Air. The LW Restricted Stock Agreement provided that the shares issued would be entitled to antidilution protections, which would have required the issuance of additional shares to LW Air in connection with the issuance of the Notes and Warrants. Amendment No. 1 provides for, among other things, revised antidilution rights so the antidilution provisions in the LW Restricted Stock Agreement would not apply in connection with the issuance of the Notes and Warrants; the issuance of 4,000,000 additional shares of fully-vested restricted stock to LW Air on November 30, 2012 and warrants to purchase an aggregate of 6,000,000 shares of common stock (the “Additional LW Warrant”) on November 30, 2012, in substantially the same form as the Warrants. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

Amended and HF Restricted Stock Agreement and HF Warrant

In July 2012, the Company entered into a ten year lease agreement with Midsouth for $4.6 million, related to one used Piaggio Avanti II (“July Aircraft Lease and issued 200,000 shares of fully-vested restricted stock, with a par value of $0.0001, at a price of $1.50 per share to reduce the principal balance to be financed by $300,000 pursuant to a restricted stock agreement dated August 16, 2012 with Mr. Fuller (the “Original HF Restricted Stock Agreement”). Following the expiration of the lease agreement, the Company has the option to purchase the aircraft at the then fair market value. The obligation outstanding at September 30, 2012 totaled approximately $4.4 million. The Company paid no fees or commissions in connection with the issuance of these shares.

The Company is currently a party to various lease agreements with Midsouth, Mr. Fuller, or other entities controlled by Mr. Fuller for the lease of seven aircraft (“Aircraft Leases”). On November 30, 2012, the Company entered into an Amended and Restated Restricted Stock Agreement with Mr. Fuller (the “Amended HF Restricted Stock Agreement”), which amended and restated the Original HF Restricted Stock Agreement. Under the Amended HF Restricted Stock Agreement, Mr. Fuller agreed to a reduction in the interest portion of the lease payments under the Aircraft Leases in the aggregate amount of approximately $1.8 million over fifteen months, with a reduction in lease payments in the amount of approximately $0.2 million per month beginning in November 2012 through January 2013, and approximately $0.1 million per month for twelve consecutive months thereafter, ending on January 31, 2014. Pursuant to Amendment No. 1 to the N180HM lease agreement, Mr. Fuller also agreed to extend the term of the lease for an additional sixty (60) months, or until November 30, 2017, on similar terms, except that Mr. Fuller shall have the sole option to terminate the lease agreement and sell the aircraft and the Company agrees that it shall issue to Mr. Fuller a number of units (as defined below) equal to the result of dividing (A) the difference between $1.5 million and the numerical value of the then current payoff amount as outlined in the lease agreement for the aircraft by (B) 0.25. For purposes of this provision, a unit shall consist of one share of the Company’s common stock (the “Issued Stock”) (subject to adjustment as described below) and one warrant to purchase a share of the Company’s common stock at $0.50 (a “Warrant Share”). Mr. Fuller also agreed to extend the term of the Floor Plan Financing Agreement originally entered into in September 2011 for an additional eight (8) months, or until August 30, 2013. In consideration of the foregoing, the Company issued 8,200,000 shares of fully-vested restricted stock to Mr. Fuller, 1,000,000 shares of which related to the $0.3 million reduction in the principal balance of an aircraft to be financed and 7,200,000 shares related to the approximate $1.8 million reduction in the interest portion of the lease payments of the aircraft leases and Amendment No. 1 to the N180HM lease agreement, as well as a warrant (the “HF Warrant”) to purchase 8,400,000 shares of common stock in substantially the same form as the Warrants. The Amended HF Restricted Stock Agreement also contains certain antidilution protections. These securities were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

HF Overfly Warrant

On November 30, 2012, the Company issued a Warrant (the “HF Overfly Warrant”) to Mr. Fuller, to purchase 645,200 shares of common stock at an exercise price of $0.50 per share. The HF Overfly Warrant was issued in lieu of paying additional amounts owed to Mr. Fuller pursuant to certain Aircraft Leases as a result of the aircraft exceeding certain hourly usage limitations. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

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Notes and Warrants

On November 30, 2012, the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) providing for the issuance of an aggregate of up to $10.0 million in principal amount of senior secured convertible promissory notes (the “Notes”) and warrants to purchase up to an aggregate of 40,000,000 shares of common stock (the “Warrants”) at an initial and additional closings (the “Financing”). The securities offered will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. At the Initial Closing, which occurred on November 30, 2012, the Company issued to certain members of the Company’s Board of Directors and their affiliates Notes in an aggregate principal amount of $2.8 million and Warrants to purchase an aggregate of 11,200,000 shares. At an additional closing, which occurred on February 1, 2013, the Company issued to ten accredited investors, that are also participants in the fractional ownership program, Notes in an aggregate principal amount of $712,500 and Warrants to purchase an aggregate of 2,850,000 shares (the “Additional Closing”). In addition, on January 17, 2013, the Company, the holders of the Notes and Warrants and Barry Gordon, as collateral agent, entered into the Amendment to Note and Warrant Purchase Agreement, Senior Secured Convertible Promissory Notes, Warrants, Security Agreement and Registration Rights Agreement (the “Note Financing Amendment”). The Notes bear interest at an initial rate of 2.0% per annum, which will increase to 12.0% per annum if the Company is unsuccessful in obtaining stockholder approval by March 31, 2013 to increase the Company’s authorized shares of common stock so that a sufficient number of shares are reserved for the conversion of the Notes. Holders of the Notes may, at their option, elect to convert all outstanding principal and accrued but unpaid interest on the Notes into shares of common stock at a conversion price of $0.25 per share, but may convert only a portion of such Notes if an inadequate number of authorized shares of common stock is available to effect such optional conversion. Holders of the Notes are entitled to certain anti-dilution protections. The Company may prepay the Notes on or after the November 28, 2014. The Notes have a maturity date of November 28, 2015, unless the Notes are earlier converted or an event of default or liquidation event occurs. An “event of default” occurs, in certain cases following a cure period or declaration by the holders of the Notes, if: the Company’s fails to pay any principal or interest when due under the Note; the Company materially breaches any covenant, representation or warranty under the Financing documents; certain bankruptcy related events occur; the Company admits in writing that it is generally unable to pay its debts as they become due; or the Company ceases the operation of its business without the consent of holders of the Notes. Upon an event of default, in such case following any applicable cure period or applicable declaration by the holders, or liquidation event, the Notes will become due and payable. The Warrants are exercisable at an exercise price of $0.50 per share, which exercise price is subject to certain anti-dilution protections, but the Warrants may not be exercised unless a sufficient number of authorized shares of common stock are available for the exercise of the Warrants. The Warrants expire on November 30, 2017. The securities were issued pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.

EarlyBirdCapital, Inc. Warrants

The EarlyBirdCapital, Inc. warrants (“Warrants”) to purchase common stock are initially exercisable at an exercise price of $0.50 per share, which exercise price is subject to certain anti-dilution protections for issuances of certain securities of the Company at a price less than 75% of the then current exercise price. The Warrants are not exercisable, however, unless a sufficient number of authorized shares of common stock are available for the exercise of the Warrants. The Company has agreed to use best efforts to obtain stockholder approval to increase the number of authorized shares so that a sufficient number will be reserved for issuance upon exercise of the Warrants. Each Warrant expires on the date that is five years following the date the Warrant is issued, or November 30, 2017. The securities were issued pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

See Exhibit Index.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

February 14, 2013

AVANTAIR, INC.
By:	/s/ Steven Santo
	Steven Santo
	Chief Executive Officer
By:	/s/ Carla Stucky
	Carla Stucky
	Chief Financial Officer

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EXHIBIT INDEX

Exhibit Number	Exhibit Description	Filed with this Report	Incorporated by Reference herein from Form or Schedule	Filing Date	SEC File/ Reg. Number
3.1	Fourth Amended and Restated Certificate of Incorporation.		Form 8-K (Exhibit 3.1)	1/25/13	000-51115
10.1	Note and Warrant Purchase Agreement, dated as of November 30, 2012, by and among the Company and certain investors.		Form 8-K (Exhibit 10.1)	12/6/12	000-51115
10.2	Form of Senior Secured Convertible Promissory Note		Form 8-K (Exhibit 10.2)	12/6/12	000-51115
10.3	Form of Warrant issued by the Company to certain investors.		Form 8-K (Exhibit 10.3)	12/6/12	000-51115
10.4	Security Agreement, dated as of November 30, 2012, by and among the Company and Barry Gordon as Collateral Agent.		Form 8-K (Exhibit 10.4)	12/6/12	000-51115
10.5	Registration Rights Agreement, dated as of November 30, 2012, by and among the Company and the investors party thereto.		Form 8-K (Exhibit 10.5)	12/6/12	000-51115
10.6	Amendment No. 1 to Restricted Stock Agreement, dated as of November 30, 2012, issued by the Company to LW Air.		Form 8-K (Exhibit 10.6)	12/6/12	000-51115
10.7	Warrant issued by the Company to LW Air on November 30, 2012.		Form 8-K (Exhibit 10.7)	12/6/12	000-51115
10.8	Amendment No. 1 to Amended and Restated Warrant, dated as of November 30, 2012, issued by the Company to Lorne Weil.		Form 8-K (Exhibit 10.8)	12/6/12	000-51115
10.9	Amended and Restated Restricted Stock Agreement, dated as of November 30, 2012, issued by the Company to Hugh Fuller.		Form 8-K (Exhibit 10.9)	12/6/12	000-51115
10.10	Warrant issued by the Company to Hugh Fuller on November 30, 2012.		Form 8-K (Exhibit 10.10)	12/6/12	000-51115
10.11	Warrant issued by the Company to Hugh Fuller on November 30, 2012.		Form 8-K (Exhibit 10.11)	12/6/12	000-51115
10.12	Amendment No. 1 to the N180HM Aircraft Lease Agreement, dated as of November 30, 2012, by and among the Company and Clear Aircraft, Inc.		Form 8-K (Exhibit 10.12)	12/6/12	000-51115
10.13	Warrant issued by the Company to EarlyBirdCapital, Inc. on November 30, 2012
10.14	Settlement Agreement, dated as of February 6, 2013, by and among the Company, Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P. and David Greenhouse.		Form 8-K (Exhibit 10.1)	2/8/13	000-51115
10.15	Form of Senior Secured Convertible Promissory Note issued by the Company		Form 8-K (Exhibit 10.2)	2/8/13	000-51115
10.16	Form of Warrant issued by the Company		Form 8-K (Exhibit 10.3)	2/8/13	000-51115
10.17	Registration Rights Agreement, dated as of February 6, 2013, by and among the Company, Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P. and David Greenhouse.		Form 8-K (Exhibit 10.4)	2/8/13	000-51115
31.1	Chief Executive Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
31.2	Chief Financial Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
32	Certification of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002
101*	The following materials from Avantair, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of December 31, 2012 (unaudited) and June 30, 2012 (Note 2), (ii) the Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2012 and 2011 (unaudited), (iii) the Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2012 and 2011 (unaudited), and (v) Notes to Condensed Consolidated Financial Statements (unaudited).

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

EX-10.13

Exhibit 10.13

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY OTHER APPLICABLE SECURITIES LAWS, AND ARE RESTRICTED SECURITIES AS THAT TERM IS DEFINED UNDER RULE 144 PROMULGATED UNDER THE ACT. THESE SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, TRANSFERRED, DISTRIBUTED OR OTHERWISE DISPOSED OF IN ANY MANNER UNLESS THEY ARE REGISTERED UNDER THE ACT AND ANY APPLICABLE SECURITIES LAWS, OR UNLESS THE REQUEST FOR TRANSFER IS ACCOMPANIED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH DISPOSITION IS EXEMPT FROM REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

THE REGISTERED HOLDER OF THIS WARRANT, BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS WARRANT, EXCEPT AS HEREIN PROVIDED.

VOID AFTER 5:00 P.M. EASTERN TIME, NOVEMBER 30, 2017

WARRANT

TO PURCHASE SHARES OF COMMON STOCK OF

AVANTAIR, INC.

1. Warrant.

THIS CERTIFIES THAT, for good and valuable consideration, duly paid by or on behalf of EarlyBirdCapital, Inc. (“Holder”), as registered owner of this Warrant, to Avantair, Inc. (“Company”), Holder is entitled, subject to the provisions of Section 2 hereof, at any time or from time to time at or before 5:00 p.m., Eastern Time on November 30, 2017 (“Expiration Date”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to 250,000 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”). If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. This Warrant is initially exercisable at $0.50 per share of Common Stock purchased; provided, however, that upon the occurrence of any of the events specified in Section 6 and Section 10 hereof, the rights granted by this Warrant, including the exercise price and the number of shares of Common Stock to be received upon such exercise, shall be adjusted as therein specified. The term “Exercise Price” shall mean the initial exercise price or the adjusted exercise price, depending on the context, of a share of Common Stock. The term “Securities” shall mean the shares of Common Stock issuable upon exercise of this Warrant. The Securities issuable upon exercise of this Warrant are not subject to any obligation of the Company to be registered for resale under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a registration statement.

2. Exercise.

2.1 Exercise. In order to exercise this Warrant, the notice of exercise form attached hereto as Exhibit A must be duly executed, completed and delivered to the Company with this Warrant to its principal office and payment of the Exercise Price for the securities being purchased in cash by wire transfer as indicated by the Company. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire. Upon valid exercise of this Warrant (and delivery of any required payment in immediately available funds), the Company shall cause to be delivered to the Holder, as soon as practicable, certificates evidencing the shares of Common Stock issuable upon such exercise. In the event such exercise would result in a fractional share being delivered to the Holder, such fractional share shall be rounded down to the nearest whole share. The Company shall provide ten (10) days’ prior written notice of any liquidation, winding up or dissolution of the Company or a Liquidation (as defined in the Company’s Certificate of Incorporation, as amended) of the Company (each, a “Liquidation Event”) to the Holder, so that the Holder shall have a reasonable opportunity to exercise the Warrant prior to the Liquidation Event in accordance with this Section 2.1.

2.2 Issue Tax. The issuance of certificates for the shares of Common Stock underlying this warrant upon the exercise of this Warrant shall be made without charge to the Holder for any issue tax in respect thereof.

2.3 Legend. Each certificate for Securities purchased under this Warrant shall bear a legend as follows, unless such Securities have been registered under the Securities Act.

“THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.”

3. Transfer.

3.1 General Restrictions. The registered Holder of this Warrant, by his acceptance hereof, agrees that he will not sell, transfer or assign or hypothecate this Warrant to anyone other than an Affiliate of the Holder in compliance with, or pursuant to an exemption from, applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto as Exhibit B duly executed and completed, together with this Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company

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shall immediately transfer this Warrant on the books of the Company and shall execute and deliver a new Warrant or Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of shares of Common Stock purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.

For purposes of this Section 3.1, an “Affiliate” of any Person means any other Person which, directly or indirectly, is in Control of, is Controlled by, or is under common Control with such Person. When used with respect to any Person, “Control” means the power, directly or indirectly, to direct the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the term “Controlled” has a meaning correlative to the foregoing. A “Person” is an individual or a corporation, association, partnership, limited liability company, joint venture, organization, firm, business, trust, or any other entity or unincorporated organization, domestic or foreign, including a municipality, county, state, body politic or other government (including any federal or foreign government), dependency or colony, or any subdivision or agency thereof. For purposes of this Section 3.1, an “Affiliate” shall also include (i), in the case of a trust, a trustor, settlor or beneficiary thereof, (ii), in the case of a partnership or limited liability company, a partner or member thereof, and (iii), in the case of an individual, a spouse or descendant thereof, a trust for the benefit of any such Persons, a partnership or limited liability company comprised of any such Persons, and an executor or administrator for any such Persons or their estates.

3.2 Restrictions Imposed by the Securities Act. This Warrant and the Securities underlying this Warrant shall not be transferred unless and until either (i) the Company has received the opinion of counsel for the Holder that such securities may be sold pursuant to an exemption from registration under the Securities Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company, or (ii) a registration statement relating to such securities has been filed by the Company and declared effective by the Securities and Exchange Commission.

4. New Warrants to be Issued.

4.1 Partial Exercise or Transfer. Subject to the restrictions in Section 3 hereof, this Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Warrant for cancellation, together with the duly executed exercise or assignment form and funds (or conversion equivalent) sufficient to pay any Exercise Price and/or transfer tax, the Company shall cause to be delivered to the Holder without charge a new Warrant of like tenor to this Warrant in the name of the Holder evidencing the right of the Holder to purchase the aggregate number of shares of Common Stock and Warrants purchasable hereunder as to which this Warrant has not been exercised or assigned.

4.2 Lost Certificate. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant and of reasonably satisfactory indemnification, the Company shall execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.

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5. Reserved.

6. Adjustments

6.1 Adjustments to Exercise Price and Number of Securities. The Exercise Price and the number of shares of Common Stock underlying this Warrant shall be subject to adjustment from time to time as hereinafter set forth:

6.1.1 Stock Dividends - Recapitalization, Reclassification, Split-Ups. If, after the date hereof, and subject to the provisions of Section 6.2 below, the number of outstanding shares of Common Stock is increased by a stock dividend on the Common Stock payable in shares of Common Stock or by a split-up, recapitalization or reclassification of shares of Common Stock or other similar event, then, at the close of business on the effective date thereof, the number of shares of Common Stock issuable on exercise of this Warrant shall be increased in proportion to such increase in outstanding shares.

6.1.2 Aggregation of Shares. If after the date hereof, and subject to the provisions of Section 6.2, the number of outstanding shares of Common Stock is decreased by a consolidation, combination or reclassification of shares of Common Stock or other similar event, then, upon the effective date thereof, the number of shares of Common Stock issuable on exercise of this Warrant shall be decreased in proportion to such decrease in outstanding shares.

6.1.3 Adjustments in Exercise Price. Whenever the number of shares of Common Stock purchasable upon the exercise of this Warrant is adjusted, as provided in this Section 6.1, the Exercise Price shall be adjusted (to the nearest cent) by multiplying such Exercise Price immediately prior to such adjustment by a fraction (x) the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise of this Warrant immediately prior to such adjustment, and (y) the denominator of which shall be the number of shares of Common Stock so purchasable immediately thereafter.

6.1.4 Replacement of Securities upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding shares of Common Stock other than a change covered by Section 6.1.1 or 6.1.2 hereof or which solely affects the par value of such shares of Common Stock, or in the case of any merger or consolidation of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or reorganization of the outstanding shares of Common Stock), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Warrant shall have the right thereafter (until the expiration of the right of exercise of this Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or other transfer, by a Holder of the number of shares of Common Stock of the Company obtainable upon exercise of this Warrant immediately prior to such event; and if any reclassification also results in a

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change in shares of Common Stock covered by Sections 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to Sections 6.1.1, 6.1.2, 6.1.3 and this Section 6.1.4. The provisions of this Section 6.1.4 shall similarly apply to successive reclassifications, reorganizations, mergers or consolidations, sales or other transfers.

6.1.5 Changes in Form of Warrant. This form of Warrant need not be changed because of any change pursuant to this Section, and Warrants issued after such change may state the same Exercise Price and the same number of shares of Common Stock and Warrants as are stated in the Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Warrants reflecting a required or permissive change shall not be deemed to waive any rights to a prior adjustment or the computation thereof.

6.2 Fractional Interest. The Company shall not be required to issue fractional shares of Common Stock upon the exercise of this Warrant. If any fractional share of Common Stock would, except for the provisions of the first sentence of this Section 6.2, be deliverable upon such exercise, the Company, in lieu of delivering such fractional share, shall pay to the exercising Holder an amount in cash equal to the Market Price of such fractional share of Common Stock on the date of exercise. “Market Price” as of a particular date shall mean the following: (a) if the Common Stock is then listed on a national stock exchange, the closing sale price of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock is then quoted on the OTC Bulletin Board or such similar quotation system or association, the closing sale price of one share of Common Stock on the OTC Bulletin Board or such other quotation system or association on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low asked price quoted thereon on the last trading day prior to the Valuation Date; or (c) if the Common Stock is not then listed on a national stock exchange or quoted on the OTC Bulletin Board or such other quotation system or association, the fair market value of one share of Common Stock as of the Valuation Date, as determined in good faith by the Board of Directors of the Company and the Warrantholder.

7. Reservation and Listing. The Company hereby represents and warrants that there may not be reserved out of the authorized and unissued shares of Common Stock, sufficient shares to provide for the exercise of the rights of purchase represented by this Warrant. UNLESS AND UNTIL SUFFICIENT SHARES OF COMMON STOCK ARE AUTHORIZED FOR THE EXERCISE OF THIS WARRANT, THIS WARRANT SHALL NOT BE EXERCISABLE. The Company shall use best efforts to obtain stockholder approval to increase the number of authorized shares of Common Stock so that a sufficient number of shares of Common Stock shall be reserved so that all Securities issued upon due exercise of this Warrant shall be, at the time of delivery of the certificates for such Securities, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common Stock and other securities issued upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. As long as the Warrants shall be outstanding, the Company shall use its commercially reasonable efforts to cause all shares of Common Stock issuable upon exercise of the Warrants to be listed (subject to official notice of issuance) or quoted on the OTC Bulletin Board or such other market on which the Common Stock is then listed and/or quoted.

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8. Certain Notice Requirements.

8.1 Holder’s Right to Receive Notice. Nothing herein shall be construed as conferring upon the Holder the right to vote or consent or as having any rights whatsoever as a shareholder of the Company.

8.2 Notice of Change in Exercise Price. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 or Section 10 hereof, send notice to the Holder of such event and change (“Price Notice”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s President and Chief Financial Officer.

8.3 Transmittal of Notices. All notices, requests, consents and other communications under this Warrant shall be in writing and shall be deemed to have been duly made on the date of delivery if delivered personally or sent by overnight courier, with acknowledgment of receipt by the party to which notice is given, or on the fifth day after mailing if mailed to the party to whom notice is to be given, postage prepaid and properly addressed as follows: (i) if to the registered Holder of this Warrant, to the address of such Holder as shown on the books of the Company on the date of the communication, or (ii) if to the Company, to its principal executive office on the date of the communication.

9. Miscellaneous.

9.1 Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Warrant.

9.2 Entire Agreement. This Warrant, together with that certain Note and Warrant Purchase Agreement dated as of November 28, 2012 by and among the Company and Holders, as the same may be amended and/or restated from time to time (the “Note and Warrant Purchase Agreement”), constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof, and this Warrant shall be subject to Sections 5.2, 6.1, 6.3, 6.8 and 6.11 of the Note and Warrant Purchase Agreement.

9.3 Binding Effect. This Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Warrant or any provisions herein contained.

9.4 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Note and Warrant Purchase Agreement.

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9.5 Waiver, Etc. The failure of the Company or the Holder to at any time enforce any of the provisions of this Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.

9.6 Amendments, Modifications and Waivers. Provisions of this Warrant may be amended, modified or waived only in accordance with Section 6.8 of the Note and Warrant Purchase Agreement.

10. Anti Dilution Rights.

(a) Adjustments to Exercise Price for Diluting Issues.

(i) Special Definitions. For purposes of this Section 10(a), the following definitions shall apply:

(A) “Option” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities.

(B) “Convertible Securities” shall mean any evidences of indebtedness, shares, or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.

(C) “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Section 10(a)(ii), deemed to be issued) by the Company after the date hereof, other than the following (collectively, “Excluded Shares”):

(1) shares of Common Stock issued or issuable to officers, employees or directors of, or consultants to, the Company pursuant to a stock purchase or option plan or other compensatory stock arrangements approved by the Board of Directors of the Company;

(2) grants or issuances of Common Stock, Options or Convertible Securities to lenders, equipment lessors or other financing sources in connection with providing the Company with financing and the shares of Common Stock issued or issuable upon conversion of any such Convertible Securities or exercise of any Options;

(3) shares of Common Stock issued or issuable upon conversion of any Convertible Securities or exercise of any Options in each case outstanding on the date hereof, on the terms existing on the date hereof;

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(4) shares of Common Stock issued solely in consideration for the acquisition (by merger or otherwise) of assets of, or equity interests in, another entity;

(5) any other shares of Common Stock, which shares are expressly determined to be Excluded Shares by the Holder;

(6) any shares of Common Stock and warrants issued pursuant to the Restricted Stock Agreement by and between the Company and affiliates of Lorne Weil dated as of September 28, 2012, as amended from time to time including without limitation Amendment No. 1 thereto, and any shares of Common Stock issuable upon exercise of such warrants;

(7) the Amended and Restated Warrant dated as of September 28, 2012 issued to Lorne Weil, as amended from time to time including without limitation Amendment No. 1 to Amended and Restated Warrant (as so amended, the “LW Warrant”), and any shares of Common Stock issuable upon exercise of the LW Warrant;

(8) any Notes and Warrants issued under the Note and Warrant Purchase Agreement or shares of Common Stock issuable upon conversion or exercise thereof and any convertible notes having a conversion price that is greater than or equal to the Conversion Price (as defined in the Notes (as defined in the Note and Warrant Purchase Agreement)), the shares of Common Stock issuable upon conversion of such convertible notes, any warrants having an exercise price that is greater than or equal to the Exercise Price, and the shares of Common Stock issuable upon exercise of such warrants;

(9) shares of Common Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Section 6; and

(10) grants or issuances of Common Stock, Options or Convertible Securities to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board of Directors of the Company.

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(ii) Issue of Securities Deemed Issue of Additional Shares of Common Stock.

(A) Options and Convertible Securities. If the Company at any time or from time to time after the date hereof shall issue any Options or Convertible Securities (excluding any Options or Convertible Securities which are Excluded Shares) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issuance or, in case such a record date shall have been fixed, as of the close of business on such record date; provided, however, that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 10(a)(iv) hereof) of such Additional Shares of Common Stock would be less than 75% of the applicable Exercise Price in effect on the date of and immediately prior to such issuance (the “Anti-dilution Threshold”), or such record date, as the case may be; provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued:

(1) no further adjustment in the applicable Exercise Price shall be made upon the subsequent issuance of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;

(2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Company, or any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof, the applicable Exercise Price computed upon the original issuance thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;

(3) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the applicable Exercise Price computed upon the original issuance thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:

(I) In the case of Convertible Securities convertible into or exchange for, or Options to purchase, Common Stock, the only Additional Shares of Common Stock issued were the shares of

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Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company for the issuance of all such Options, whether or not exercised, plus the consideration actually received by the Company upon such exercise, or for the issuance of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Company upon such conversion or exchange; and

(II) In the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof that were issued at the time of issuance of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Company for the issuance of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Company (determined pursuant to Section 10(a)(iv) upon the issuance of the Convertible Securities with respect to which such Options were actually exercised);

(4) no readjustment pursuant to clause (2) or (3) above shall have the effect of increasing the applicable Exercise Price to an amount which exceeds the lower of (I) the applicable Exercise Price on the original adjustment date or (II) the applicable Exercise Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date;

(5) in the case of any Options which expire by their terms not more than thirty (30) days after the date of issuance thereof, no adjustment of the applicable Exercise Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (3) above; and

(6) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the applicable Exercise Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the applicable Exercise Price shall be adjusted pursuant to this Section 10(a) as of the actual date of their issuance.

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(iii) Adjustment of Exercise Price Upon Issuance of Additional Shares of Common Stock.

(A) If the Company shall issue Additional Shares of Common Stock (including, without limitation, Additional Shares of Common Stock deemed to be issued pursuant to Section 10(a)(ii) but excluding Additional Shares of Common Stock deemed to be issued pursuant to Section 10(a)(iii)(B)(I)), without consideration or for a consideration per share less than the applicable Anti-dilution Threshold in effect on the date of and immediately prior to such issuance, then and in such event, such applicable Exercise Price shall be reduced, concurrently with such issuance, to a price (calculated to the nearest cent) determined by multiplying such applicable Exercise Price by a fraction which is equal to (I) the sum of (a) the number of shares of Common Stock outstanding immediately prior to such issue plus (b) the number of shares of Common Stock which the aggregate consideration received or deemed to have been received by the Company for the total number of Additional Shares of Common Stock so issued would purchase at such applicable Anti-dilution Threshold divided by (II) the sum of (x) number of shares of Common Stock outstanding immediately prior to such issuance plus (y) the number of Additional Shares of Common Stock so issued or deemed to be issued.

(B) For the purposes of Section 10(a)(iii) hereof, (I) all shares of Common Stock issuable upon conversion of the Company’s preferred stock (“Convertible Preferred Stock”) and upon exercise of Options or conversion or exchange of Convertible Securities which are part of the Excluded Shares, outstanding immediately prior to any issuance of Additional Shares of Common Stock, or any event with respect to which Additional Shares of Common Stock shall be deemed to be issued, shall be deemed to be outstanding; and (II) immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 10(a)(ii), such Additional Shares of Common Stock shall be deemed to be outstanding.

(C) Notwithstanding anything to the contrary contained herein, the applicable Exercise Price in effect at the time Additional Shares of Common Stock are issued or deemed to be issued shall not be reduced pursuant to Section 10(a)(iii) hereof at such time if the amount of such reduction would be an amount less than $0.01, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more.

(iv) Determination of Consideration. For purposes of this Section 10(a), the consideration received by the Company for the issuance of any Additional Shares of Common Stock shall be computed as follows:

(A) Cash and Property. Such consideration shall:

(1) insofar as it consists of cash, be computed at the aggregate amounts of cash received by the Company excluding amounts paid or payable for accrued interest or accrued dividends;

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(2) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and

(3) if Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (1) and (2) above, as determined in good faith by the Board of Directors.

(B) Options and Convertible Securities. The consideration per share received by the Company for Additional Shares of Common Stock deemed to have been issued pursuant to Section 10(a)(ii), relating to Options and Convertible Securities, shall be determined by dividing (1) the total amount, if any, received or receivable by the Company as consideration for the issuance of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (2) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

(v) No Adjustment of Exercise Price. No adjustment shall be made to the applicable Exercise Price pursuant to this Section 10 if prior to such issuance, the Company receives written notice from the Holder agreeing that no such adjustment shall be made as the result of the issuance of such Additional Shares of Common Stock.

(vi) Changes to Exercise Price. Upon any adjustment to the Exercise Price pursuant to Section 6.1 hereof, any previous anti-dilution adjustments made pursuant to this Section 10 shall be reflected in the new Exercise Price in the manner set forth in Section 6.1.

[Remainder of Page Intentionally Left Blank]

12

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer as of the 30th day of November, 2012.

AVANTAIR INC.
By:	/s/ Stephen M. Wagman
Name:	Stephen M. Wagman
Title:	President

13

EXHIBIT A

NOTICE OF EXERCISE

TO:                     

(1) The undersigned hereby elects to purchase                  Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2) Payment shall take the form of lawful money of the United States.

(3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity:

Signature of Authorized Signatory of Investing Entity:

Name of Authorized Signatory:

Title of Authorized Signatory:

Date:

EXHIBIT B

ASSIGNMENT FORM

(To assign the foregoing Warrant, execute

this form and supply required information.

Do not use this form to exercise the Warrant.)

FOR VALUE RECEIVED, [                    ] all of or [                ] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

whose address is

.

Dated: ,

Holder’s Signature:

Holder’s Address:

Signature Guaranteed:

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

15

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Steven Santo, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Avantair, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 14, 2013

/s/ Steven Santo
Name:	Steven Santo
Title:	Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Carla Stucky, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Avantair, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 14, 2013

/s/ Carla Stucky
Name:	Carla Stucky
Title:	Chief Financial Officer (Principal Financial Officer)

EX-32

Exhibit 32

CERTIFICATIONS UNDER SECTION 906

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Avantair, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report for the quarter ended December 31, 2012 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 14, 2013	/s/ Steven Santo
	Steven Santo
	Chief Executive Officer
	(Principal Executive Officer)
Dated: February 14, 2013	/s/ Carla Stucky
	Carla Stucky
	Chief Financial Officer
	(Principal Financial Officer)

XML

Equity Transactions (Details) (USD $)	6 Months Ended
	Dec. 31, 2012
Early Bird Capital Warrants [Member]
Summary of Monte Carlo model to estimate the fair value for the warrants issued
Date of Issuance	Aug. 03, 2012
Underlying stock value	$ 0.40
Exercise price	$ 0.60
Term	3 years 22 days
Volatility	75.00%
Interest rate	0.32%
Number of simulations	One million
Fair Value of Warrant on Date of Issuance	$ 0.07
Early Bird Capital Purchase Agreement Warrants [Member]
Summary of Monte Carlo model to estimate the fair value for the warrants issued
Date of Issuance	Nov. 25, 2012
Underlying stock value	$ 0.15
Exercise price	$ 0.50
Term	5 years
Volatility	85.00%
Interest rate	0.70%
Number of simulations	One million
Fair Value of Warrant on Date of Issuance	$ 0.10
LW Air Warrants [Member]
Summary of Monte Carlo model to estimate the fair value for the warrants issued
Date of Issuance	Nov. 30, 2012
Underlying stock value	$ 0.15
Exercise price	$ 0.50
Term	3 years
Volatility	85.00%
Interest rate	0.40%
Number of simulations	One million
Fair Value of Warrant on Date of Issuance	$ 0.08
LW Air Amendment Warrants [Member]
Summary of Monte Carlo model to estimate the fair value for the warrants issued
Date of Issuance	Nov. 30, 2012
Underlying stock value	$ 0.15
Exercise price	$ 0.50
Term	2 years 10 months 17 days
Volatility	85.00%
Interest rate	0.40%
Number of simulations	One million
Fair Value of Warrant on Date of Issuance	$ 0.03
HF Warrant [Member]
Summary of Monte Carlo model to estimate the fair value for the warrants issued
Date of Issuance	Nov. 30, 2012
Underlying stock value	$ 0.15
Exercise price	$ 0.50
Term	5 years
Volatility	85.00%
Interest rate	0.70%
Number of simulations	One million
Fair Value of Warrant on Date of Issuance	$ 0.04
HF Overfly Warrant [Member]
Summary of Monte Carlo model to estimate the fair value for the warrants issued
Date of Issuance	Nov. 30, 2012
Underlying stock value	$ 0.15
Exercise price	$ 0.50
Term	3 years
Volatility	85.00%
Interest rate	0.40%
Number of simulations	One million
Fair Value of Warrant on Date of Issuance	$ 0.04
Senior Secured Notes Detachable Warrant [Member]
Summary of Monte Carlo model to estimate the fair value for the warrants issued
Date of Issuance	Nov. 30, 2012
Underlying stock value	$ 0.15
Exercise price	$ 0.50
Term	5 years
Volatility	85.00%
Interest rate	0.70%
Number of simulations	One million
Fair Value of Warrant on Date of Issuance	$ 0.10
Senior Secured Notes Embedded Conversion Feature Warrant [Member]
Summary of Monte Carlo model to estimate the fair value for the warrants issued
Date of Issuance	Nov. 30, 2012
Underlying stock value	$ 0.15
Exercise price	$ 0.25
Term	3 years
Volatility	85.00%
Interest rate	0.40%
Number of simulations	One million
Fair Value of Warrant on Date of Issuance	$ 0.09

XML

Equity Transactions

6 Months Ended

Dec. 31, 2012

Equity Transactions [Abstract]

EQUITY TRANSACTIONS

NOTE 4 – EQUITY TRANSACTIONS

Capital Stock

As of December 31, 2012, the Company had 40,903,717 shares of its common stock outstanding and 639,516 shares of common stock available for future issuance under the Company’s 2006 Long-Term Incentive Plan. As of December 31, 2012, the Company had 152,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Shares”) outstanding. The Company has 12,142,878 shares of common stock reserved on its books and records for issuance upon the conversion of the outstanding Series A Preferred Shares. As a result of the sale of shares consummated on June 30, 2009, September 25, 2009 and October 16, 2009, the conversion price of the Series A Preferred Shares was reduced from $5.15 to $3.57. As a result of the grant of fully-vested restricted stock in July 2012 and September 2012 related to a new capital lease and an amendment of an operating lease, the conversion price of the Series A Preferred Shares was reduced from $3.57 to $3.35. As a result of November 2012 amendments to the July 2012 and September 2012 grants of fully-vested restricted stock related to a new capital lease and an amendment of an operating lease, and new grants of restricted stock in November 2012 related to a reduction in interest on capital lease and floor plan payments, as well as the Notes and Warrants issued pursuant to the Initial Closing, the conversion price of the Series A Preferred Shares was reduced from $3.35 to $1.25.

During the six months ended December 31, 2012, the Company accrued, but did not pay, dividends on preferred stock of approximately $0.7 million. The Company does not expect to pay dividends on preferred stock for the foreseeable future. As a result of not paying the preferred stock dividend, the dividend rate increased from 9.0% to 9.5% as of December 31, 2012. Continued non-payment of the preferred stock dividends will result in further increases to the dividend rate.

Restricted Shares and Stock Options

By recommendation of the Compensation Committee and approval by the Board of Directors, and in accordance with an Employment Agreement executed July 14, 2011, the Company granted equity compensation to Stephen Wagman, President, pursuant to the Company’s Amended and Restated 2006 Long-Term Incentive Plan, as follows:

• 30,000 shares of restricted stock granted in July 2011, subject to a three year vesting period, with one-third of the shares vesting upon each of the first three anniversaries of the date of the Employment Agreement, subject to Mr. Wagman’s continued employment with the Company on each vesting date. The fair value at the date of grant was $1.90 per share.

• 425,000 stock options granted in July 2011, exercisable at $2.25 per share, subject to a three year vesting period, with one-third of the shares vesting upon each of the first three anniversaries of the date of the Employment Agreement, subject to Mr. Wagman’s continued employment with the Company on each vesting date and the Company achieving certain financial target goals.

In September 2012, by recommendation of the Compensation Committee and approval by the Board of Directors, the Company granted equity compensation to certain employees, pursuant to the Company’s Amended and Restated 2006 Long-Term Incentive Plan, as follows:

• 600,000 shares of restricted stock to the Company’s executives and management team, subject to performance-based vesting measures; and

• 595,650 stock options to employees of the Company, subject to a three year vesting schedule, with one-third vesting on each successive anniversary date of grant. The fair value of the stock options was $0.42 per share.

In February 2012, the Company granted deferred equity compensation to each of its seven Non-Employee Directors, pursuant to the Amended and Restated 2006 Long-Term Incentive Plan, as follows:

• 60,000 shares of restricted stock granted which shall convert into shares of the Company’s common stock on a one-for-one basis upon the earliest of (i) the date of the Non-Employee Director’s cessation of service with the Company, or (ii) the date of a change in control of the Company and 80,000 shares of restricted stock, which shares shall be nontransferable until the earlier of the date of the Non-Employee Director’s cessation of service with the Company or the date of change in control of the Company.

Stock-based compensation expense related to the plan, which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations, was approximately $0.2 million and $0.3 million for the three and six months ended December 31, 2012 and was approximately $0.2 million and $0.4 million for the three and six months ended December 31, 2011, respectively.

Warrants

The following assumptions were used in valuing the warrants under the Monte Carlo method on their respective dates of issuance. The Monte Carlo method is a theoretical forward-looking valuation model.

	EarlyBirdCapital Warrants						LW Air Warrants						Hugh Fuller Warrants						Senior Secured  Convertible Promissory Notes
	Third Party Aircraft Purchase AgreementA			Purchase AgreementB			Additional LW WarrantC			Warrant AmendmentD			HF WarrantE			HF Overfly WarrantF			Detachable WarrantsG			Embedded Conversion Feature H
Date of Issuance		August 3, 2012			November 25, 2012			November 30, 2012			November 30, 2012			November 30, 2012			November 30, 2012			November 30, 2012			November 30, 2012
Underlying stock value1	$	0.40		$	0.15		$	0.15		$	0.15		$	0.15		$	0.15		$	0.15		$	0.15
Exercise price2	$	0.60		$	0.50		$	0.50		$	0.50		$	0.50		$	0.50		$	0.50		$	0.25
Term3		3.06			5.00			3.00			2.88			5.00			3.00			5.00			3.00
Volatility		75.00	%		85.00	%		85.00	%		85.00	%		85.00	%		85.00	%		85.00	%		85.00	%
Interest rate1,3		0.32	%		0.70	%		0.40	%		0.40	%		0.70	%		0.40	%		0.70	%		0.40	%
Number of simulations4		One million			One million			One million			One million			One million			One million			One million			One million
Fair Value of Warrant on Date of Issuance	$	0.07		$	0.10		$	0.08		$	0.03		$	0.04		$	0.04		$	0.10		$	0.09

¹  As of the valuation date (date of issuance)

²  Per warrant agreement

³  Based on vesting period on date of issuance, amount stated in years.

⁴  The number of simulations is a parameter in the Monte Carlo model that improves the statistical accuracy of the fair value produced.

A. EarlyBirdCapital, Inc. Third Party Aircraft Purchase Agreement

On August 3, 2012, pursuant to an agreement between EBC and the Company, in consideration for services rendered in connection with an aircraft purchase agreement with a third party, the Company issued to EBC and its affiliates 50,000 warrants to purchase common stock which expire on August 2, 2015. Each warrant permits the holder to purchase one share of the Company’s common stock at an exercise price of $0.60 per share. The fair value of the warrants was estimated at $0.07 per warrant. Due to the immateriality of the amount, the Company immediately expensed the full amount to cost of flight operations during the three months ended September 30, 2012. The Company has the option to redeem warrants at any time at the price of $0.01 per warrant, provided that the volume weighted average price of the Company’s common stock has been at least 200.0% of the exercise price of a warrant for any twenty trading days during any consecutive thirty trading day period ending on the third trading day preceding the date of the notice of redemption. The holder did not exercise any of the warrants nor did the Company redeem any of the warrants on or after August 3, 2012 through December 31, 2012. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

B. EarlyBirdCapital, Inc. Purchase Agreement

On November 25, 2012, in consideration for financial consulting and/or investment banking services performed by EBC in connection with the Purchase Agreement, the Company issued warrants to EBC for the purchase of 250,000 shares of the Company’s common stock which expire on November 25, 2017. Each warrant permits the holder to purchase one share of the Company’s common stock at an exercise price of $0.50 per share. The fair value of the warrants was estimated at $0.10 per warrant using the Monte Carlo method. Due to the immateriality of the amount, the Company immediately expensed the full amount to interest expense during the three months ended December 31, 2012. The holder did not exercise any of the warrants nor did the Company redeem any of the warrants on or after November 25, 2012 through December 31, 2012. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

C. Additional LW Warrant

On November 30, 2012, the Company entered into Amendment No. 1 with LW Air. The LW Restricted Stock Agreement provided that the shares issued would be entitled to antidilution protections, which would have required the issuance of additional shares to LW Air in connection with the issuance of the Notes and Warrants. Amendment No. 1 provides for, among other things, revised antidilution rights so the antidilution provisions in the LW Restricted Stock Agreement would not apply in connection with the issuance of the Notes and Warrants; the issuance of 4,000,000 additional shares of fully-vested restricted stock to LW Air and the Additional LW Warrant to purchase an aggregate of 6,000,000 shares of common stock in substantially the same form as the Warrants. The Additional LW Warrant permits the holder to purchase shares of the Company’s common stock at an exercise price of $0.50 per share. The fair value of the Additional LW Warrantwas estimated at $0.08 per warrant and approximately $0.5 million will be expensed to cost of flight operations over the three year term. During the three months ended December 31, 2012, the Company expensed less than $0.1 million in cost of flight operations. The warrants underlying the Additional LW Warrant expire on November 28, 2015 and while effective, the warrants are subject to certain anti-dilution rights. The holder did not exercise any of the warrants on or after November 30, 2012 through December 31, 2012. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

D. Warrant Amendment

On September 28, 2012, LW Air and the Company amended the management agreements for each aircraft managed by the Company and owned by LW Air so that the Company is not required to pay LW Air additional amounts unless usage of the aircraft exceeds 1,350 hours per year, retroactive to the beginning of each management agreement. Simultaneous with this transaction, the Company issued the LW Warrant to Lorne Weil which replaced the warrant issued to Lorne Weil on September 28, 2012. The LW Warrant was exercisable for the purchase of 2,373,620 shares of the Company’s common stock at an exercise price of $1.00 per share. The fair value of the warrants was estimated at $0.07 per warrant.

On November 30, 2012, the Company entered into the Warrant Amendment with Lorne Weil. The LW Warrant provided certain anti-dilution protections, which would have been triggered in connection with the issuance of the Notes and Warrants. The Warrant Amendment provides for, among other things, revised antidilution rights so the antidilution provisions set forth in the LW Warrant would not apply in connection with the issuance of the Notes and Warrants; a reduction in the exercise price to $0.50 per share; and an increase in the number of shares of common stock issuable upon exercise to 3,560,430 shares of common stock. The fair value of the warrants was estimated at $0.03 per warrant and approximately $0.1 million will be expensed to cost of flight operations over the approximate three year term. During the three months ended December 31, 2012, the Company expensed less than $0.1 million in cost of flight operations, for a cumulative adjustment that was based on the fair value of the recently amended warrants, retroactive to the beginning of the original lease agreement. The remaining balance of the original warrant, LW Warrant and the Warrant Amendment will be recognized ratably over the remaining lease term. The warrants underlying the Warrant Amendment expire on October 19, 2015 and are subject to certain anti-dilution rights. Lorne Weil did not exercise any of the warrants nor did the Company redeem any of the warrants on or after September 28, 2012 through December 31, 2012. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

E. HF Warrant

On November 30, 2012, pursuant to the Amended HF Restricted Stock Agreement, Mr. Fuller agreed to a reduction in the interest portion of the lease payments for the Aircraft Leases in the aggregate amount of approximately $1.8 million over fifteen months, with reductions in lease payments in the amount of approximately $0.2 million per month beginning in November 2012 through January 2013, and approximately $0.1 million per month for twelve consecutive months thereafter, ending on January 31, 2014. Pursuant to Amendment No. 1 to the N180HM lease agreement, Mr. Fuller also agreed to extend the term of the lease for an additional sixty (60) months, or until November 30, 2017, on similar terms, except that Mr. Fuller shall have the sole option to terminate the lease agreement and sell the aircraft and the Company agrees that it shall issue to Mr. Fuller a number of units (as defined below) equal to the result of dividing (A) the difference between $1.5 million and the numerical value of the then current payoff amount as outlined in the lease agreement for the aircraft by (B) 0.25. For purposes of this provision, a unit shall consist of one share of the Company’s common stock (the “Issued Stock”) (subject to adjustment as described below) and one warrant to purchase a share of the Company’s common stock at $0.50 (a “Warrant Share”). Mr. Fuller also agreed to extend the term of the Floor Plan Agreement originally entered into in September 2011 for an additional eight (8) months, or until August 30, 2013. In consideration of the foregoing, the Company issued 8,200,000 shares of fully-vested restricted stock to Mr. Fuller, 1,000,000 shares of which related to the $0.3 million reduction in the principal balance of an aircraft to be financed and 7,200,000 shares related to the approximate $1.8 million reduction in the interest portion of the lease payments of the aircraft leases and Amendment No. 1 to the N180HM lease agreement, as well as the HF Warrant to purchase 8,400,000 shares of common stock. The Amended HF Restricted Stock Agreement also contains certain antidilution protections.

The HF Warrant will expire on November 30, 2017, and permits the holder to purchase one share of the Company’s common stock at an exercise price of $0.50 per share. The fair value of the HF Warrants was estimated at $0.04 per warrant and approximately $0.3 million will be expensed to interest expense over the five year term. During the three months ended December 31, 2012, the Company expensed less than $0.1 million in interest expense. The Company has the option to redeem the warrants at any time at the price of $0.01 per warrant, provided that the volume weighted average price of the Company’s common stock has been at least 300.0% of the exercise price of a warrant for any twenty trading days during any consecutive thirty trading day period ending on the third trading day preceding the date of the notice of redemption. Mr. Fuller did not exercise any of the warrants nor did the Company redeem any of the warrants on or after November 30, 2012 through December 31, 2012. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

F. HF Overfly Warrant

On November 30, 2012, the Company issued the HF Overfly Warrant to Mr. Fuller, to purchase 645,200 shares of the Company’s common stock. The HF Overfly Warrant was issued in lieu of paying additional amounts owed to Mr. Fuller pursuant to certain Aircraft Leases as a result of the aircraft exceeding certain hourly usage limitations. The warrants expire on November 30, 2015. Each warrant permits the holder to purchase one share of the Company’s common stock at an exercise price of $0.50 per share. The fair value of the warrants was estimated at $0.04 per warrant and approximately less than $0.1 million will be expensed to interest expense over the three year term. During the three months ended December 31, 2012, the Company expensed less than $0.1 million in interest expense. The remaining balance of the warrants, as of December 31, 2012, will be recognized ratably over the remaining lease terms. The Company has the option to redeem warrants at any time at the price of $0.01 per warrant, provided that the volume weighted average price of the Company’s common stock has been at least 300.0% of the exercise price of a warrant for any twenty trading days during any consecutive thirty trading day period ending on the third trading day preceding the date of the notice of redemption. The holder did not exercise any of the warrants nor did the Company redeem any of the warrants on or after November 30, 2012 through December 31, 2012. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public offering.

G. Detachable Warrants

On November 30, 2012, the Company issued $2.8 million in aggregate principal amount of Notes and Warrants to purchase an aggregate 11,200,000 shares of the Company’s common stock to certain members of the Company’s Board of Directors and their affiliates. The Warrants are exercisable at a price of $0.50 per share. The fair value of the Warrants was estimated at $0.10 per Warrant and approximately $1.1 million will be expensed to interest expense over the five year term. During the three months ended December 31, 2012, the Company expensed less than $0.1 million in interest expense. The remaining balance of the Warrants, as of December 31, 2012, will be recognized ratably through the exercise date of the Warrant. The purchasers did not exercise any of the Warrants nor did the Company redeem any of the Warrants on or after November 30, 2012 through December 31, 2012. These Warrants were issued pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.

H. Embedded Conversion Feature

The Notes also contain an embedded conversion feature which the Company has determined is a derivative in accordance with the provisions of ASC 815. Accordingly, the conversion feature was recorded as a derivative liability. The fair value of the conversion feature was estimated at $0.09 per Note and approximately $1.0 million will be expensed to interest expense over the three year term. During the three months ended December 31, 2012, the Company expensed less than $0.1 million in interest expense. The remaining balance of the conversion feature, as of December 31, 2012, will be recognized ratably over the remaining term of the Notes. The purchasers did not convert any of the Notes to the Company’s common stock on or after November 30, 2012 through December 31, 2012.

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Commitments and Contingencies

6 Months Ended

Dec. 31, 2012

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 3 – COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company conducts a major part of its operations from leased facilities, which include airplane hangars and administrative offices. The 15 year hangar lease in Clearwater, Florida, which began in April 2006, is classified as an operating lease and was amended in September 2011 under Amendment Number One to the Hangar Lease Agreement (“Amendment Number One”). In accordance with Amendment Number One, the Company renegotiated its Clearwater, Florida lease to reduce its ongoing rent expense and fuel flow fees. Under the terms of Amendment Number One, the initial lease term was extended by five months and expires in September 2021. In January 2011, the Company entered into a three year operating lease agreement for a facility in Dallas, Texas, which is used to perform maintenance on the Company’s aircraft. In December 2011, the Company terminated its Caldwell, New Jersey lease and ceased its limited FBO operations at that facility. Simultaneously, the Company agreed to maintain a portion of an aircraft hangar in Caldwell, New Jersey for $2,000 per month. This hanger lease, which is classified as an operating lease, which would have expired in October 2018, was terminated in August 2012 pursuant to a 90 day mutual termination clause. In January 2013, the Company entered into the Fourth Amendment to Lease (the “Amendment”) on its facility located in Camarillo, CA. The Amendment included the establishment of a base rent schedule per month through December 31, 2014 and the return of $250,000 representing one of the letters of credit in effect prior to the Amendment. Further, in January 2013, the Company ceased its FBO operations at the Camarillo facility and entered into a sublease agreement with an unrelated third party. The Company will retain a portion of one hangar which may be used for maintenance of the Company’s aircraft. The sublease agreement transferred all FBO operations to the unrelated third party and established a base rent schedule that reflects the reduced occupancy of the facility. This hangar lease, which is classified as an operating lease, expires in September 2021.

During the second quarter of fiscal year 2010, the Company transferred its rights to purchase four Piaggio Avanti II aircraft to LW Air pursuant to the existing aircraft purchase agreement between the Company and Piaggio America, Inc. Simultaneous with each of these transactions, the Company entered into an eight-year management agreement for each aircraft. Pursuant to each agreement between the parties, the Company manages the aircraft by arranging, on behalf of LW Air, short-term leases for use of the aircraft at a specified dry lease rate per flight hour. In each agreement, the Company guaranteed to LW Air monthly cash proceeds out of rental income and/or advances against future rental income equal to $80,000, and the Company is entitled to retain as a management fee all rental income in excess of the amounts payable to the owner, up to a maximum of $56,500 per month. Because the Company did not begin to fully lease the aircraft in the fractional program for several months, the Company did not make approximately $760,000 in payments to the owner. Accordingly, effective July 1, 2010, the terms of each management agreement were amended to reduce the maximum management fee the Company was entitled to retain to $44,000 per month for each aircraft for the eight months ended February 28, 2011, after which the maximum management fee charged continued to be $56,500 per month for each aircraft. Because management fees under each agreement may be earned only on average rental hours up to 100 hours per month, it is anticipated that actual management fees under each agreement will not exceed $25,000 per month. The Company is also required to pay LW Air additional amounts if usage of the aircraft exceeds 1,200 hours per year at a specified rate per flight hour. The Company accounts for the management agreements as operating leases. The Company accrued $375,000 for services rendered by a third party in connection with these transactions. The fee is being amortized to aircraft lease expense over the term of the agreements.

Effective December 2010, the Company entered into an aircraft rental agreement with a third party to lease a Pilatus aircraft to be used in the Company’s maintenance operations. Pursuant to this agreement, the Company is obligated to pay $12,961 per month for three years, which provides 300 flight hours per year to the Company. The Company accounts for this agreement as an operating lease. Effective July 2012, the parties terminated the aircraft rental agreement and entered into a Settlement Agreement and Mutual Release (“settlement agreement”) related to the aircraft. In connection with the settlement agreement, the Company is required to pay approximately $0.2 million relative to additional usage of the aircraft, together with maintenance costs required pursuant to the aircraft rental agreement. The costs incurred in conjunction with the settlement agreement were accrued and recognized in fiscal year 2012.

During July 2011, the Company entered into an aircraft lease agreement with three third parties for the Company to lease a Piaggio Avanti II aircraft. Pursuant to the aircraft lease agreement, the Company is obligated to pay a total of $50,000 per month for ten years. The Company is also required to pay the owner additional amounts if usage of the aircraft exceeds 1,300 hours per year at a specified rate per flight hour. In addition, the Company is obligated to provide the lessors a total of 125 flight hours per year during the term of the agreement. The Company accounts for this agreement as an operating lease.

In October 2011, the Company transferred its rights to purchase one Piaggio Avanti II aircraft to LW Air pursuant to the existing aircraft purchase agreement between the Company and Piaggio America, Inc. Simultaneous with this transaction, the Company entered into an eight-year management agreement for the aircraft. Pursuant to the agreement between the parties, the Company will manage the aircraft by arranging, on behalf of the owner, short-term leases for use of the aircraft at a specified dry lease rate per flight hour. The Company has guaranteed to the owner monthly cash proceeds out of rental income and/or advances against future rental income equal to $75,000, and the Company will be entitled to retain as a management fee all rental income in excess of the amounts payable to owner, up to a maximum of $51,500 per month. Because management fees may be earned only on average rental hours up to 100 hours per month, it is anticipated that actual management fees will not exceed $30,000 per month. The Company is also required to pay the owner additional amounts if usage of the aircraft exceeds 1,200 hours per year at a specified rate per flight hour. The Company considered various financing alternatives prior to entering into this transaction and believes that this agreement was the most beneficial for the Company. The Company accrued $124,000 for services rendered by a third party in connection with this transaction. The fee is being amortized to aircraft lease expense over the term of the agreement.

Effective March 2012, the Company entered into an aircraft rental agreement with a third party to lease a Pilatus aircraft to be used in the Company’s maintenance operations. Pursuant to this agreement, the Company is obligated to pay $22,000 per month for one year, which provides 500 flight hours to the Company over the one year term. The Company accounts for this agreement as an operating lease. In October 2012, the lease ended.

In August 2012, the Company entered into a seven year Aircraft Lease Agreement with a third party, related to a Piaggio Avanti II previously financed through a Midsouth Floor Plan financing agreement. Pursuant to the Aircraft Lease Agreement, the Company is obligated to provide the lessor a total of 400 flight hours per year during the term of the agreement. The transaction was evaluated in accordance with ASC 840-40 “Sale-Leaseback Transactions” (“ASC 840-40”). Based on the Company’s evaluation, the transaction met the specified criteria requiring immediate loss recognition due to a net difference between the relinquished asset and related liability. The loss is recorded as a loss on sale of asset in the accompanying condensed consolidated statements of operations. Additionally, as consideration for finder’s fee services provided by a third party in connection with this transaction, the Company recorded $115,000 in August 2012 for services and issued warrants to purchase 50,000 shares of common stock. The fee and related value of the warrants are being amortized to aircraft lease expense over the term of the agreement. The warrants were valued using the Black-Scholes option-pricing model.

Effective September 28, 2012, LW Air and the Company amended the management agreements for each aircraft managed by the Company and owned by LW Air so that the Company is not required to pay LW Air additional amounts unless usage of the aircraft exceeds 1,350 hours per year, retroactive to the beginning of each management agreement. Simultaneous with this transaction, the Company issued the LW Warrant to Lorne Weil to purchase 2,373,620 shares of common stock at an exercise price of $1.00 per share. The original warrant issued to LW Air dated October 19, 2009, for the purchase of 2,373,620 shares of the Company’s common stock, was terminated and replaced by the LW Warrant.

On November 30, 2012, the Company entered into the Warrant Amendment with Lorne Weil. The LW Warrant provided certain anti-dilution protections, which would have been triggered in connection with the issuance of the Notes and Warrants. The Warrant Amendment provides for, among other things, revised antidilution rights so the antidilution provisions set forth in the LW Warrant would not apply in connection with the issuance of the Notes and Warrants; a reduction in the exercise price to $0.50 per share; and an increase in the number of shares of common stock issuable upon exercise of the LW Warrant to 3,560,430 shares of common stock. The remaining balance of the original warrant, LW Warrant and the Warrant Amendment will be recognized ratably over the remaining lease term.

Effective September 28, 2012, the terms of the Company’s management agreements with LW Air were amended to irrevocably reduce the LW Air’s monthly proceeds pursuant to each of the aircraft management agreements by $25,000 per month for a period of twelve consecutive months beginning in August 2012, or $0.3 million per aircraft, the aggregate reduction of LW Air’s monthly proceeds totaling $1.5 million, with respect to all five of the aircraft owned by LW Air. Simultaneous with this transaction, the Company entered into the LW Restricted Stock Agreement, dated as of September 28, 2012, pursuant to which the Company issued to LW Air 2,000,000 shares of fully-vested restricted stock at a price of $0.75 per share, subject to certain antidilution rights, for an aggregate value of $1.5 million. The restricted stock had a fair value of $0.40 per share and will be recognized ratably through July 2013 in cost of flight operations.

On November 30, 2012, the Company entered into Amendment No. 1 with LW Air. The LW Restricted Stock Agreement provided that the shares issued would be entitled to certain antidilution protections, which would have required the issuance of additional shares to LW Air in connection with the issuance of the Notes and Warrants. Amendment No. 1 provides for, among other things, revised antidilution rights so the antidilution provisions in the LW Restricted Stock Agreement would not apply in connection with the issuance of the Notes and Warrants ; the issuance of 4,000,000 additional shares of fully-vested restricted stock to LW Air at a price of $0.38 per share on November 30, 2012, subject to certain antidilution rights, and warrants to purchase an aggregate of 6,000,000 shares of common stock in accordance with the Additional LW Warrant on November 30, 2012, in substantially the same form as the Warrants. The restricted stock had a fair value of $0.15 per share and will be recognized ratably through December 2017 in cost of flight operations.

In addition, the Company leases transportation equipment and data processing equipment under operating leases with most equipment having three year terms.

Purchase Commitments

As of December 31, 2012, the Company had contractual commitments to purchase 48 additional Piaggio Avanti II aircraft through calendar year 2013 with a mutual understanding that the aircraft delivery dates and any related payments can be extended. The total commitment, if exercised during the period, including a proposed price escalation, is valued at approximately $305.1 million, net of deposits paid on future aircraft deliveries of $6.4 million.

On June 20, 2008, the Company assigned its rights and obligations to purchase twenty Embraer Phenom 100 (“Phenom 100”) aircraft positions to Share 100 Holding Co., LLC (“Share 100”), a wholly-owned subsidiary of Avantair, Inc. On the same date, the Company entered into a membership interest purchase agreement with Executive Air Shares Corporation (“EAS”), in which EAS purchased the Class A membership of Share 100 and the Company retained the Class B membership. EAS, as Class A member, has the rights and obligations to purchase the Phenom 100 aircraft with positions one through eighteen and to fund payment due in connection with these aircraft. EAS paid Share 100 approximately $2.47 million in connection with these transactions and made an additional $750,000 capital contribution to Share 100 in December 2008, all of which was, immediately distributed to the Company. The Company as Class B member, has the rights and obligations to purchase the Phenom 100 aircraft with positions nineteen and twenty and to fund payment due in connection with these aircraft. EAS had the option to purchase aircraft nineteen and twenty which was to have been exercised by October 1, 2010; if exercised, EAS would reimburse the Company for all payments made relative to these aircraft and provide all remaining funds required. In the event that EAS did not exercise the option to purchase aircrafts nineteen and twenty by October 1, 2010, the Company would have the right and obligation to purchase the nineteenth and twentieth aircraft. The Company entered into agreements with EAS to extend the exercise requirement in November 2010, April 2011, and November 2011, which extended the exercise requirement to April 2011, December 2011 and June 2012, respectively. On May 25, 2012, the exercise requirement was extended an additional twelve months to June 1, 2013. If EAS defaults under its obligations to purchase aircraft positions one through eighteen, EAS will forfeit all deposits paid for the undelivered aircraft, including the funds distributed to the Company. If the Company defaults under its obligations to purchase any undelivered aircraft following a breach by EAS, or if the Company fails to purchase the last two aircraft positions, the Company’s maximum exposure to Embraer would be the amounts due for undelivered aircraft at the time, which as of December 31, 2012 was valued at $43.4 million, net of deposits paid on undelivered aircraft of $2.0 million.

Financing Commitments- Short-term

In April 2009, the Company entered into two Floor Plan Agreements with Midsouth Services, Inc. (“Midsouth”) to replace Midsouth’s existing Floor Plan Agreements dated July 31, 2008. The new Floor Plan Agreements extended credit to the Company in an increased amount of $11.6 million to be used towards the purchase of new Piaggio P-180 aircraft. The Floor Plan Agreements covered an amount not to exceed $5.8 million for a term of twelve months. The Company has the sole option to terminate one of the Floor Plan Agreements during the term with ninety days written notice. The Company agreed to pay Midsouth a monthly fee of $82,500 for the first Floor Plan Agreement and $75,000 for a second Floor Plan Agreement. During December 2010, the Company repaid the first Floor Plan Agreement in the amount of $5.8 million and during September 2011, the Company converted the second Floor Plan Agreement in the amount of $5.2 million into a Capital Lease. See Capital Lease Transactions below.

In March 2011, the Company negotiated financing terms pursuant to a Floor Plan Financing Agreement with Midsouth which shall be used towards the purchase of new Piaggio P-180 aircraft for resale in the fractional program. The March 2011 agreement is similar to the previous arrangements between Midsouth and the Company in that Midsouth agreed to extend credit to the Company for the purchase of fractional aircraft for a term of the later of: (1) twelve months or (2) until the date on which the net purchase price for the aircraft financed pursuant to the Floor Plan Agreement is paid. The Company has agreed to pay Midsouth a monthly fee of $65,000 following the commencement of the term pursuant to the Floor Plan Agreement. The aircraft purchase agreement related to the aircraft currently financed pursuant to the Floor Plan Financing Agreement, which was recently modified by the Company, requires the Company to purchase the aircraft from the lender on or before July 12, 2012. In August 2012, the Company converted the Floor Plan Agreement in the amount of $6.0 million into an Operating Lease with another third party, see Operating Lease Commitments in the preceding paragraphs.

In April 2011, the Company entered into a 12% short-term note payable with Midsouth to finance $0.5 million deposits for one new Piaggio Avanti II aircraft. The Company agreed to pay Midsouth a monthly fee of $5,000 following the commencement of the term pursuant to the Aircraft Deposit Agreement. The term of the agreement, as extended in July 2011, is five months or until the Company takes delivery of the aircraft. During October 2011, the Company repaid the short-term note payable in the amount of $0.5 million.

In September 2011, the Company took delivery of one new Piaggio Avanti P-180 aircraft, for resale in the Fractional Ownership program, financed through a Floor Plan Financing Agreement with Midsouth (the “Floor Plan Agreement”). The Floor Plan Agreement is similar to the previous arrangements between Midsouth and the Company with a term of the later of: (1) fifteen months or (2) until the date on which the net purchase price for the aircraft financed pursuant to the Floor Plan Agreement is paid. The Company initially agreed to pay Midsouth a monthly fee of $72,500 following the commencement of the term pursuant to the Floor Plan Agreement. The aircraft purchase agreement related to the aircraft currently financed pursuant to the Floor Plan Agreement originally required the Company to purchase it from the lender on or before December 31, 2012. On November 30, 2012, Midsouth agreed to extend the term of the Floor Plan Agreement for an additional eight months, or until August 30, 2013. In consideration of the foregoing, the Company issued 8,200,000 shares of fully-vested restricted stock to Mr. Fuller as well as the HF Warrant to purchase 8,400,000 shares of common stock. In connection with the reductions in the capital lease payments pursuant to the Amended HF Restricted Stock Agreement (see Capital Lease Transactions below), Midsouth agreed to a reduction in the monthly fee from $72,500 per month to $25,490 per month beginning November 2012 through January 2013 and to $46,264 per month for twelve consecutive months thereafter, ending on January 31, 2014. As of December 31, 2012, borrowings outstanding under the Floor Plan Agreement totaled $6.0 million.

Financing Commitments – Long-term

Long-term debt consists of the following as of December 31, 2012 (in thousands):

Midsouth Services, Inc.	$	20,690
Iberia Bank		1,259
		21,949
Less current portion		(3,745	)
Less discount on capital leases		(1,270	)
Long-term debt	$	16,934

Capital Lease Transactions

Midsouth Services, Inc.

The Company has seven Aircraft Leases with Midsouth. On November 30, 2012, the Company entered into the Amended HF Restricted Stock Agreement. Under the Amended HF Restricted Stock Agreement, Midsouth agreed to a reduction in the interest portion of the lease payments for the Aircraft Leases in the aggregate amount of approximately $1.8 million over fifteen months, with reductions in the lease payments of approximately $0.2 million per month beginning in November 2012 through January 2013, and approximately $0.1 million per month for twelve consecutive months thereafter, ending on January 31, 2014. In consideration of the foregoing, the Company issued 8,200,000 shares of fully-vested restricted stock to Mr. Fuller as well as the HF Warrant to purchase 8,400,000 shares of common stock in substantially the same form as the Warrants. The restricted stock had a fair value of $0.15 per share and will be recognized ratably through December 2017 in interest expense. The Amended HF Restricted Stock Agreement also contains certain antidilution protections.

The Company evaluated the Aircraft Leases with Midsouth to determine if they qualified for continued treatment as capital leases under ASC 840 “Leases”. After applying the criteria for treatment as a capital lease, the Company determined that all Aircraft Leases still qualified as capital leases.

In July 2006, the Company entered into a lease agreement, pursuant to which Midsouth leased a core aircraft to the Company. The original lease agreement was accounted for as an operating lease. In April 2009, the Company amended the original lease agreement, pursuant to which the Company was required to pay $74,900 per month, at 11.0% interest per annum until August 2011, the expiration of the amended lease agreement. The Company accounted for this amendment as a capital lease in the accompanying condensed consolidated balance sheets. In addition, the Company agreed to purchase the leased aircraft for approximately $3.0 million from Midsouth within sixty days following the expiration of the amended lease agreement. In August 2011, the Company entered into a second amendment to the aircraft lease agreement to extend the lease term for five years, and decrease monthly payments to $62,500. On November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, Midsouth agreed to further decrease the monthly payments on the lease to $40,000 beginning in November 2012 through January 2013 and to $40,779 for twelve consecutive months thereafter, ending on January 31, 2014. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a discount on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. Upon expiration of the five year term, the Company may purchase, at its sole discretion, the aircraft at a purchase price of approximately $0.3 million. The obligation outstanding at December 31, 2012 totaled approximately $2.4 million.

On October 10, 2007, the Company entered into a lease agreement pursuant to which Midsouth leased a core aircraft to the Company. Under the lease agreement, Midsouth provided funding for the $4.7 million purchase of a pre-owned Piaggio P-180 aircraft. Midsouth leases the aircraft exclusively to the Company under a five year lease at 15.0% interest per annum. The monthly lease payments for the term of the lease were originally established at $89,000. On November 30, 2012, pursuant to Amendment No. 1 to the N180HM Lease Agreement, Mr. Fuller agreed to extend the term of the lease for an additional sixty months, or until November 30, 2017, except that Mr. Fuller shall have the sole option to terminate the lease agreement and sell the aircraft and the Company agrees that it shall issue to Mr. Fuller a number of units equal to the result of dividing (A) the difference between $1.5 million and the numerical value of the then current payoff amount as outlined in the lease agreement for the aircraft by (B) 0.25. For purposes of this provision, a unit shall consist of one share of the Company’s Issued Stock (subject to certain adjustments) and one Warrant Share. Additionally, on November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, Midsouth agreed to decrease the monthly payments on the lease to $40,000 beginning in November 2012 through January 2013 and to $43,850 for twelve consecutive months thereafter, ending on January 31, 2014. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a premium on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. At the end of the five year lease term, the lease obligation will be fully satisfied and title shall transfer to the Company free and clear of all liens and encumbrances. The Company also has the option to purchase the aircraft anytime during the lease term at the then current guaranteed residual value as set forth on the amortization schedule without penalty. The Company accounts for this lease as a capital lease in the accompanying condensed consolidated balance sheets. The obligation outstanding at December 31, 2012 totaled approximately $2.3 million.

In April 2009, the Company entered into a lease agreement, pursuant to which Midsouth leases a Piaggio P-180 aircraft to the Company for a ten year lease term at an initial rate of $75,000 per month, at 15.0% interest per annum. The Company is required to provide Midsouth with 100 hours of flight time per year during the lease term. Hours have been accounted for at their fair value and are liquidated as hours are flown. On November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, Midsouth agreed to decrease the monthly payments on the lease to $45,000 beginning in November 2012 through January 2013 and returning to $75,000 per month thereafter. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a discount on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. Midsouth has the sole option to terminate the lease at the end of the fifth year of the lease term and require the Company to purchase the leased aircraft for approximately $3.8 million within ninety days of that date. If this option is not exercised by Midsouth, the lease will continue for the remaining five years of the lease term and, at the end of the ten year lease, the Company will be required to purchase the aircraft from Midsouth for $0.3 million. The obligation outstanding at December 31, 2012 totaled approximately $4.2 million.

In September 2011, simultaneous with the termination of the Floor Plan Finance Renewal Agreement and Renewal Guaranteed Aircraft Purchase Agreement for a Piaggio P-180 aircraft, the Company entered into a Lease Agreement, pursuant to which Midsouth leases a Piaggio P-180 aircraft to the Company for a five year lease term at an initial rate of $75,000 per month, at 15.0% interest per annum. The termination of the Floor Plan Financing Agreement and subsequent entrance into the Lease Agreement was evaluated in accordance with ASC 470. Based on the Company’s evaluation, the debt transaction met the specified criteria causing the transaction to be recorded in accordance with “Debt Modification and Extinguishment” guidance within ASC 470. As a result, the Company recognized a gain on debt extinguishment of $0.4 million, which is included in the accompanying condensed consolidated statements of operations. On November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, Midsouth agreed to decrease the monthly payments on the lease to $45,000 beginning in November 2012 through January 2013 and returning to $75,000 per month thereafter. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a discount on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. Following the expiration of the term of the Lease Agreement, the Company has agreed to purchase the leased aircraft for approximately $3.4 million from Midsouth. The Company accounts for this lease as a capital lease in the accompanying condensed consolidated balance sheets. The obligation outstanding at December 31, 2012 totaled approximately $4.5 million.

In October 2011, the Company entered into a five year lease agreement with Midsouth for $2.0 million, related to one used aircraft previously financed by a Wells Fargo Equipment Finance, Inc. promissory note. The lease agreement initially required the Company to make principal payments ranging from $24,000 to $29,500 plus interest of 13% per annum. On November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, Midsouth agreed to decrease the monthly principal payments on the lease by $16,000 beginning in November 2012 through January 2013 and by $15,781 for twelve consecutive months thereafter, ending on January 31, 2014. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a premium on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. Following the expiration of the term of the lease agreement, the Company has agreed to purchase the leased aircraft for approximately $0.4 million from Midsouth. The Company accounts for this lease as a capital lease in the accompanying condensed consolidated balance sheets. The obligation outstanding at December 31, 2012 totaled approximately $1.7 million.

In May 2012, the Company entered into a two year lease agreement with Midsouth for $1.2 million, related to one used aircraft previously financed by a Wells Fargo Equipment Finance, Inc. promissory note. Under the terms of the agreement, the Company will make monthly lease payments to Midsouth in the amount of $55,319, which includes variable interest of 9.9% per annum (based on 4.9% over a floor of a 5% prime rate). On November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, Midsouth agreed to decrease the monthly payments on the lease to $50,000 beginning in November 2012 through January 2013 and to $52,645 for twelve consecutive months thereafter, ending on January 31, 2014. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a discount on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. Following the expiration of the lease agreement, the Company will receive title to the aircraft. The Company accounts for this lease as a capital lease in the accompanying condensed consolidated balance sheets. The obligation outstanding at December 31, 2012 totaled approximately $0.9 million.

In July 2012, the Company entered into a ten year lease agreement with Midsouth for $4.6 million, related to one used Piaggio Avanti II. The lease agreement initially required the Company to make monthly lease payments to Midsouth in the amount of $55,171, which includes variable interest of 9.9% per annum (based on 4.9% over a floor of a 5% prime rate). Additionally, the Company issued 200,000 shares of fully-vested restricted stock at a price of $1.50 per share in connection with this lease agreement. The restricted stock had a fair value of $0.65 per share and was capitalized into property and equipment, along with the principal amount of the loan of $4.6 million, and will be depreciated over the ten year lease agreement. On November 30, 2012, in accordance with the Amended HF Restricted Stock Agreement, the Company issued 1,000,000 million shares of fully-vested restricted stock at a price of $0.25 per share. The restricted stock had a fair value of $0.15 per share and was recorded as a discount against the principal amount of the loan and will be depreciated over the ten year lease. Additionally, Midsouth agreed to decrease the monthly payments on the lease to $43,000 beginning in November 2012 through January 2013 and returning to $55,171 per month thereafter. In accordance with ASC 840, the Company recalculated the net present value of the remaining minimum lease payments which resulted in a discount on the capital lease. The value of the HF Warrant and the fully-vested restricted stock was recognized as a discount against the lease liability. Following the expiration of the lease agreement, the Company has the option to purchase the aircraft at the then fair market value. The obligation outstanding at December 31, 2012 totaled approximately $4.4 million.

The capital lease obligations are included in long-term debt in the accompanying condensed consolidated balance sheets.

Wells Fargo Equipment Finance, Inc.

In February 2005, the Company entered into financing arrangements for the purchase of two aircraft under two notes payable with Wells Fargo Equipment Finance, Inc. The notes were payable in monthly installments ranging from $10,644 to $38,480 with interest ranging from 5.96% to 6.12% per annum, through 2012. The notes were collateralized by both aircraft. In January 2012, in connection with the sale of one of the collateralized aircraft, the Company repaid one promissory note in the amount of approximately $790,000. In March 2012, the Company repaid the remaining promissory note in the amount of approximately $1.2 million. Accordingly, as of December 31, 2012, there were no obligations outstanding under these financing arrangements.

Iberia Bank

In August 2007, the Company and Iberia Bank, formerly Century Bank F.S.B., executed a $2.2 million note agreement for the purchase of one aircraft. The note is payable in monthly installments of $27,175 with interest of 8.25% per annum, through August 3, 2012. The note is collateralized by the aircraft. In September 2012, the Company extended the term of this loan to December 2013, which reduced the monthly installments to $26,769. The extension of the note agreement was evaluated in accordance with ASC 470. Based on the Company’s evaluation, the transaction did not meet specified criteria causing the transaction to be recorded in accordance with “Debt Modification and Extinguishment” guidance within ASC 470. The obligation outstanding at December 31, 2012 totaled approximately $1.3 million.

Wells Fargo

On October 31, 2007, the Company and Wells Fargo entered into a financing arrangement for the purchase of one used aircraft at a total purchase price of approximately $4.5 million (inclusive of the value of a flight hour card of 100 hours). Financing was obtained from Wells Fargo through a note payable of $3.9 million. This note was to be repaid monthly over 7 years at an interest rate equal to the LIBOR rate plus 4.0%. In October 2011, the Company repaid the promissory note in the amount of $1.4 million. Accordingly, as of December 31, 2012, there were no obligations outstanding under this financing arrangement.

Senior Secured Convertible Promissory Notes

On November 30, 2012, the Company entered into the Purchase Agreement providing for the issuance of an aggregate of up to $10.0 million in principal amount of Notes and Warrants to purchase up to an aggregate of 40,000,000 shares of the Company’s common stock at the Initial Closing and subsequent offerings (together, the “Financing”). At the Initial Closing, which occurred on November 30, 2012, the Company issued $2.8 million in aggregate principal amount of Notes and Warrants to purchase an aggregate of 11,200,000 shares of the Company’s common stock, to certain members of the Company’s Board of Directors and their affiliates. On February 1, 2013, the Company completed an additional closing in which the Company issued to ten accredited investors, that are also participants in the fractional ownership program, Notes in an aggregate principal amount of $712,500 and Warrants to purchase an aggregate of 2,850,000 shares. In addition, on January 17, 2013, the Company, the holders of the Notes and Warrants and Barry Gordon, as collateral agent, entered into the Note Financing Amendment. The Notes and Warrants offered will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.

The Notes bear interest at an initial rate of 2.0% per annum which will increase to 12.0% per annum if the Company is unsuccessful in obtaining stockholder approval by March 31, 2013 to increase the Company’s authorized shares of common stock so that a sufficient number of shares are reserved for the conversion of the Notes. Holders of the Notes may, at their option, elect to convert all outstanding principal and accrued but unpaid interest on the Notes into shares of common stock at a conversion price of $0.25 per share but may convert only a portion of such Notes if an inadequate number of authorized shares of common stock is available to effect such optional conversion. Holders of the Notes are entitled to certain anti-dilution protections. The Company may prepay the Notes on or after November 28, 2014. The Notes have a maturity date of November 28, 2015, unless the Notes are earlier converted or an event of default or liquidation event occurs.

The Notes were valued using an income and residual approach at November 30, 2012 at a price of $24.93 per $100 of outstanding debt. The carrying value of the senior secured convertible promissory notes as of December 31, 2012 was as follows (amounts in thousands):

Par value of senior secured convertible promissory notes	$	2,800
Discount related to embedded conversion feature 1		(960	)
Discount related to detachable warrants 2		(1,142	)
Accretion of discounts 3		44
Carrying value of senior secured convertible promissory notes	$	742

¹  The Notes contain an embedded conversion feature that the Company has determined is a derivative requiring bifurcation in accordance with the provisions of ASC 815. The embedded conversion feature of the Notes was valued at approximately $0.09 per Note using the Monte Carlo method at November 30, 2012. The fair value of the embedded conversion feature of approximately $960,000 was recorded as a derivative liability with the offset recorded as a discount on the Notes and included as a component of Senior secured convertible promissory notes in the accompanying condensed consolidated balance sheet as of December 31, 2012. The Company determined that the fair value of the embedded conversion feature at December 31, 2012 was not materially different than the fair value at November 30, 2012. Therefore, no change in fair value of the embedded conversion feature was recorded in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012.

²  The Notes contain detachable Warrants that the Company has determined are derivatives requiring bifurcation in accordance with the provisions of ASC 815. The detachable Warrants were valued at approximately $0.10 per warrant using the Monte Carlo method at November 30, 2012. The fair value of the detachable Warrants of approximately $1.1 million was recorded as a derivative liability with the offset recorded as a discount on the Notes and included as a component of Senior secured convertible promissory notes in the accompanying condensed consolidated balance sheet as of December 31, 2012. The Company determined that the fair value of the detachable Warrants at December 31, 2012 was not materially different than the fair value at November 30, 2012. Therefore, no change in fair value of the detachable Warrants was recorded in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012.

³  Accretion of the discount on the embedded conversion feature of approximately $31,000 was recorded to interest expense for the three months ended December 31, 2012 using the effective interest method. Accretion of the discount on the detachable Warrants of approximately $13,000 was recorded to interest expense for the three months ended December 31, 2012 using the effective interest method.

Aircraft Incident

In November 2011, one of the Company’s fractionally-owned aircraft, a 2007 Piaggio P-180, was involved in an incident (“Aircraft Incident”), following which the aircraft was declared a total loss by the Company’s insurer. Only minor injuries were sustained by the passengers and crew. The Company was required to maintain insurance on the aircraft that covered its replacement value, which was estimated to be $4.8 million. During December 2011, the Company received $6.5 million of insurance proceeds which were initially recorded as an accrued liability as of December 31, 2011. The additional insurance proceeds were a result of the Company insuring its aircraft in excess of the replacement value to reimburse the Company for expenses associated with a reduction in available aircraft in its fleet, including, but not limited to, costs incurred for chartered flights, repositioning aircraft to accommodate owner’s requirements, and maintenance costs associated with higher flight hours on the remaining fleet. These proceeds offset similar expenses during the third and fourth quarters of fiscal year 2012 and the first quarter of fiscal year 2013. The fractional ownership documents permit the Company to replace the aircraft on behalf of the fractional owners with another aircraft that is substantially similar and has a market value approximately equal to or greater than the market value of the 2007 Piaggio P-180 involved in the Aircraft Incident. During the third and fourth quarters of fiscal year 2012, the Company purchased the fractional owners’ interest in the aircraft, and simultaneously, the fractional owners of the 2007 Piaggio P-180 entered into new fractional ownership documents for a substantially similar replacement aircraft interest. During the third and fourth quarters of fiscal year 2012, the Company paid a total of approximately $4.8 million and transferred 16.0 fractional shares in connection with this incident. During the first quarter of fiscal year 2013, the Company paid approximately $0.4 million in connection with this incident. As of December 31, 2012, the insurance proceeds liability was zero. In accordance with ASC 225 “Income Statement” (“ASC 225”), there was no gain or loss recognized in connection with the loss of this aircraft.

Employee Termination and Other Costs

During the third quarter of fiscal year 2012, the Company developed and implemented plans to improve sales performance and deliver efficiencies within the finance department. These plans were evaluated and recorded in accordance with ASC 420 “Exit or Disposal Cost Obligations” (“ASC 420”). In connection with the changes in the sales and finance departments, the Company incurred various costs and obligations, including severance payouts to employees and other related charges. The Company expects total costs associated with these activities to be approximately $1.0 million. As of December 31, 2012, the liability attributable to unpaid employee termination and other expense was less than approximately $0.1 million, representing a reduction of approximately $0.1 million from the unpaid employee termination and other expense liability as of June 30, 2012, which was $0.2 million. The reduction in liability represents amounts paid during the six month period ended December 31, 2012. This liability is included in accrued liabilities in the accompanying condensed consolidated balance sheet.

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 30, 2012
ASSETS
Cash and cash equivalents	$ 1,400	$ 5,302
Accounts receivable, net of allowance of $1,046 and $1,340, respectively	9,091	11,707
Inventory	111	155
Current portion of aircraft costs related to fractional share sales	3,960	8,458
Prepaid expenses and other current assets	7,075	3,830
Total current assets	21,637	29,452
Long-Term Assets
Aircraft costs related to fractional share sales, net of current portion	585	1,691
Property and equipment, net	38,552	40,136
Cash - restricted	2,267	2,226
Deposits on aircraft	7,334	7,193
Goodwill	1,141	1,141
Other assets	10,052	9,443
Total long-term assets	59,931	61,830
Total assets	81,568	91,282
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable	9,415	9,051
Accrued liabilities	10,698	6,393
Customer deposits	3,514	3,115
Short-term debt	5,679	12,000
Current portion of long-term debt	3,745	4,652
Current portion of deferred revenue related to fractional aircraft share sales	4,938	9,995
Unearned management fee, flight hour card and membership revenue	52,649	60,015
Total current liabilities	90,638	105,221
Long-Term Liabilities
Long-term debt, net of current portion	16,934	13,753
Senior secured convertible promissory notes	742
Derivative liabilities	3,051
Deferred revenue related to fractional aircraft share sales, net of current portion	6,089	8,179
Deferred revenue related to membership revenue, net of current portion	31	213
Other liabilities	2,769	2,465
Total long-term liabilities	29,616	24,610
Total liabilities	120,254	129,831
COMMITMENTS AND CONTINGENCIES
Series A convertible preferred stock, $.0001 par value, authorized 300,000 shares; 152,000 shares issued and outstanding	14,845	14,799
STOCKHOLDERS' DEFICIT
Preferred stock, $.0001 par value, authorized 700,000 shares; none issued or outstanding
Common stock, Class A, $.0001 par value, 75,000,000 shares authorized, 40,903,717 and 26,497,468 shares issued and outstanding, respectively	4	3
Additional paid-in capital	60,884	57,830
Accumulated deficit	(114,419)	(111,181)
Total stockholders' deficit	(53,531)	(53,348)
Total liabilities and stockholders' deficit	$ 81,568	$ 91,282

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Operations and Management's Plans

6 Months Ended

Dec. 31, 2012

Operations and Management's Plans [Abstract]

OPERATIONS AND MANAGEMENT'S PLANS

NOTE 1 – OPERATIONS AND MANAGEMENT’S PLANS

Avantair, Inc. and its subsidiaries (the “Company” or “Avantair”) are in the business of providing private aviation services through three primary flight service programs:

(i) the sale of fractional ownership interests through the Fractional Ownership program;

(ii) the lease of fractional interests through the Axis Lease program; and

(iii) the sale of flight hour cards through the Edge Card program.

Collectively, participants in each of these programs are referred to herein as “program participants”. These services are provided to program participants on the Company’s managed aircraft fleet for business and personal use. Avantair’s core strategic focus is providing its program participants with the highest level of safety, service and satisfaction. In addition to providing private aviation services, Avantair provides limited fixed based operation (“FBO”) services in Clearwater, Florida. In January 2013, the Company ceased its FBO operations at its Camarillo, CA facility and entered into a sublease agreement with an unrelated third party. The Company will retain a portion of one hangar which may be used for maintenance of the Company’s aircraft. The sublease agreement transferred all FBO operations to the unrelated third party and established a base rent schedule that reflects the reduced occupancy of the facility. Effective December 2011, the Company closed its limited FBO services in Caldwell, New Jersey. The Company also leases a facility in Dallas, Texas, which is used to perform maintenance on the Company’s aircraft.

The Company’s primary operating strategy is to achieve positive cash flows by continuing the Company’s cost savings initiatives, flight operation cost reductions associated with strategically eliminating more costly aircraft from its fleet and lowering maintenance costs as a result of driving increased efficiencies through the use of third party aircraft maintenance operators to provide increased levels of maintenance contract services for its fleet. Revenue by product category can be found in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012 and 2011, respectively. Sales by product category are as follows:

	Unit Sales for the Three Months Ended				Unit Sales for the Six Months Ended
	December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
New Fractional Ownership program shares sold		—		1		—		2
Axis Lease program shares leased		9		16		25		42
Axis Club Memberships (1)		—		—		—		1
Flight hour cards		51		84		124		192

⁽¹⁾ Replaced by Axis Lease program in March 2011

As of December 31, 2012, Avantair managed 56 aircraft within its fleet, which is comprised of 43 fractionally-owned aircraft, 6 company-owned core aircraft and 7 leased and company-managed aircraft.

On October 25, 2012, the Company made an announcement regarding the voluntary stand down of its operations in order to complete a comprehensive review of records and supporting maintenance documentation and an inspection of its aircraft fleet. This voluntary action was taken in coordination with the Federal Aviation Administration. During the stand down, which lasted approximately three weeks, the Company furloughed a portion of its employees. Beginning November 8, 2012 the Company started recalling its employees and commenced operating some of its aircraft on November 11, 2012 with a return to service of a majority of its fleet by November 19, 2012. The effect of the operational stand down negatively impacted the Company’s cash receipts, liquidity and retention of program participants. Separate of charter and costs associated with retention of program participants, the Company incurred approximately $1.2 million for consulting, Federal Aviation Administration, furlough, legal, communication and other costs.

Beginning in the second quarter of fiscal year 2013, the Company initiated steps to raise additional capital through multiple offerings of securities. On November 30, 2012, the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) providing for the issuance of an aggregate of up to $10.0 million in principal amount of senior secured convertible promissory notes (the “Notes”) and warrants to purchase up to an aggregate of 40,000,000 shares of common stock (the “Warrants”) The securities offered will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. At the initial closing, which occurred on November 30, 2012, the Company issued to certain members of the Company’s Board of Directors and their affiliates Notes in an aggregate principal amount of $2.8 million and Warrants to purchase an aggregate of 11,200,000 common shares (the “Initial Closing”). At an additional closing, which occurred on February 1, 2013, the Company issued to ten accredited investors, that are also participants in the fractional ownership program, Notes in an aggregate principal amount of $712,500 and Warrants to purchase an aggregate of 2,850,000 common shares. In addition, on January 17, 2013, the Company, the holders of the Notes and Warrants and Barry Gordon, as collateral agent, entered into the Amendment to Note and Warrant Purchase Agreement, Senior Secured Convertible Promissory Notes, Warrants, Security Agreement and Registration Rights Agreement (the “Note Financing Amendment”). The Notes bear interest at an initial rate of 2.0% per annum, which will increase to 12.0% per annum if the Company is unsuccessful in obtaining stockholder approval by March 31, 2013 to increase the Company’s authorized shares of common stock so that a sufficient number of shares are reserved for the conversion of the Notes. Holders of the Notes may, at their option, elect to convert all outstanding principal and accrued but unpaid interest on the Notes into shares of common stock at a conversion price of $0.25 per share, but may convert only a portion of such Notes if an inadequate number of authorized shares of common stock is available to effect such optional conversion. Holders of the Notes are entitled to certain anti-dilution protections. The Company may prepay the Notes on or after November 28, 2014. The Notes have a maturity date of November 28, 2015, unless the Notes are earlier converted or an event of default or liquidation event occurs. The Warrants are exercisable at an exercise price of $0.50 per share, which exercise price is subject to certain anti-dilution protections, however the Warrants may not be exercised unless a sufficient number of authorized shares of common stock are available for the exercise of the Warrants. The Warrants expire on November 30, 2017. The Company may seek to raise additional capital in additional closings in which the Company may seek to issue Notes and Warrants, or in subsequent offerings through March 2013. The terms of these proposed offerings may vary from the terms of the Notes and Warrants that were issued in the Note and Warrant financing. The issuance of some or all of these securities will further substantially dilute the Company’s existing stockholders as will subsequent issuances that will be triggered under anti-dilution and similar provisions of the Company’s outstanding securities. There can be no assurance that the Company will be successful in completing additional closings of the Note and Warrant financing or subsequent offerings or obtaining stockholder approval for any necessary increases in the authorized shares of common stock related to these offerings. If the Company is unable to complete such offerings or if the amount raised is not adequate, there can be no assurance that the Company can continue operations or meet its ongoing obligations and commitments. In addition, the Company is working with its vendors, lessors and lenders, to extend payment terms as the Company seeks to raise additional capital.

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Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2012	Jun. 30, 2012
Long-term debt
Long-term debt	$ 21,949
Less current portion	(3,745)	(4,652)
Less discount on capital leases	(1,270)
Long-term debt	16,934	13,753
Midsouth service [Member]
Long-term debt
Long-term debt	20,690
Iberia bank [Member]
Long-term debt
Long-term debt	$ 1,259

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Commitments and Contingencies (Details Textual) (USD $)	1 Months Ended																	3 Months Ended					6 Months Ended		8 Months Ended	12 Months Ended								1 Months Ended									6 Months Ended	3 Months Ended	6 Months Ended								6 Months Ended			1 Months Ended				1 Months Ended					1 Months Ended			1 Months Ended	6 Months Ended
	Jan. 31, 2013	Nov. 30, 2012 Investor	Sep. 30, 2012 Hour	Sep. 30, 2012	Aug. 31, 2012 Hour	Jul. 31, 2012	May 31, 2012	Mar. 31, 2012 Hour	Oct. 31, 2011 Hour	Sep. 30, 2011	Jul. 31, 2011 Hour ThirdParties	Apr. 30, 2011	Mar. 31, 2011	Jan. 31, 2011	Apr. 30, 2009 Agreements	Oct. 10, 2007	Aug. 31, 2007	Dec. 31, 2012 Contract Aircraft	Nov. 30, 2012	Sep. 30, 2012 Aircraft	Jun. 30, 2012	Dec. 31, 2011	Dec. 31, 2012 Investor Hour Contract Aircraft	Dec. 31, 2011	Feb. 28, 2011	Dec. 31, 2010 Hour	Oct. 31, 2012	Sep. 28, 2012 Hour	Oct. 01, 2010 Aircraft	Jun. 20, 2008 Aircraft	Jul. 31, 2006	Nov. 30, 2012 Senior secured convertible promissory notes embedded conversion feature [Member]	Dec. 31, 2012 Senior secured convertible promissory notes detachable warrants [Member]	Nov. 30, 2012 Capital Lease Agreement Two Thousand Six [Member]	Nov. 30, 2012 Capital Lease Agreement Two Thousand Seven [Member]	Nov. 30, 2012 Capital Lease Agreement Two Thousand Nine [Member]	Nov. 30, 2012 Capital Lease Agreement Two Thousand Eleven [Member]	Nov. 30, 2012 Capital Lease Agreement Two Thousand Twelve May [Member]	Nov. 30, 2012 Capital Lease Agreement Two Thousand Twelve July [Member]	Nov. 30, 2012 Lorne Weil [Member]	Sep. 30, 2012 Lorne Weil [Member] Hour	Nov. 30, 2012 Hugh Fuller [Member]	Dec. 31, 2012 Hugh Fuller [Member]	Sep. 30, 2012 Warrants [Member]	Dec. 31, 2012 Warrants [Member]	Dec. 31, 2012 Restricted Stock [Member]	Dec. 31, 2011 Restricted Stock [Member]	Jul. 31, 2012 Restricted Stock [Member]	Sep. 28, 2012 Maximum [Member]	Oct. 31, 2011 Maximum [Member]	Oct. 31, 2011 Minimum [Member]	Dec. 31, 2008 Share 100 [Member]	Dec. 31, 2012 Executive Air Shares Corporation [Member]	Dec. 31, 2012 Dallas and Texas [Member]	Dec. 31, 2012 Clearwater [Member]	Mar. 31, 2012 Wells Fargo equipment finance [Member]	Jan. 31, 2012 Wells Fargo equipment finance [Member]	Feb. 28, 2005 Wells Fargo equipment finance [Member]	Dec. 31, 2012 Wells Fargo equipment finance [Member]	Feb. 28, 2005 Wells Fargo equipment finance [Member] Maximum [Member]	Feb. 28, 2005 Wells Fargo equipment finance [Member] Minimum [Member]	Sep. 30, 2012 Iberia bank [Member]	Aug. 31, 2007 Iberia bank [Member]	Aug. 03, 2012 Iberia bank [Member]	Oct. 31, 2011 Wells Fargo [Member]	Oct. 31, 2007 Wells Fargo [Member] Hour	Dec. 31, 2012 Wells Fargo [Member]	Dec. 31, 2011 Aircraft Incident [Member]	Dec. 31, 2012 Aircraft Incident [Member]	Dec. 31, 2012 Aircraft Incident [Member] Forecast [Member]	Apr. 30, 2009 First Floor Plan Agreement [Member]	Apr. 30, 2009 Second Floor Plan Agreement [Member]
Product Liability Contingency [Line Items]
Reduction in owners monthly proceeds pursuant to each of aircraft management agreements																				$ 25,000
Embraer Phenom 100 to be purchased																														20
Reduction in owners monthly proceeds pursuant to each of aircraft management agreements, per aircraft																				300,000
Aggregate reduction of monthly proceeds																				1,500,000
Number of aircraft owned																				5
Restricted stock, shares issued		200,000																		2,000,000
Restricted stock, issued price per share		$ 0.25																		$ 0.75
Warrants reissued for purchase common stock, shares																				2,373,620
Accrued expense for service rendered to a third party									124,000														375,000
Exercise price		0.38																	0.38								0.50	1.00																					1.00
Share-equivalents of potentially dilutive securities																		55,870,501				8,613,797	44,670,501	8,613,797																				2,373,620		742,676	174,333
Airplane hangar lease, terms																																																							15 years
Operating lease amendment, initial lease term extended																							5 months
Operating lease amendment, initial lease term extended expiration date																							2021-09
Term for lease transportation equipment and data processing equipment																					3 years
Warrants issued to purchase, number of shares of common stock					50,000
Cost incurred to maintain a portion of an aircraft hangar																							2,000
Total commitment including a proposed price escalation																		305,100,000					305,100,000
Termination clause of operating lease									8 years
Net of deposits paid																		6,400,000					6,400,000																														2,000,000
Lease operating period																							8 years																															3 years
Term of Agreement																										3 years
Unpaid amount to owner under management agreement																							760,000
Consideration for finders fee services provided by third party					115,000
Anticipated actual management fees not to be exceeded per year									30,000														25,000
Aircraft lease agreement with third party					7 years
Situation when additional amounts are to be paid per year									1,200														1,200
No. of third parties to which contract was entered into											3
Embraer Phenom 100 to be purchased																													19
Term of Agreement								1 year			10 years
Aircraft usage maximum limit per annum									1,200														1,200
Additional Piaggio Avanti II aircraft to be purchased																		48					48					1,350
Amended amount retained as management fee																									44,000
Flight hours per annum under rental agreement								500																		300
Company's obligation per year according to agreement to lease Pilatus aircraft								22,000			50,000															12,961
Obligation to pay for another Pilatus Aircraft per month								22,000			50,000															12,961
Payment required on additional usage of aircraft						200,000
Operating lease agreement, terms														3 years
Total cost associated with employee related charges																		(31,000)				28,000	69,000	28,000
Monthly fee to Midsouth										72,500		5,000	65,000																																																										82,500	75,000
Repayment of First Plan Agreement																							250,000	500,000		5,800,000
Gain on debt extinguishment										400,000														439,000
Conversion of Floor Plan Agreement					6,000,000					5,200,000
Number of floor plan agreements															2
Purchase price allocated															11,600,000
Maximum amount allocated by the plan															5,800,000
Notice period for termination																							90 days
Floor plan agreements maturity period													12 months
Floor plan agreements extended period description										(1) fifteen months or (2) until the date on which the net purchase price for the aircraft financed pursuant to the Floor Plan Agreement is paid.			1) twelve months or (2) until the date on which the net purchase price for the aircraft financed pursuant to the Floor Plan Agreement is paid.
Short term note payable extended period description												five months or until the Company takes delivery of the aircraft
Borrowings outstanding																		6,000,000					6,000,000
Principal payments range																																																		29,500	24,000
Separate lease agreements of company																		7					7
Company required to pay in lease agreement						55,171	55,319			75,000					75,000	89,000															74,900
Interest per annum in lease agreement		15.00%				9.90%	9.90%		13.00%	15.00%					15.00%	15.00%			15.00%												11.00%
Sole discretion aircraft at a purchase price		300,000							400,000						300,000				300,000
Funding provided for purchase of a pre-owned Piaggio P-180																4,700,000
Percentage of floor rate on variable interest						4.90%	4.90%
Lease operating period		10 years		5 years			2 years								10 years
Percentage of prime rate on variable interest							5.00%
Lease agreement period						10 years
Company agreed to purchase the leased aircraft						4,600,000	1,200,000		2,000,000	3,400,000					3,800,000																3,000,000
Shares of fully-vested restricted stock issued		1,000,000,000,000				200,000
Prime rate						0.05
Price of restricted stock issued						$ 1.50
Loan extended, term																	2013-12
Validity of flight hour card																																																																		100
Term period																																																																		7 years
Note payable																																																												38,480	10,644		27,175
Obligation outstanding																																																											0								0
Paid off promissory note									500,000																																															1,200,000	790,000								1,400,000
Interest minimum																							12.00%																																			5.96%
Other expense liability																		100,000			200,000		100,000
Repayment period																																																																		monthly over 7 years at an interest rate equal to the LIBOR rate plus 4.0%
Percentage of LIBOR rate																																																																		4.00%
Amounts due for undelivered aircraft																																																					43,400,000
Senior secured convertible promissory notes issued		100				4,600,000													100																																															3,900,000
Total purchase price of used aircraft																																																															2,200,000			4,500,000
Reduction on liability																							100,000
Payment of Share 100/Fund payment due in connection with aircraft																																																				2,470,000
Additional capital contribution/Capital contribution to Share 100																																																				750,000
Insurance on Aircraft																																																																					4,800,000	400,000
Insurance proceeds recorded as an accrued liability																																																																				6,500,000
Fractional shares transferred																																																																					16.0
Insurance proceeds liability																																																																					0
Total insurance claim settlement																																																																					4,800,000
Borrowings under short-term debt												500,000						5,679,000			12,000,000		5,679,000
Decrease monthly payments in lease agreement																															62,500
Obligation outstanding						4,400,000	900,000		1,700,000	4,500,000					4,200,000	2,300,000	1,300,000	2,400,000					2,400,000
Restricted stock fair value		$ 0.15																	$ 0.15									$ 0.40																				$ 0.65
SSF Notes initial interest rate																		2.00%				2.00%	2.00%	2.00%																																								8.25%
Total cost associated with employee related charges																							1,000,000
Interest maximum																																																										6.12%
Hanger lease, classified as operating lease, expiration term																							October 2018 and includes a 90 day mutual termination clause, which was exercised in August 2012
Change in monthly installment of loan due to extension																																																														26,769
Detachable warrants valued																																													$ 0.10
Class of Warrant or Right [Line Items]
Additional shares of common stock issued to LW Air																																								4,000,000		10,000,000	2,800,000
Common stock shares issued																																											8,200,000
Flight hours per annum under lease agreement					400						125																														1,350
Purchase price of restricted stock issued under note and warrant purchase agreement																																								$ 0.38
Fair Value of Restricted Stock Issued Under Note and Warrant Purchase Agreement																																								$ 0.15
Interest expense																		(815,000)				(1,240,000)	(1,807,000)	(2,296,000)
Capital Leased Assets [Line Items]
Reduced monthly fee payment thereafter																																				75,000
Reduction in Monthly fee from Midsouth																45,000			25,490															40,000		45,000	16,000	50,000	43,000
Reduction in Monthly fee from Midsouth next twelve months																			46,264															40,779	43,850		15,781	52,645	55,171
Derivative liability at fair market value																																960,000	1,100,000
Commitments and Contingencies (Textual) [Abstract]
Letter of credit amount returned																							250,000
Monthly cash proceeds									75,000														80,000
Management fee									51,500														56,500
Rental hours per month			1,350						100		1,300												100
Termination clause of operating lease																							90 days
Guaranteed monthly cash proceeds out of rental income or advances against future rental income									75,000														80,000
Rental Income retained as management fee per month									51,500														56,500
Revenue from services rendered									124,000														375,000
Reduction in owners monthly proceeds pursuant to each of aircraft management agreements																				25,000
Reduction in owners monthly proceeds pursuant to each of aircraft management agreements, per aircraft																				300,000
Aggregate reduction of monthly proceeds																				1,500,000
Number of aircraft owned																				5
Restricted stock, shares issued		200,000																		2,000,000
Restricted stock, issued price per share		$ 0.25																		$ 0.75
Warrants reissued for purchase common stock, shares																				2,373,620
Exercise price		0.38																	0.38								0.50	1.00																					1.00
Operating lease amendment, initial lease term extended																							5 months
Operating lease amendment, initial lease term extended expiration date																							2021-09
Interest maximum																																																										6.12%
Lease operating period																							8 years																															3 years
Aggregate principle amount of lease payments		1,800,000																	1,800,000
Reduction in lease payment per month for the second year	200,000																	100,000					100,000
Number of additional months of lease agreement pursuant to an amendment		60 months
Number of Units issued		1,500,000
Increase in number of shares issuable		3,560,430	3,560,430
Reduction in exercise price		$ 0.50	$ 0.50
Payoff amount in the lease agreement		$ 0.25																$ 0.09	$ 0.25				$ 0.09
Principle amount of the note																		2,800,000					2,800,000
Accrued but unpaid interest on the Note																		100,000					100,000
SSF Notes initial interest rate																		2.00%				2.00%	2.00%	2.00%																																								8.25%
Derivative liability																		0					0
Changes in the fair value of the derivative liability																		0				0
Increase on interest rate	12.00%																						12.00%
Term of Notes to paid																							30 days
Time period for aggregate principle amount of lease payments																							15 months
Additional closing of Notes and Warrants to purchase common stock		712,500
Number of accredited Investors		10																					10
Value of Notes under income and residual approach		$ 24.93
Accretion of discount on embedded conversion feature																		31,000
Accretion of discount on detachable warrants																		13,000
Debt Instrument, Maturity Date																							Nov. 28, 2015
Restricted stock, value																				$ 1,500,000

XML

Summary of Significant Accounting Policies

6 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Reporting

The accompanying unaudited interim condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the interim condensed financial statement rules and regulations of the Securities and Exchange Commission. In the opinion of management, these financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the condensed consolidated financial statements as required by Regulation S-X, Rule 8-03. The interim condensed consolidated operating results are not necessarily indicative of the results for a full year or any interim period. The condensed consolidated balance sheet as of June 30, 2012 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

Basis of Presentation

All material intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the successful recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business. As of December 31, 2012, the Company’s recurring net losses resulted in a working capital deficit of approximately $69.0 million and a stockholders’ deficit of approximately $53.5 million. In addition to the cost of acquiring aircraft, the Company’s primary expenses are related to fuel, aircraft repositioning (i.e., moving an aircraft from one location to another location to accommodate a program participant’s requirements), flight operations and pilot expenses, maintenance, charters, insurance and selling, general and administrative expenses.

Reclassifications

Management has reclassified various expenses within the operating expense section of the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2011. These reclassifications are primarily as follows:

• Payroll taxes and benefit costs of approximately $1.0 and $1.9 million have been reclassified and apportioned to cost of flight operations and selling expenses from general and administrative expenses for the three and six months ended December 31, 2011;

• Third-party fuel sale costs of approximately $0.4 and $0.9 million have been reclassified to cost of fuel from general and administrative expenses for the three and six months ended December 31, 2011; and

• Cost of used shares of less than $0.1 and $0.2 million have been reclassified to cost of fractional aircraft share sales from general and administrative expenses for the three and six months ended December 31, 2011.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying disclosures. These estimates and assumptions are based upon management’s best knowledge of current events and actions that the Company may take in the future. The Company is subject to uncertainties such as the impact of future events, economic, environmental and political factors and changes in the Company’s business environment. Therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s condensed consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in the reported financial condition and results of operations. If material, the effects of changes in estimates are disclosed in the notes to the condensed consolidated financial statements. Significant estimates and assumptions by management affect: the recording of revenue arrangements with multiple deliverables, the allowance for doubtful accounts, the carrying value of long-lived assets, the amortization period of long-lived assets, the provision for income taxes and related deferred tax accounts, certain accrued expenses and contingencies, warrant valuations and management’s assessment of its ability to continue as a going concern.

In January 2011, the Company changed its estimate of its depreciable life of its core aircraft to 20 years from its original seven year life. This change in estimate was based upon an evaluation of the aircrafts’ actual service life. This change in estimate was adopted prospectively, in accordance with ASC 250 “Accounting Changes and Error Corrections”, (“ASC 250”).

The Company’s strategy is to maintain and operate its aircraft for at least 10 years. The 20 year life is representative of the full service life of the aircraft, not an increase in the period that the Company intends to maintain and operate the aircraft.

Cash-restricted

Restricted cash includes cash where the Company’s ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations. The Company agreed to restrict approximately $2.3 million and $2.2 million in cash at December 31, 2012 and June 30, 2012, respectively, to secure letters of credit related to deposits for leases, provide security for credit card charge backs and to secure fuel purchases. Management believes that these amounts will be restricted for at least one year and, accordingly, has classified such cash as long-term.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts of approximately $1.0 million and $1.3 million as of December 31, 2012 and June 30, 2012, respectively, for estimated losses arising from the inability of its program participants to make required payments. For the six months ended December 31, 2012, the Company increased the allowance for doubtful accounts by $0.2 million and wrote off $0.5 million of accounts receivable balances against the allowance for doubtful accounts. The Company’s estimate is based on factors surrounding the credit risk of certain clients, historical collection experience and a review of the current status of accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change if the financial condition of the Company’s program participants were to deteriorate resulting in a reduced ability to make payments or program participants fail to make payments as a result of the recent stand down of the fleet.

Inventory

Fuel inventory is valued at the lower of cost (determined by the first-in, first-out method) or market.

Property and Equipment

Property and equipment is recorded at cost and primarily consists of aircraft which are not fractionalized. Depreciation and amortization is computed using the straight-line method over the following useful lives:

Aircraft	5 - 20 years
Office equipment and furniture and fixtures	5 - 7 years
Flight management software/hardware	5 years
Vehicles	5 years
Improvements	Lesser of estimated useful life or the term of the lease

Cost and related accumulated depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are credited or charged to income.

Expenditures for maintenance and repairs of property and equipment are expensed as incurred. Major improvements and interest costs relating to borrowings made for the acquisition of aircraft are capitalized. Modifications that enhance the operating performance or extend the useful lives of airframes or engines on core aircraft are capitalized and depreciated over the remaining estimated useful life of the asset or the remaining lease term, whichever is shorter.

The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360 “Property, Plant and Equipment” (“ASC 360”). Although the Company recognizes that it has incurred net losses since inception, these net losses have been much less significant than in prior periods. Additionally, there has been no material deterioration in the total program participant base and related program participant contracts, though the Company has seen a decrease in new fractional share sales corresponding with the Company’s February 2011 introduction of its Axis Lease program. Due to a voluntary stand down of its operations (see Note 1), the Company performed an interim impairment analysis on its property and equipment to determine whether it is more likely than not that the projected future undiscounted cash flows of certain assets is less than the carrying amount during the first quarter of fiscal year 2013. After assessing the factors prescribed by ASC 360, the Company concluded that the projected future undiscounted cash flows of certain assets was more than the carrying amount and as a result, there is no indication of impairment.

Goodwill

The Company accounts for goodwill and other intangible assets under ASC 350 “Intangibles – Goodwill and Other” (“ASC 350”). ASC 350 eliminates the amortization of goodwill and certain other intangible assets and requires an evaluation of impairment by assessing qualitative factors, and if necessary, applying a fair-value based test. The goodwill impairment test requires qualitative analysis to determine whether is it more likely than not that the fair value of a reporting unit is less than the carrying amount, including goodwill. An indication of impairment through analysis of these qualitative factors initiates a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of the Company’s reporting units based on discounted cash flow models using revenue and profit forecasts and comparing the estimated fair values with the carrying values of the Company’s reporting units which include the goodwill. If the estimated fair values are less than the carrying values, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of the Company’s “implied fair value” requires the Company to allocate the estimated fair value to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to the corresponding carrying value.

The Company performs its annual goodwill impairment testing in the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Application of the goodwill impairment test requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Company, estimation of aircraft in use, the useful life over which cash flows will occur, and determination of cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment.

Due to the voluntary stand down of its operations (see Note 1), the Company performed an interim goodwill impairment analysis to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount, including goodwill during the first quarter of fiscal year 2013. After assessing the qualitative factors prescribed by ASC 350, the Company concluded that the fair value of the reporting unit was more than the carrying amount. As a result, there is no indication of impairment and further testing as a result of the voluntary stand down is not required.

Revenue Recognition

The Company is engaged in the sale, lease and management of fractional ownership interests of professionally piloted aircraft for personal and business use and access to its aircraft fleet through 15, 25 or 50 hour flight hour cards. When a program participant purchases a fractional share or enters into a lease of a fractional share through the Company’s Axis Lease program (introduced in February 2011), they are also required to enter into a management and maintenance agreement, which grants the program participant the right to the use of the aircraft for a specified number of hours each year. Under the terms of the management and maintenance agreement, the Company agrees to manage, operate and maintain the aircraft on behalf of the program participant in exchange for a fixed monthly fee.

Flight activity and other ancillary billing includes revenue related to billings to the program participants for reimbursable costs incurred by the Company. These reimbursable costs include, but are not limited to, fuel, flight fees, maintenance costs required by Airworthiness Directives or Service Bulletins as mandated by the FAA and not covered by the regular maintenance provided for in the management and maintenance agreement, aircraft upgrades and other ancillary charges. Flight activity and other ancillary billing are recorded on a gross basis as revenue in accordance with ASC 605-45 “Principal Agent Considerations” (“ASC 605-45”).

Fractional Aircraft Shares Sold

Fractional shares are typically sold as one-sixteenth shares and require upfront payment for an undivided interest in the aircraft. Upon the purchase of a fractional share, the owner receives title to their interest in the aircraft. The ownership period is indefinite. Revenue for these types of transactions is included in fractional aircraft shares sold in the accompanying condensed consolidated statements of operations.

Revenue from the sale of fractional aircraft shares sold before July 1, 2010 was deferred at the time of sale and is recognized ratably over the term of the related management and maintenance agreement in accordance with ASC 605-25 “Multiple-Element Arrangements” (“ASC 605-25”). Revenue from the sale of fractional shares sold after June 30, 2010 are recognized at the time of sale upon adoption of Accounting Standards Update (“ASU”) 2009-13 “Multiple-Deliverable Revenue Arrangements”, which updates ASC 605-25. There were no fractional aircraft shares sold during the three months ended December 31, 2012 requiring recognition under this guidance.

During fiscal year 2011, the Company initiated a promotion that offered the sale of select fractional shares which provided a repurchase guarantee at the expiration of the related seven year management and maintenance agreements. The guarantee may be exercised at the owner’s option for a determined percent of the original purchase price. The Company discontinued this residual guarantee program in October 2011. Sales through this promotion have been accounted for as operating leases in accordance with ASC 840 “Leases” and the related revenue earned (less the guaranteed residual value) is recognized ratably over the term of the management and maintenance agreement. At December 31, 2012, guarantees under this program totaled approximately $4.3 million and are included in deferred revenue related to fractional aircraft share sales.

Lease Revenue

Lease revenue includes fractional share lease revenue from the Company’s Axis Lease program. The lease of a fractional share allows a program participant to lease an interest in the aircraft from the Company in exchange for a monthly lease charge. Unlike the purchase of a fractional ownership interest, program participants do not take title to the aircraft at any point in time. Lease terms typically range from two to ten years.

Axis Lease program lease revenue is a contractual monthly fee charged over the term of the lease. Under this program, lessees are permitted to fly a set number of hours divided evenly over the number of months in the term, resulting in the Company recognizing revenue ratably over each month. In the event lessees fly more than their monthly allocated hours, the Company recognizes additional lease revenue based on the overflown hours in that month. However, the cumulative amount recognized over the lease term shall not exceed the total annual lease payment per the lease agreement.

Management and Maintenance Agreements

Fractional owners and lessees are required to enter into a management and maintenance agreement, which grants the program participant the right to use the aircraft for a specified number of hours each year for a fractional owner, and each month for a fractional lessee.

Revenue earned in connection with the management and maintenance agreements with fractional share owners is recognized monthly over the term of the agreement. If a fractional share owner prepays their management and maintenance fee for a period of one year or longer, the prepayment is recorded as unearned revenue and amortized into revenue on a monthly basis.

Revenue earned in connection with the management and maintenance agreements with Axis Lease program lessees is recognized monthly over the lease term. If an Axis Lease program lessee prepays their management and maintenance fee for a period of one year or longer, the prepayment is recorded as unearned revenue and amortized monthly over the lease term.

Under either circumstance, revenue is recognized ratably over each month. In the event lessees fly more than their monthly allocated hours, the Company recognizes additional management and maintenance revenue based on the overflown hours in that month; however, the cumulative amount recognized over the lease term shall not exceed the total annual management and maintenance fee payment per the lease agreement.

Flight hour card and Axis Club Membership Revenue

Flight hour card revenue. The Company sells access to its aircraft fleet through either 15, 25 or 50 hour flight hour cards for flight time without the requirement to purchase an ownership interest in an aircraft. The card holder pays the Company the entire amount in advance of access to the aircraft fleet. The Company defers the entire amount paid and recognizes revenue on an incremental basis as flight hours are flown.

Axis Club Membership revenue. In February 2009, the Company initiated the Axis Club Membership program. The Axis Club Membership program offered program participants access to blocks of flight time at a discount from standard flight hour card rates for a set, three year membership fee. The program required that Axis Club members purchase a minimum of three, 25-hour blocks of flight hour cards. Axis Club Membership fees were paid in advance, deferred and recognized as revenue over the shorter of the three year membership term or the period of time it took the maximum number of cards to be purchased. Payment for flight hour cards sold through the Axis Club Membership program were collected from members in advance of access to the aircraft fleet, deferred and recognized as revenue on an incremental basis as flight hours were flown. The Axis Club Membership program was replaced by the Axis Lease program effective March 2011.

Flight Activity and Other Ancillary Billing

Flight activity and other ancillary billing include revenue related to billings to the program participants for reimbursable costs incurred by the Company. These reimbursable cost include, but are not limited to, fuel, flight fees, maintenance costs required by Airworthiness Directives or Service Bulletins as mandated by the FAA and not covered by the regular maintenance provided for in the management and maintenance agreement, aircraft upgrades and other ancillary charges. The Company accounts for flight activity and other ancillary billing on a gross basis in accordance with ASC 605-45 as the Company meets the specified criteria as a principal in transactions between the Company and its program participants.

Other Revenue

Other revenue is comprised primarily of revenue from demonstration flights, the sale of the Company’s previously owned fractional aircraft shares, remarketing fees, and revenue from the sale of fuel and rental of hangar space at the Company’s FBO facilities. Demonstration revenue is earned when the prospective program participants are flown on an aircraft to demonstrate the quality and capabilities of the aircraft. The Company charges the prospective program participant an hourly rate and requires payment prior to the demonstration flight. The Company recognizes revenue related to these demonstration flights when the flight is completed. Revenue from the sale of the Company’s previously owned fractional aircraft shares are recorded similar to the sale of new fractional aircraft shares. Remarketing fees are recognized when the Company sells third party, used aircraft shares on a program participant’s behalf. FBO related revenue from fuel sales and hangar rentals are recorded when goods are delivered or services are rendered.

Referral Incentive Hours

The Company accounts for the additional hours granted to program participants under the referral incentive program by expensing costs as they are incurred. Such costs have not been material to date.

Aircraft Costs Related To Fractional Sales

Aircraft costs relating to the sale of fractional aircraft shares sold before July 1, 2010 were deferred at the time of sale and are recognized ratably over the term of the related management and maintenance agreement in accordance ASC 605-25. The short-term portion of these costs represents twelve months of unamortized expenses for the twelve month period following the period being filed. The long-term portion of these costs represents unamortized expenses greater than 12 months following the period being filed.

Aircraft costs relating to the sale of fractional shares sold after June 30, 2010 are recognized at the time of sale upon adoption of ASU 2009-13, which updates ASC 605-25. There were no fractional aircraft shares sold during the three months ended December 31, 2012 requiring recognition under this guidance.

During fiscal year 2011, the Company initiated a promotion that offered the sale of select fractional shares which provided a repurchase guarantee at the expiration of the related seven year management and maintenance agreements. The guarantee may be exercised at the owner’s option for a determined percent of the original purchase price. The Company discontinued this residual guarantee program in October 2011. Sales through this promotion have been accounted for as operating leases in accordance with ASC 840 “Leases” and the related costs were capitalized to property and equipment and depreciated over the 20 year useful life of the aircraft.

Maintenance Expense Policy

Costs related to maintenance performed on both fractionalized and core aircraft related to engine overhauls, landing gears, refurbishments and other maintenance services that enhance the useful life of the aircraft are capitalized and depreciated or amortized over the useful life of the improvement. Other maintenance activities that do not enhance the useful life of the aircraft are expensed as incurred. Maintenance is performed in-house or by third party vendors, as applicable.

Fractionalized aircraft improvements are capitalized as other assets in the accompanying condensed consolidated balance sheets and amortized over the lesser of the useful life of the improvement or the aircraft. The amortization of these costs is expensed in cost of flight operations in the accompanying condensed consolidated statements of operations.

Core aircraft improvements are capitalized as property and equipment in the accompanying condensed consolidated balance sheets and depreciated over the lesser of the useful life of the improvement, life of the aircraft or lease term. The depreciation of these costs is expensed in depreciation and amortization in the accompanying condensed consolidated statements of operations.

The change in depreciable lives from 7 to 20 years will not lead to increased maintenance costs. Therefore no increases have been factored into the Company’s most recent impairment analysis. See the Property and Equipment section above.

Income Taxes

Income taxes are accounted for under the asset and liability method in accordance with ASC 740 “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance is established to reduce deferred tax assets to the amounts expected to be realized. The Company calculated an annual effective tax rate to determine the interim period income tax provisions. However, no tax liability was accrued for the three or six months ended December 31, 2012, as the Company expects to have sufficient operating loss and tax credit carryforwards to cover any taxable income.

Effective July 1, 2007, the Company adopted the provisions of ASC 740 relating to uncertain tax positions. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company has identified its federal tax return and State of Florida tax return as “major” tax jurisdictions, as defined in ASC 740. The Company evaluations were performed for the tax years ended 2005 through 2011. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.

Stock-Based Compensation

The Company has one stock-based compensation plan, the Amended and Restated 2006 Long-Term Incentive Plan (“2006 Long-Term Incentive Plan,” or the “Plan”), which the Company’s shareholders approved, for employees, certain non-employees and non-employee directors. Stock-based awards under this plan may consist of common stock, common stock units, stock options, cash-settled or stock-settled stock appreciation rights, restricted stock and other stock-based awards. The Company issues common stock to satisfy stock option exercises or vesting of stock awards.

The Company accounts for stock-based compensation to employees and directors in accordance with ASC 718 “Compensation-Stock Compensation” (“ASC 718”), which requires the recognition of compensation expense for employee stock options and other stock-based payments. Under ASC 718, expense related to employee stock options and other share-based payments is recognized over the relevant service period based on the fair value of each stock option grant. In addition, the Company recognizes in its condensed consolidated statements of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and directors. Compensation expense for stock-based awards is recognized over the requisite service period, usually the vesting period on a straight-line basis, while compensation expense for liability-based awards (those usually settled in cash rather than stock) is measured at fair-value at each balance sheet date until the award is settled.

Stock-based compensation expense related to the Plan, which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations, was approximately $0.2 million and $0.3 million for the three and six months ended December 31, 2012, respectively, and was approximately $0.2 million and $0.4 million for the three and six months ended December 31, 2011, respectively. There were no related income tax benefits recognized in the accompanying condensed consolidated statements of operations for the three months ended December 31, 2012 and 2011. As of December 31, 2012, the Company had 742,676 shares of restricted stock and 1,679,317 stock options outstanding.

Accounting for Derivative Instruments

The Company accounts for derivative instruments in accordance with ASC 815 “Derivatives and Hedging” (“ASC 815”), which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts. The Company also considers ASC 815, which provides criteria for determining whether freestanding contracts that are settled in a company’s own stock, including common stock warrants, should be designated as either an equity instrument, an asset or as a liability under ASC 815.

The Company evaluated the conversion feature embedded in its Series A Convertible Preferred Stock based on the criteria of ASC 815 to determine whether the conversion feature would be required to be bifurcated from the Preferred Stock and accounted for separately as a derivative. Based on management’s evaluation, the embedded conversion feature did not require bifurcation and derivative accounting as of December 31, 2012.

Additionally, the Company evaluated the conversion feature embedded in its senior secured convertible promissory notes based on the criteria of ASC 815 to determine whether the conversion feature would be required to be bifurcated from the senior secured convertible promissory note and accounted for separately as a derivative. Based on management’s evaluation, the embedded conversion feature meets the requirements of derivative accounting under ASC 815. The Company recorded this conversion feature at its fair value in accordance with ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). The embedded conversion feature was valued at $0.09 per Note using the Monte Carlo method. Increases or decreases in the fair value of the conversion feature are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

The Company evaluated the detachable Warrants based on the criteria of ASC 815 to determine whether the Warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the detachable Warrants meet the requirements of derivative accounting under ASC 815. The Company recorded the detachable Warrants at their fair value in accordance with ASC 820. The detachable Warrants were valued at $0.10 per warrant using the Monte Carlo method. Increases or decreases in the fair value of the Warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

The Company is currently a party to various lease agreements with Midsouth, Mr. Fuller, or other entities controlled by Mr. Fuller for the lease of seven aircraft (“Aircraft Leases”). The original terms of the Aircraft Leases range from fifteen (15) months to one hundred twenty (120) months and the aggregate monthly lease payments for the Aircraft Leases total approximately $528,000.

On November 30, 2012, the Company entered into an Amended and Restated Restricted Stock Agreement with Mr. Fuller (the “Amended HF Restricted Stock Agreement”), which amended and restated the Restricted Stock Agreement dated August 16, 2012 with Mr. Fuller pursuant to which the Company previously issued to Mr. Fuller 200,000 shares of fully-vested restricted stock at a price of $1.50 per share to reduce the principal balance of an aircraft to be financed by $0.3 million. Under the Amended HF Restricted Stock Agreement, Mr. Fuller agreed to a reduction in the interest portion of the lease payments under the Aircraft Leases in the aggregate amount of approximately $1.8 million over fifteen months, with a reduction in lease payments in the amount of approximately $0.2 million per month beginning in November 2012 through January 2013, and approximately $0.1 million per month for twelve consecutive months thereafter, ending on January 31, 2014. Pursuant to Amendment No. 1 to the N180HM lease agreement, Mr. Fuller also agreed to extend the term of the lease for an additional sixty (60) months, or until November 30, 2017, on similar terms, except that Mr. Fuller will have the sole option to terminate the lease agreement and sell the aircraft and the Company agrees that it will issue to Mr. Fuller a number of units (as defined below) equal to the result of dividing (A) the difference between $1.5 million and the numerical value of the then current payoff amount as outlined in the lease agreement for the aircraft by (B) 0.25. For purposes of this provision, a unit will consist of one share of the Company’s common stock (the “Issued Stock”) (subject to adjustment as described below) and one warrant to purchase a share of the Company’s common stock at $0.50 (a “Warrant Share”). Mr. Fuller also agreed to extend the term of the Floor Plan Agreement originally entered into in September 2011 for an additional eight (8) months, or until August 30, 2013. In consideration of the foregoing, the Company issued 8,200,000 shares of fully-vested restricted stock to Mr. Fuller, 1,000,000 shares of which related to the $0.3 million reduction in the principal balance of an aircraft to be financed and 7,200,000 shares related to the approximate $1.8 million reduction in the interest portion of the lease payments of the aircraft leases and Amendment No. 1 to the N180HM lease agreement, as well as a warrant (the “HF Warrant”) to purchase 8,400,000 shares of common stock in substantially the same form as the Warrants. The Amended HF Restricted Stock Agreement also contains certain antidilution protections. The Company evaluated the HF Warrant based on the criteria of ASC 815 to determine whether the warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the warrants issued in connection with the HF Warrant meet the requirements of derivative accounting under ASC 815. The Company recorded the warrants at their fair value in accordance with ASC 820. The warrants were valued at $0.04 per warrant using the Monte Carlo method. Increases or decreases in the fair value of the warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

Effective September 28, 2012, the terms of the Company’s management agreements with certain entities (collectively, “LW Air”), controlled by Lorne Weil, a director of the Company, were amended so that the Company was not required to pay the owner additional amounts unless usage of the aircraft exceeds 1,350 hours per year, retroactive to the beginning of each management agreement. Simultaneous with this transaction, the Company issued an Amended and Restated Warrant (the “LW Warrant”) to Lorne Weil, a director of the Company, to purchase 2,373,620 shares of common stock at an exercise price of $1.00 per share.

On November 30, 2012, the Company entered into Amendment No. 1 to the LW Warrant (the “Warrant Amendment”) with Lorne Weil. The LW Warrant provided certain anti-dilution protections, which would have been triggered in connection with the issuance of the Notes and Warrants. The Warrant Amendment provides for, among other things, revised antidilution rights so the antidilution provisions set forth in the LW Warrant would not apply in connection with the issuance of the Notes and Warrants; a reduction in the exercise price to $0.50 per share; and an increase in the number of shares of common stock issuable upon exercise of the LW Warrant to 3,560,430 shares of common stock. The Company evaluated the Warrant Amendment based on the criteria of ASC 815 to determine whether these warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the Warrant Amendment meets the requirements of derivative accounting under ASC 815. The Company recorded these warrants at their fair value of $0.03 per warrant using the Monte Carlo Method, in accordance with ASC 820. Increases or decreases in the fair value of these warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

Effective September 28, 2012, the terms of the Company’s management agreements with LW Air were amended to irrevocably reduce the owner’s monthly proceeds pursuant to each of the aircraft management agreements by $25,000 per month for a period of twelve consecutive months beginning in August 2012, or $0.3 million per aircraft, the aggregate reduction of LW Air’s monthly proceeds totaling $1.5 million, with respect to all five of the aircraft owned by LW Air. Simultaneous with this transaction, the Company entered into a Restricted Stock Agreement (the “LW Restricted Stock Agreement”), dated as of September 28, 2012, pursuant to which the Company issued to LW Air 2,000,000 shares of fully-vested restricted stock at a price of $0.75 per share, subject to certain antidilution rights, for an aggregate value of $1.5 million.

On November 30, 2012, the Company entered into Amendment No. 1 to the LW Restricted Stock Agreement with LW Air (“Amendment No. 1”). The LW Restricted Stock Agreement provided that the shares issued would be entitled to antidilution protections, which would have required the issuance of additional shares to LW Air in connection with the issuance of the Notes and Warrants. Amendment No. 1 provides for, among other things, revised antidilution rights so the antidilution provisions in the LW Restricted Stock Agreement would not apply in connection with the issuance of the Notes and Warrants ; the issuance of 4,000,000 additional shares of fully-vested restricted stock to LW Air on November 30, 2012 and warrants to purchase an aggregate of 6,000,000 shares of common stock (the “Additional LW Warrant”) on November 30, 2012, in substantially the same form as the Warrants. The Company evaluated the Additional LW Warrant based on the criteria of ASC 815 to determine whether these warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the Additional LW Warrant met the requirements of derivative accounting under ASC 815. The Company recorded the Additional LW Warrant at their fair value of $0.08 per warrant using the Monte Carlo Method, in accordance with ASC 820. Increases or decreases in the fair value of these warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

On November 30, 2012, the Company issued a Warrant (the “HF Overfly Warrant”) to Mr. Fuller, to purchase 645,200 shares of common stock at an exercise price of $0.50 per share. The HF Overfly Warrant was issued in lieu of paying additional amounts owed to Mr. Fuller pursuant to certain Aircraft Leases as a result of the aircraft exceeding certain hourly usage limitations. The Company evaluated the HR Overfly Warrant based on the criteria of ASC 815 to determine whether these warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the HF Overfly Warrant met the requirements of derivative accounting under ASC 815. The Company recorded the warrants at their fair value of $0.04 per warrant using the Monte Carlo method, in accordance with ASC 820. Increases or decreases in the fair value of these warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

Fair Value Measurements

The Company has adopted the provisions of ASC 820 which defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period.

The fair value of the Company’s assets and liabilities that qualify as financial instruments under ASC 820, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, unearned management fees and flight hour card revenue and short-term debt, are carried at cost, which approximates fair value due to the short-term maturity of these instruments. Long-term obligations approximate fair value, given management’s evaluation of the instruments’ current rates compared to market rates of interest and other factors.

The Company measures fair value basis based on the following key objectives:

• The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date;

• A three-level hierarchy (“Valuation Hierarchy”) for fair value measurements;

• Consideration of the Company’s creditworthiness when valuing liabilities; and

• Disclosures about instruments measured at fair value.

The Valuation Hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the Valuation Hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of the Valuation Hierarchy and the distribution of the Company’s financial assets within it are as follows:

• Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The derivative liabilities are measured at fair market value on a recurring basis. The table below summarizes the fair market values of the derivative liabilities as of December 31, 2012 (in thousands):

	Fair Market Value at December 31, 2012
	Level 1		Level 2		Level 3
Senior secured convertible promissory notes embedded conversion feature	$	—	$	—	$	960
Warrants		—		—		1,142
HF Warrant		—		—		336
Warrant Amendment		—		—		107
Additional LW Warrant		—		—		480
HF Overfly Warrant		—		—		26
Total Derivative Liabilities	$	—	$	—	$	3,051

The following table summarizes, as of December 31, 2012, the derivative activity subject to Level 3 inputs which are measured on a recurring basis using the Monte Carlo method (in thousands):

	Level 3 Fair Market Value Measurements
	Balance at November 30, 2012 (date of issuance)		Change in Fair Value of Derivative Liability 1			Balance at December 31, 2012
Senior secured convertible promissory notes embedded conversion feature	$	960	$	—		$	960
Warrants		1,142		—			1,142
HF Warrant		336		—			336
Warrant Amendment		166		(59	)		107
Additional LW Warrant		480		—			480
HF Overfly Warrant		26		—			26
Total Derivative Liabilities	$	3,110	$	(59	)	$	3,051

¹  The Company has concluded that the fair value of the derivative liabilities at December 31, 2012 was not materially different than the fair value at November 30, 2012. Therefore, there was no change in the fair value of the derivative liability recorded in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012, except as noted in the table above.

²  The 2,373,620 warrants issued in connection with the LW Warrant on September 28, 2012 were originally recorded as equity at a value of approximately $166,000. On November 30, 2012, these warrants were modified in accordance with the Warrant Amendment in the amount of 3,560,430 warrants. Simultaneous with this transaction, the Company deemed these warrants to be derivative liabilities and their value was reclassified from Additional Paid-In Capital to Derivative Liabilities in the accompanying condensed consolidated balance sheet as of December 31, 2012. The warrants were revalued using the Monte Carlo method (see note 4, Equity Transactions) as of November 30, 2012 with the decrease in fair value recorded in Change in fair value of derivative liabilities in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012.

Loss Per Share

Basic and diluted loss per share applicable to common stock is computed using the weighted average number of common shares outstanding during the period. Shares used in calculating basic and diluted loss per share exclude common stock equivalents for warrants, stock-based compensation, senior secured convertible promissory notes and Series A Convertible Preferred Stock, as these common stock equivalents are anti-dilutive. In future periods, if the Company reports net income attributable to common stockholders and the common stock equivalents for the warrants, stock-based compensation, senior secured convertible promissory notes and Series A Convertible Preferred Stock are dilutive, the common stock equivalents will be included in the weighted average shares computation and dividends related to our Series A Convertible Preferred Stock will be added back to net income attributable to common stockholders to calculate diluted earnings per share.

For the three and six months ended December 31, 2012, a total of 55,870,501 share-equivalents of potentially dilutive securities were excluded from the calculation of diluted loss per share. These securities were comprised of the following:

• 3,560,430 warrants issued to Lorne Weil in conjunction with the Warrant Amendment;

• 6,000,000 warrants issued to LW Air in conjunction with Amendment No. 1 with LW Air;

• 8,400,000 warrants issued to Mr. Fuller in conjunction with the HF Warrant;

• 645,200 warrants issued to Mr. Fuller in conjunction with the HF Overfly Warrant;

• 50,000 warrants issued to EarlyBirdCapital, Inc. (“EBC”) in consideration for services rendered in connection with an aircraft lease agreement with a third party;

• 250,000 warrants issued to EBC in consideration for financial consulting and/or investment banking services rendered in connection with the Note and Warrant financing;

• 11,200,000 detachable warrants issued in connection with the Initial Closing;

• 11,200,000 shares of common stock resulting from the potential conversion of the Notes issued in connection with the Initial Closing;

• 1,679,317 options to purchase shares of common stock which were outstanding during the periods but were not included in the computation of diluted loss per common share because the options’ exercise prices were greater than the average market price of the common shares, and therefore, their effect would be anti-dilutive as calculated under the treasury method promulgated by ASC 260 “Earnings Per Share” (“ASC 260”).

• 12,142,878 shares of common stock reserved for issuance upon the conversion of the outstanding shares of Series A Convertible Preferred Stock; and

• 742,676 shares of unvested restricted stock which were not included in the computation as all necessary conditions for vesting had not yet been satisfied in accordance with ASC 260’s contingently issuable shares provision.

For the three and six months ended December 31, 2011, a total of 8,613,797 share-equivalents of potentially dilutive securities were excluded from the calculation of diluted loss per share. These securities were comprised of the following:

• 2,373,620 warrants issued to Lorne Weil in conjunction with the LW Warrant;

• 437,887 warrants outstanding as of December 31, 2011 issued to EBC in consideration for services rendered as placement agent for the Company’s June, September and October 2009 private placements;

• 1,376,100 options to purchase shares of common stock which were outstanding during the periods but were not included in the computation of diluted loss per common share because the options’ exercise prices were greater than the average market price of the common shares and, therefore, their effect would be anti-dilutive as calculated under the treasury method promulgated by ASC 260;

• 4,251,857 shares of common stock reserved for issuance upon the conversion of the outstanding shares of Series A Convertible Preferred Stock; and

• 174,333 shares of unvested restricted stock which were not included in the computation because all necessary conditions for vesting had not been satisfied in accordance with ASC 260’s contingently issuable shares provision.

Comprehensive Income (Loss)

The Company adheres to the provisions of ASC 220, “Comprehensive Income” (“ASC 220”). This pronouncement establishes standards for reporting and display of comprehensive income or loss and its components (revenue, expense, gain and loss). In accordance with ASC 220, items requiring recognition as components of comprehensive income (loss) are required to be classified by their nature. Furthermore, the Company is required to display the accumulated balances of other comprehensive income (loss) separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. For the three months ended December 31, 2012 and 2011, there were no items that gave rise to other comprehensive income (loss), and net loss equaled comprehensive loss.

Recently Issued Pronouncements

The Company does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Jun. 30, 2012
Allowance for doubtful accounts, accounts receivable	$ 1,046	$ 1,340
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	700,000	700,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Series A, Convertible Preferred Stock
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	300,000	300,000
Preferred stock, shares issued	152,000	152,000
Preferred stock, shares outstanding	152,000	152,000
Common Stock, Class A
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	40,903,717	40,903,717
Common stock, shares outstanding	26,497,468	26,497,468

XML

Operations and Management's Plans (Details Textual) (USD $)	1 Months Ended			6 Months Ended
	Jan. 31, 2013	Nov. 30, 2012 Investor	Oct. 31, 2012	Dec. 31, 2012 Investor Aircraft	Feb. 01, 2013	Sep. 28, 2012	Jul. 31, 2012	Dec. 31, 2011
Aircraft Operated [Line Items]
Number of aircraft managed				56
Consulting, FAA, legal, furlough and communications costs				$ 1,200,000
Senior secured convertible promissory notes issued		100					4,600,000
Aggregate shares of common stock purchased		40,000,000		2,850,000	2,850,000
Operations and Management's Plans (Textual) [Abstract]
Voluntary stand down of operations, period (approximate)			three weeks
Sale of senior secured convertible promissory notes				2,800,000
Number of accredited Investors		10		10
Issuance of notes and warrants				712,500
Interest rate of Notes				2.00%				2.00%
Increase on interest rate	12.00%			12.00%
Exercise price per share of warrants		0.38	0.50			1.00
Warrant Expiration date				Nov. 30, 2017
Common stock rate per share			$ 0.25
Directors [Member]
Aircraft Operated [Line Items]
Aggregate shares of common stock purchased		11,200,000
Senior secured convertible promissory notes [Member]
Aircraft Operated [Line Items]
Senior secured convertible promissory notes issued				2,800,000
Senior Secured Convertible Promissory Notes [Member]
Aircraft Operated [Line Items]
Senior secured convertible promissory notes issued		$ 10,000,000
Maximum [Member]
Operations and Management's Plans (Textual) [Abstract]
Exercise price per share of warrants						1.00
Fractionally-owned aircraft [Member]
Aircraft Operated [Line Items]
Number of aircraft managed				43
Company-owned core aircraft [Member]
Aircraft Operated [Line Items]
Number of aircraft managed				6
Leased and company-managed aircraft [Member]
Aircraft Operated [Line Items]
Number of aircraft managed				7

XML

Document and Entity Information	6 Months Ended
	Dec. 31, 2012	Feb. 14, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	Avantair, Inc
Entity Central Index Key	0001303849
Document Type	10-Q
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--06-30
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		40,903,717

XML

Summary of Significant Accounting Policies (Details)	6 Months Ended	1 Months Ended	6 Months Ended
	Dec. 31, 2012	Jan. 31, 2011 Aircraft [Member]	Dec. 31, 2012 Flight management software and hardware [Member]	Dec. 31, 2012 Vehicles [Member]	Dec. 31, 2012 Maximum [Member] Aircraft [Member]	Dec. 31, 2012 Maximum [Member] Office equipment and furniture and fixtures [Member]	Dec. 31, 2012 Minimum [Member] Aircraft [Member]	Dec. 31, 2012 Minimum [Member] Office equipment and furniture and fixtures [Member]
Depreciation and amortization computed using straight-line method over useful lives
Depreciable life of core aircraft		20 years	5 years	5 years	20 years	7 years	5 years	5 years
Improvements	Lesser of estimated useful life or the term of the lease

XML

Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Revenue
Fractional aircraft shares sold	$ 2,764	$ 6,774	$ 6,824	$ 13,616
Lease revenue	1,084	596	1,982	951
Management and maintenance fees	22,079	20,994	43,697	41,267
Flight hour card and club membership revenue	5,100	8,767	13,852	17,762
Flight activity and other ancillary billing	3,460	4,611	9,467	9,435
Other revenue	1,005	1,206	2,543	2,890
Total revenue	35,492	42,948	78,365	85,921
Operating expenses
Cost of fractional aircraft shares sold	2,313	5,808	5,841	12,415
Cost of flight operations	19,381	19,073	40,643	38,451
Cost of fuel	6,229	9,336	16,019	18,999
General and administrative expenses	6,900	5,606	12,135	11,691
Selling expenses	584	1,639	1,610	3,578
Depreciation and amortization	1,137	1,148	2,588	2,078
Employee termination and other costs	(31)	28	69	28
Gain on receipt of used share	(180)		(180)
Gain on sale of asset	(22)		(22)
Loss on sale of asset			477
Total operating expenses	36,311	42,638	79,180	87,240
Income (loss) from operations	(819)	310	(815)	(1,319)
Other income (expenses)
Interest and other income	12	14	30	80
Interest expense	(815)	(1,240)	(1,807)	(2,296)
Change in fair value of derivative liabilities	59		59
Gain on debt extinguishment				439
Total other expenses	(744)	(1,226)	(1,718)	(1,777)
Net loss	(1,563)	(916)	(2,533)	(3,096)
Preferred stock dividend and accretion of expenses	(384)	(373)	(749)	(745)
Net loss attributable to common stockholders	$ (1,947)	$ (1,289)	$ (3,282)	$ (3,841)
Loss per common share:
Basic and diluted	$ (0.06)	$ (0.05)	$ (0.11)	$ (0.15)
Weighted-average common shares outstanding:
Basic and diluted	32,848,369	26,450,305	29,755,264	26,436,770

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Operations and Management's Plans (Tables)

6 Months Ended

Dec. 31, 2012

Operations and Management's Plans [Abstract]

Unit sales by product category

	Unit Sales for the Three Months Ended				Unit Sales for the Six Months Ended
	December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
New Fractional Ownership program shares sold		—		1		—		2
Axis Lease program shares leased		9		16		25		42
Axis Club Memberships (1)		—		—		—		1
Flight hour cards		51		84		124		192

⁽¹⁾ Replaced by Axis Lease program in March 2011

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Interim Reporting

Interim Reporting

The accompanying unaudited interim condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the interim condensed financial statement rules and regulations of the Securities and Exchange Commission. In the opinion of management, these financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the condensed consolidated financial statements as required by Regulation S-X, Rule 8-03. The interim condensed consolidated operating results are not necessarily indicative of the results for a full year or any interim period. The condensed consolidated balance sheet as of June 30, 2012 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

Basis of Presentation

Basis of Presentation

All material intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the successful recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business. As of December 31, 2012, the Company’s recurring net losses resulted in a working capital deficit of approximately $69.0 million and a stockholders’ deficit of approximately $53.5 million. In addition to the cost of acquiring aircraft, the Company’s primary expenses are related to fuel, aircraft repositioning (i.e., moving an aircraft from one location to another location to accommodate a program participant’s requirements), flight operations and pilot expenses, maintenance, charters, insurance and selling, general and administrative expenses.

Reclassifications

Reclassifications

Management has reclassified various expenses within the operating expense section of the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2011. These reclassifications are primarily as follows:

• Payroll taxes and benefit costs of approximately $1.0 and $1.9 million have been reclassified and apportioned to cost of flight operations and selling expenses from general and administrative expenses for the three and six months ended December 31, 2011;

• Third-party fuel sale costs of approximately $0.4 and $0.9 million have been reclassified to cost of fuel from general and administrative expenses for the three and six months ended December 31, 2011; and

• Cost of used shares of less than $0.1 and $0.2 million have been reclassified to cost of fractional aircraft share sales from general and administrative expenses for the three and six months ended December 31, 2011.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying disclosures. These estimates and assumptions are based upon management’s best knowledge of current events and actions that the Company may take in the future. The Company is subject to uncertainties such as the impact of future events, economic, environmental and political factors and changes in the Company’s business environment. Therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s condensed consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in the reported financial condition and results of operations. If material, the effects of changes in estimates are disclosed in the notes to the condensed consolidated financial statements. Significant estimates and assumptions by management affect: the recording of revenue arrangements with multiple deliverables, the allowance for doubtful accounts, the carrying value of long-lived assets, the amortization period of long-lived assets, the provision for income taxes and related deferred tax accounts, certain accrued expenses and contingencies, warrant valuations and management’s assessment of its ability to continue as a going concern.

In January 2011, the Company changed its estimate of its depreciable life of its core aircraft to 20 years from its original seven year life. This change in estimate was based upon an evaluation of the aircrafts’ actual service life. This change in estimate was adopted prospectively, in accordance with ASC 250 “Accounting Changes and Error Corrections”, (“ASC 250”).

The Company’s strategy is to maintain and operate its aircraft for at least 10 years. The 20 year life is representative of the full service life of the aircraft, not an increase in the period that the Company intends to maintain and operate the aircraft.

Cash-restricted

Cash-restricted

Restricted cash includes cash where the Company’s ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations. The Company agreed to restrict approximately $2.3 million and $2.2 million in cash at December 31, 2012 and June 30, 2012, respectively, to secure letters of credit related to deposits for leases, provide security for credit card charge backs and to secure fuel purchases. Management believes that these amounts will be restricted for at least one year and, accordingly, has classified such cash as long-term.

Accounts Receivable

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts of approximately $1.0 million and $1.3 million as of December 31, 2012 and June 30, 2012, respectively, for estimated losses arising from the inability of its program participants to make required payments. For the six months ended December 31, 2012, the Company increased the allowance for doubtful accounts by $0.2 million and wrote off $0.5 million of accounts receivable balances against the allowance for doubtful accounts. The Company’s estimate is based on factors surrounding the credit risk of certain clients, historical collection experience and a review of the current status of accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change if the financial condition of the Company’s program participants were to deteriorate resulting in a reduced ability to make payments or program participants fail to make payments as a result of the recent stand down of the fleet.

Inventory

Inventory

Fuel inventory is valued at the lower of cost (determined by the first-in, first-out method) or market.

Property and Equipment

Property and Equipment

Property and equipment is recorded at cost and primarily consists of aircraft which are not fractionalized. Depreciation and amortization is computed using the straight-line method over the following useful lives:

Aircraft	5 - 20 years
Office equipment and furniture and fixtures	5 - 7 years
Flight management software/hardware	5 years
Vehicles	5 years
Improvements	Lesser of estimated useful life or the term of the lease

Cost and related accumulated depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are credited or charged to income.

Expenditures for maintenance and repairs of property and equipment are expensed as incurred. Major improvements and interest costs relating to borrowings made for the acquisition of aircraft are capitalized. Modifications that enhance the operating performance or extend the useful lives of airframes or engines on core aircraft are capitalized and depreciated over the remaining estimated useful life of the asset or the remaining lease term, whichever is shorter.

The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360 “Property, Plant and Equipment” (“ASC 360”). Although the Company recognizes that it has incurred net losses since inception, these net losses have been much less significant than in prior periods. Additionally, there has been no material deterioration in the total program participant base and related program participant contracts, though the Company has seen a decrease in new fractional share sales corresponding with the Company’s February 2011 introduction of its Axis Lease program. Due to a voluntary stand down of its operations (see Note 1), the Company performed an interim impairment analysis on its property and equipment to determine whether it is more likely than not that the projected future undiscounted cash flows of certain assets is less than the carrying amount during the first quarter of fiscal year 2013. After assessing the factors prescribed by ASC 360, the Company concluded that the projected future undiscounted cash flows of certain assets was more than the carrying amount and as a result, there is no indication of impairment.

Goodwill

Goodwill

The Company accounts for goodwill and other intangible assets under ASC 350 “Intangibles – Goodwill and Other” (“ASC 350”). ASC 350 eliminates the amortization of goodwill and certain other intangible assets and requires an evaluation of impairment by assessing qualitative factors, and if necessary, applying a fair-value based test. The goodwill impairment test requires qualitative analysis to determine whether is it more likely than not that the fair value of a reporting unit is less than the carrying amount, including goodwill. An indication of impairment through analysis of these qualitative factors initiates a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of the Company’s reporting units based on discounted cash flow models using revenue and profit forecasts and comparing the estimated fair values with the carrying values of the Company’s reporting units which include the goodwill. If the estimated fair values are less than the carrying values, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of the Company’s “implied fair value” requires the Company to allocate the estimated fair value to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to the corresponding carrying value.

The Company performs its annual goodwill impairment testing in the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Application of the goodwill impairment test requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Company, estimation of aircraft in use, the useful life over which cash flows will occur, and determination of cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment.

Due to the voluntary stand down of its operations (see Note 1), the Company performed an interim goodwill impairment analysis to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount, including goodwill during the first quarter of fiscal year 2013. After assessing the qualitative factors prescribed by ASC 350, the Company concluded that the fair value of the reporting unit was more than the carrying amount. As a result, there is no indication of impairment and further testing as a result of the voluntary stand down is not required.

Revenue Recognition

Revenue Recognition

The Company is engaged in the sale, lease and management of fractional ownership interests of professionally piloted aircraft for personal and business use and access to its aircraft fleet through 15, 25 or 50 hour flight hour cards. When a program participant purchases a fractional share or enters into a lease of a fractional share through the Company’s Axis Lease program (introduced in February 2011), they are also required to enter into a management and maintenance agreement, which grants the program participant the right to the use of the aircraft for a specified number of hours each year. Under the terms of the management and maintenance agreement, the Company agrees to manage, operate and maintain the aircraft on behalf of the program participant in exchange for a fixed monthly fee.

Flight activity and other ancillary billing includes revenue related to billings to the program participants for reimbursable costs incurred by the Company. These reimbursable costs include, but are not limited to, fuel, flight fees, maintenance costs required by Airworthiness Directives or Service Bulletins as mandated by the FAA and not covered by the regular maintenance provided for in the management and maintenance agreement, aircraft upgrades and other ancillary charges. Flight activity and other ancillary billing are recorded on a gross basis as revenue in accordance with ASC 605-45 “Principal Agent Considerations” (“ASC 605-45”).

Fractional Aircraft Shares Sold

Fractional Aircraft Shares Sold

Fractional shares are typically sold as one-sixteenth shares and require upfront payment for an undivided interest in the aircraft. Upon the purchase of a fractional share, the owner receives title to their interest in the aircraft. The ownership period is indefinite. Revenue for these types of transactions is included in fractional aircraft shares sold in the accompanying condensed consolidated statements of operations.

Revenue from the sale of fractional aircraft shares sold before July 1, 2010 was deferred at the time of sale and is recognized ratably over the term of the related management and maintenance agreement in accordance with ASC 605-25 “Multiple-Element Arrangements” (“ASC 605-25”). Revenue from the sale of fractional shares sold after June 30, 2010 are recognized at the time of sale upon adoption of Accounting Standards Update (“ASU”) 2009-13 “Multiple-Deliverable Revenue Arrangements”, which updates ASC 605-25. There were no fractional aircraft shares sold during the three months ended December 31, 2012 requiring recognition under this guidance.

During fiscal year 2011, the Company initiated a promotion that offered the sale of select fractional shares which provided a repurchase guarantee at the expiration of the related seven year management and maintenance agreements. The guarantee may be exercised at the owner’s option for a determined percent of the original purchase price. The Company discontinued this residual guarantee program in October 2011. Sales through this promotion have been accounted for as operating leases in accordance with ASC 840 “Leases” and the related revenue earned (less the guaranteed residual value) is recognized ratably over the term of the management and maintenance agreement. At December 31, 2012, guarantees under this program totaled approximately $4.3 million and are included in deferred revenue related to fractional aircraft share sales.

Lease Revenue

Lease Revenue

Lease revenue includes fractional share lease revenue from the Company’s Axis Lease program. The lease of a fractional share allows a program participant to lease an interest in the aircraft from the Company in exchange for a monthly lease charge. Unlike the purchase of a fractional ownership interest, program participants do not take title to the aircraft at any point in time. Lease terms typically range from two to ten years.

Axis Lease program lease revenue is a contractual monthly fee charged over the term of the lease. Under this program, lessees are permitted to fly a set number of hours divided evenly over the number of months in the term, resulting in the Company recognizing revenue ratably over each month. In the event lessees fly more than their monthly allocated hours, the Company recognizes additional lease revenue based on the overflown hours in that month. However, the cumulative amount recognized over the lease term shall not exceed the total annual lease payment per the lease agreement.

Management and Maintenance Agreement

Management and Maintenance Agreements

Fractional owners and lessees are required to enter into a management and maintenance agreement, which grants the program participant the right to use the aircraft for a specified number of hours each year for a fractional owner, and each month for a fractional lessee.

Revenue earned in connection with the management and maintenance agreements with fractional share owners is recognized monthly over the term of the agreement. If a fractional share owner prepays their management and maintenance fee for a period of one year or longer, the prepayment is recorded as unearned revenue and amortized into revenue on a monthly basis.

Revenue earned in connection with the management and maintenance agreements with Axis Lease program lessees is recognized monthly over the lease term. If an Axis Lease program lessee prepays their management and maintenance fee for a period of one year or longer, the prepayment is recorded as unearned revenue and amortized monthly over the lease term.

Under either circumstance, revenue is recognized ratably over each month. In the event lessees fly more than their monthly allocated hours, the Company recognizes additional management and maintenance revenue based on the overflown hours in that month; however, the cumulative amount recognized over the lease term shall not exceed the total annual management and maintenance fee payment per the lease agreement.

Flight hour card and Axis Club Membership Revenue

Flight hour card and Axis Club Membership Revenue

Flight hour card revenue. The Company sells access to its aircraft fleet through either 15, 25 or 50 hour flight hour cards for flight time without the requirement to purchase an ownership interest in an aircraft. The card holder pays the Company the entire amount in advance of access to the aircraft fleet. The Company defers the entire amount paid and recognizes revenue on an incremental basis as flight hours are flown.

Axis Club Membership revenue. In February 2009, the Company initiated the Axis Club Membership program. The Axis Club Membership program offered program participants access to blocks of flight time at a discount from standard flight hour card rates for a set, three year membership fee. The program required that Axis Club members purchase a minimum of three, 25-hour blocks of flight hour cards. Axis Club Membership fees were paid in advance, deferred and recognized as revenue over the shorter of the three year membership term or the period of time it took the maximum number of cards to be purchased. Payment for flight hour cards sold through the Axis Club Membership program were collected from members in advance of access to the aircraft fleet, deferred and recognized as revenue on an incremental basis as flight hours were flown. The Axis Club Membership program was replaced by the Axis Lease program effective March 2011.

Flight Activity and Other Ancillary Billing

Flight Activity and Other Ancillary Billing

Flight activity and other ancillary billing include revenue related to billings to the program participants for reimbursable costs incurred by the Company. These reimbursable cost include, but are not limited to, fuel, flight fees, maintenance costs required by Airworthiness Directives or Service Bulletins as mandated by the FAA and not covered by the regular maintenance provided for in the management and maintenance agreement, aircraft upgrades and other ancillary charges. The Company accounts for flight activity and other ancillary billing on a gross basis in accordance with ASC 605-45 as the Company meets the specified criteria as a principal in transactions between the Company and its program participants.

Other Revenue

Other Revenue

Other revenue is comprised primarily of revenue from demonstration flights, the sale of the Company’s previously owned fractional aircraft shares, remarketing fees, and revenue from the sale of fuel and rental of hangar space at the Company’s FBO facilities. Demonstration revenue is earned when the prospective program participants are flown on an aircraft to demonstrate the quality and capabilities of the aircraft. The Company charges the prospective program participant an hourly rate and requires payment prior to the demonstration flight. The Company recognizes revenue related to these demonstration flights when the flight is completed. Revenue from the sale of the Company’s previously owned fractional aircraft shares are recorded similar to the sale of new fractional aircraft shares. Remarketing fees are recognized when the Company sells third party, used aircraft shares on a program participant’s behalf. FBO related revenue from fuel sales and hangar rentals are recorded when goods are delivered or services are rendered.

Referral Incentive Hours

Referral Incentive Hours

The Company accounts for the additional hours granted to program participants under the referral incentive program by expensing costs as they are incurred. Such costs have not been material to date.

Aircraft Costs Related To Fractional Sales

Aircraft Costs Related To Fractional Sales

Aircraft costs relating to the sale of fractional aircraft shares sold before July 1, 2010 were deferred at the time of sale and are recognized ratably over the term of the related management and maintenance agreement in accordance ASC 605-25. The short-term portion of these costs represents twelve months of unamortized expenses for the twelve month period following the period being filed. The long-term portion of these costs represents unamortized expenses greater than 12 months following the period being filed.

Aircraft costs relating to the sale of fractional shares sold after June 30, 2010 are recognized at the time of sale upon adoption of ASU 2009-13, which updates ASC 605-25. There were no fractional aircraft shares sold during the three months ended December 31, 2012 requiring recognition under this guidance.

During fiscal year 2011, the Company initiated a promotion that offered the sale of select fractional shares which provided a repurchase guarantee at the expiration of the related seven year management and maintenance agreements. The guarantee may be exercised at the owner’s option for a determined percent of the original purchase price. The Company discontinued this residual guarantee program in October 2011. Sales through this promotion have been accounted for as operating leases in accordance with ASC 840 “Leases” and the related costs were capitalized to property and equipment and depreciated over the 20 year useful life of the aircraft.

Maintenance Expense Policy

Maintenance Expense Policy

Costs related to maintenance performed on both fractionalized and core aircraft related to engine overhauls, landing gears, refurbishments and other maintenance services that enhance the useful life of the aircraft are capitalized and depreciated or amortized over the useful life of the improvement. Other maintenance activities that do not enhance the useful life of the aircraft are expensed as incurred. Maintenance is performed in-house or by third party vendors, as applicable.

Fractionalized aircraft improvements are capitalized as other assets in the accompanying condensed consolidated balance sheets and amortized over the lesser of the useful life of the improvement or the aircraft. The amortization of these costs is expensed in cost of flight operations in the accompanying condensed consolidated statements of operations.

Core aircraft improvements are capitalized as property and equipment in the accompanying condensed consolidated balance sheets and depreciated over the lesser of the useful life of the improvement, life of the aircraft or lease term. The depreciation of these costs is expensed in depreciation and amortization in the accompanying condensed consolidated statements of operations.

The change in depreciable lives from 7 to 20 years will not lead to increased maintenance costs. Therefore no increases have been factored into the Company’s most recent impairment analysis. See the Property and Equipment section above.

Income Taxes

Income Taxes

Income taxes are accounted for under the asset and liability method in accordance with ASC 740 “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance is established to reduce deferred tax assets to the amounts expected to be realized. The Company calculated an annual effective tax rate to determine the interim period income tax provisions. However, no tax liability was accrued for the three or six months ended December 31, 2012, as the Company expects to have sufficient operating loss and tax credit carryforwards to cover any taxable income.

Effective July 1, 2007, the Company adopted the provisions of ASC 740 relating to uncertain tax positions. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company has identified its federal tax return and State of Florida tax return as “major” tax jurisdictions, as defined in ASC 740. The Company evaluations were performed for the tax years ended 2005 through 2011. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.

Stock-Based Compensation

Stock-Based Compensation

The Company has one stock-based compensation plan, the Amended and Restated 2006 Long-Term Incentive Plan (“2006 Long-Term Incentive Plan,” or the “Plan”), which the Company’s shareholders approved, for employees, certain non-employees and non-employee directors. Stock-based awards under this plan may consist of common stock, common stock units, stock options, cash-settled or stock-settled stock appreciation rights, restricted stock and other stock-based awards. The Company issues common stock to satisfy stock option exercises or vesting of stock awards.

The Company accounts for stock-based compensation to employees and directors in accordance with ASC 718 “Compensation-Stock Compensation” (“ASC 718”), which requires the recognition of compensation expense for employee stock options and other stock-based payments. Under ASC 718, expense related to employee stock options and other share-based payments is recognized over the relevant service period based on the fair value of each stock option grant. In addition, the Company recognizes in its condensed consolidated statements of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and directors. Compensation expense for stock-based awards is recognized over the requisite service period, usually the vesting period on a straight-line basis, while compensation expense for liability-based awards (those usually settled in cash rather than stock) is measured at fair-value at each balance sheet date until the award is settled.

Stock-based compensation expense related to the Plan, which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations, was approximately $0.2 million and $0.3 million for the three and six months ended December 31, 2012, respectively, and was approximately $0.2 million and $0.4 million for the three and six months ended December 31, 2011, respectively. There were no related income tax benefits recognized in the accompanying condensed consolidated statements of operations for the three months ended December 31, 2012 and 2011. As of December 31, 2012, the Company had 742,676 shares of restricted stock and 1,679,317 stock options outstanding.

Accounting for Derivative Instruments

Accounting for Derivative Instruments

The Company accounts for derivative instruments in accordance with ASC 815 “Derivatives and Hedging” (“ASC 815”), which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts. The Company also considers ASC 815, which provides criteria for determining whether freestanding contracts that are settled in a company’s own stock, including common stock warrants, should be designated as either an equity instrument, an asset or as a liability under ASC 815.

The Company evaluated the conversion feature embedded in its Series A Convertible Preferred Stock based on the criteria of ASC 815 to determine whether the conversion feature would be required to be bifurcated from the Preferred Stock and accounted for separately as a derivative. Based on management’s evaluation, the embedded conversion feature did not require bifurcation and derivative accounting as of December 31, 2012.

Additionally, the Company evaluated the conversion feature embedded in its senior secured convertible promissory notes based on the criteria of ASC 815 to determine whether the conversion feature would be required to be bifurcated from the senior secured convertible promissory note and accounted for separately as a derivative. Based on management’s evaluation, the embedded conversion feature meets the requirements of derivative accounting under ASC 815. The Company recorded this conversion feature at its fair value in accordance with ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). The embedded conversion feature was valued at $0.09 per Note using the Monte Carlo method. Increases or decreases in the fair value of the conversion feature are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

The Company evaluated the detachable Warrants based on the criteria of ASC 815 to determine whether the Warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the detachable Warrants meet the requirements of derivative accounting under ASC 815. The Company recorded the detachable Warrants at their fair value in accordance with ASC 820. The detachable Warrants were valued at $0.10 per warrant using the Monte Carlo method. Increases or decreases in the fair value of the Warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

The Company is currently a party to various lease agreements with Midsouth, Mr. Fuller, or other entities controlled by Mr. Fuller for the lease of seven aircraft (“Aircraft Leases”). The original terms of the Aircraft Leases range from fifteen (15) months to one hundred twenty (120) months and the aggregate monthly lease payments for the Aircraft Leases total approximately $528,000.

On November 30, 2012, the Company entered into an Amended and Restated Restricted Stock Agreement with Mr. Fuller (the “Amended HF Restricted Stock Agreement”), which amended and restated the Restricted Stock Agreement dated August 16, 2012 with Mr. Fuller pursuant to which the Company previously issued to Mr. Fuller 200,000 shares of fully-vested restricted stock at a price of $1.50 per share to reduce the principal balance of an aircraft to be financed by $0.3 million. Under the Amended HF Restricted Stock Agreement, Mr. Fuller agreed to a reduction in the interest portion of the lease payments under the Aircraft Leases in the aggregate amount of approximately $1.8 million over fifteen months, with a reduction in lease payments in the amount of approximately $0.2 million per month beginning in November 2012 through January 2013, and approximately $0.1 million per month for twelve consecutive months thereafter, ending on January 31, 2014. Pursuant to Amendment No. 1 to the N180HM lease agreement, Mr. Fuller also agreed to extend the term of the lease for an additional sixty (60) months, or until November 30, 2017, on similar terms, except that Mr. Fuller will have the sole option to terminate the lease agreement and sell the aircraft and the Company agrees that it will issue to Mr. Fuller a number of units (as defined below) equal to the result of dividing (A) the difference between $1.5 million and the numerical value of the then current payoff amount as outlined in the lease agreement for the aircraft by (B) 0.25. For purposes of this provision, a unit will consist of one share of the Company’s common stock (the “Issued Stock”) (subject to adjustment as described below) and one warrant to purchase a share of the Company’s common stock at $0.50 (a “Warrant Share”). Mr. Fuller also agreed to extend the term of the Floor Plan Agreement originally entered into in September 2011 for an additional eight (8) months, or until August 30, 2013. In consideration of the foregoing, the Company issued 8,200,000 shares of fully-vested restricted stock to Mr. Fuller, 1,000,000 shares of which related to the $0.3 million reduction in the principal balance of an aircraft to be financed and 7,200,000 shares related to the approximate $1.8 million reduction in the interest portion of the lease payments of the aircraft leases and Amendment No. 1 to the N180HM lease agreement, as well as a warrant (the “HF Warrant”) to purchase 8,400,000 shares of common stock in substantially the same form as the Warrants. The Amended HF Restricted Stock Agreement also contains certain antidilution protections. The Company evaluated the HF Warrant based on the criteria of ASC 815 to determine whether the warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the warrants issued in connection with the HF Warrant meet the requirements of derivative accounting under ASC 815. The Company recorded the warrants at their fair value in accordance with ASC 820. The warrants were valued at $0.04 per warrant using the Monte Carlo method. Increases or decreases in the fair value of the warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

Effective September 28, 2012, the terms of the Company’s management agreements with certain entities (collectively, “LW Air”), controlled by Lorne Weil, a director of the Company, were amended so that the Company was not required to pay the owner additional amounts unless usage of the aircraft exceeds 1,350 hours per year, retroactive to the beginning of each management agreement. Simultaneous with this transaction, the Company issued an Amended and Restated Warrant (the “LW Warrant”) to Lorne Weil, a director of the Company, to purchase 2,373,620 shares of common stock at an exercise price of $1.00 per share.

On November 30, 2012, the Company entered into Amendment No. 1 to the LW Warrant (the “Warrant Amendment”) with Lorne Weil. The LW Warrant provided certain anti-dilution protections, which would have been triggered in connection with the issuance of the Notes and Warrants. The Warrant Amendment provides for, among other things, revised antidilution rights so the antidilution provisions set forth in the LW Warrant would not apply in connection with the issuance of the Notes and Warrants; a reduction in the exercise price to $0.50 per share; and an increase in the number of shares of common stock issuable upon exercise of the LW Warrant to 3,560,430 shares of common stock. The Company evaluated the Warrant Amendment based on the criteria of ASC 815 to determine whether these warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the Warrant Amendment meets the requirements of derivative accounting under ASC 815. The Company recorded these warrants at their fair value of $0.03 per warrant using the Monte Carlo Method, in accordance with ASC 820. Increases or decreases in the fair value of these warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

Effective September 28, 2012, the terms of the Company’s management agreements with LW Air were amended to irrevocably reduce the owner’s monthly proceeds pursuant to each of the aircraft management agreements by $25,000 per month for a period of twelve consecutive months beginning in August 2012, or $0.3 million per aircraft, the aggregate reduction of LW Air’s monthly proceeds totaling $1.5 million, with respect to all five of the aircraft owned by LW Air. Simultaneous with this transaction, the Company entered into a Restricted Stock Agreement (the “LW Restricted Stock Agreement”), dated as of September 28, 2012, pursuant to which the Company issued to LW Air 2,000,000 shares of fully-vested restricted stock at a price of $0.75 per share, subject to certain antidilution rights, for an aggregate value of $1.5 million.

On November 30, 2012, the Company entered into Amendment No. 1 to the LW Restricted Stock Agreement with LW Air (“Amendment No. 1”). The LW Restricted Stock Agreement provided that the shares issued would be entitled to antidilution protections, which would have required the issuance of additional shares to LW Air in connection with the issuance of the Notes and Warrants. Amendment No. 1 provides for, among other things, revised antidilution rights so the antidilution provisions in the LW Restricted Stock Agreement would not apply in connection with the issuance of the Notes and Warrants ; the issuance of 4,000,000 additional shares of fully-vested restricted stock to LW Air on November 30, 2012 and warrants to purchase an aggregate of 6,000,000 shares of common stock (the “Additional LW Warrant”) on November 30, 2012, in substantially the same form as the Warrants. The Company evaluated the Additional LW Warrant based on the criteria of ASC 815 to determine whether these warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the Additional LW Warrant met the requirements of derivative accounting under ASC 815. The Company recorded the Additional LW Warrant at their fair value of $0.08 per warrant using the Monte Carlo Method, in accordance with ASC 820. Increases or decreases in the fair value of these warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

On November 30, 2012, the Company issued a Warrant (the “HF Overfly Warrant”) to Mr. Fuller, to purchase 645,200 shares of common stock at an exercise price of $0.50 per share. The HF Overfly Warrant was issued in lieu of paying additional amounts owed to Mr. Fuller pursuant to certain Aircraft Leases as a result of the aircraft exceeding certain hourly usage limitations. The Company evaluated the HR Overfly Warrant based on the criteria of ASC 815 to determine whether these warrants would be required to be accounted for separately as a derivative. Based on management’s evaluation, the HF Overfly Warrant met the requirements of derivative accounting under ASC 815. The Company recorded the warrants at their fair value of $0.04 per warrant using the Monte Carlo method, in accordance with ASC 820. Increases or decreases in the fair value of these warrants are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period.

Fair Value Measurements

Fair Value Measurements

The Company has adopted the provisions of ASC 820 which defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period.

The fair value of the Company’s assets and liabilities that qualify as financial instruments under ASC 820, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, unearned management fees and flight hour card revenue and short-term debt, are carried at cost, which approximates fair value due to the short-term maturity of these instruments. Long-term obligations approximate fair value, given management’s evaluation of the instruments’ current rates compared to market rates of interest and other factors.

The Company measures fair value basis based on the following key objectives:

• The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date;

• A three-level hierarchy (“Valuation Hierarchy”) for fair value measurements;

• Consideration of the Company’s creditworthiness when valuing liabilities; and

• Disclosures about instruments measured at fair value.

The Valuation Hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the Valuation Hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of the Valuation Hierarchy and the distribution of the Company’s financial assets within it are as follows:

• Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The derivative liabilities are measured at fair market value on a recurring basis. The table below summarizes the fair market values of the derivative liabilities as of December 31, 2012 (in thousands):

	Fair Market Value at December 31, 2012
	Level 1		Level 2		Level 3
Senior secured convertible promissory notes embedded conversion feature	$	—	$	—	$	960
Warrants		—		—		1,142
HF Warrant		—		—		336
Warrant Amendment		—		—		107
Additional LW Warrant		—		—		480
HF Overfly Warrant		—		—		26
Total Derivative Liabilities	$	—	$	—	$	3,051

The following table summarizes, as of December 31, 2012, the derivative activity subject to Level 3 inputs which are measured on a recurring basis using the Monte Carlo method (in thousands):

	Level 3 Fair Market Value Measurements
	Balance at November 30, 2012 (date of issuance)		Change in Fair Value of Derivative Liability 1			Balance at December 31, 2012
Senior secured convertible promissory notes embedded conversion feature	$	960	$	—		$	960
Warrants		1,142		—			1,142
HF Warrant		336		—			336
Warrant Amendment		166		(59	)		107
Additional LW Warrant		480		—			480
HF Overfly Warrant		26		—			26
Total Derivative Liabilities	$	3,110	$	(59	)	$	3,051

¹  The Company has concluded that the fair value of the derivative liabilities at December 31, 2012 was not materially different than the fair value at November 30, 2012. Therefore, there was no change in the fair value of the derivative liability recorded in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012, except as noted in the table above.

²  The 2,373,620 warrants issued in connection with the LW Warrant on September 28, 2012 were originally recorded as equity at a value of approximately $166,000. On November 30, 2012, these warrants were modified in accordance with the Warrant Amendment in the amount of 3,560,430 warrants. Simultaneous with this transaction, the Company deemed these warrants to be derivative liabilities and their value was reclassified from Additional Paid-In Capital to Derivative Liabilities in the accompanying condensed consolidated balance sheet as of December 31, 2012. The warrants were revalued using the Monte Carlo method (see note 4, Equity Transactions) as of November 30, 2012 with the decrease in fair value recorded in Change in fair value of derivative liabilities in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012.

Loss Per Share

Loss Per Share

Basic and diluted loss per share applicable to common stock is computed using the weighted average number of common shares outstanding during the period. Shares used in calculating basic and diluted loss per share exclude common stock equivalents for warrants, stock-based compensation, senior secured convertible promissory notes and Series A Convertible Preferred Stock, as these common stock equivalents are anti-dilutive. In future periods, if the Company reports net income attributable to common stockholders and the common stock equivalents for the warrants, stock-based compensation, senior secured convertible promissory notes and Series A Convertible Preferred Stock are dilutive, the common stock equivalents will be included in the weighted average shares computation and dividends related to our Series A Convertible Preferred Stock will be added back to net income attributable to common stockholders to calculate diluted earnings per share.

For the three and six months ended December 31, 2012, a total of 55,870,501 share-equivalents of potentially dilutive securities were excluded from the calculation of diluted loss per share. These securities were comprised of the following:

• 3,560,430 warrants issued to Lorne Weil in conjunction with the Warrant Amendment;

• 6,000,000 warrants issued to LW Air in conjunction with Amendment No. 1 with LW Air;

• 8,400,000 warrants issued to Mr. Fuller in conjunction with the HF Warrant;

• 645,200 warrants issued to Mr. Fuller in conjunction with the HF Overfly Warrant;

• 50,000 warrants issued to EarlyBirdCapital, Inc. (“EBC”) in consideration for services rendered in connection with an aircraft lease agreement with a third party;

• 250,000 warrants issued to EBC in consideration for financial consulting and/or investment banking services rendered in connection with the Note and Warrant financing;

• 11,200,000 detachable warrants issued in connection with the Initial Closing;

• 11,200,000 shares of common stock resulting from the potential conversion of the Notes issued in connection with the Initial Closing;

• 1,679,317 options to purchase shares of common stock which were outstanding during the periods but were not included in the computation of diluted loss per common share because the options’ exercise prices were greater than the average market price of the common shares, and therefore, their effect would be anti-dilutive as calculated under the treasury method promulgated by ASC 260 “Earnings Per Share” (“ASC 260”).

• 12,142,878 shares of common stock reserved for issuance upon the conversion of the outstanding shares of Series A Convertible Preferred Stock; and

• 742,676 shares of unvested restricted stock which were not included in the computation as all necessary conditions for vesting had not yet been satisfied in accordance with ASC 260’s contingently issuable shares provision.

For the three and six months ended December 31, 2011, a total of 8,613,797 share-equivalents of potentially dilutive securities were excluded from the calculation of diluted loss per share. These securities were comprised of the following:

• 2,373,620 warrants issued to Lorne Weil in conjunction with the LW Warrant;

• 437,887 warrants outstanding as of December 31, 2011 issued to EBC in consideration for services rendered as placement agent for the Company’s June, September and October 2009 private placements;

• 1,376,100 options to purchase shares of common stock which were outstanding during the periods but were not included in the computation of diluted loss per common share because the options’ exercise prices were greater than the average market price of the common shares and, therefore, their effect would be anti-dilutive as calculated under the treasury method promulgated by ASC 260;

• 4,251,857 shares of common stock reserved for issuance upon the conversion of the outstanding shares of Series A Convertible Preferred Stock; and

• 174,333 shares of unvested restricted stock which were not included in the computation because all necessary conditions for vesting had not been satisfied in accordance with ASC 260’s contingently issuable shares provision.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

The Company adheres to the provisions of ASC 220, “Comprehensive Income” (“ASC 220”). This pronouncement establishes standards for reporting and display of comprehensive income or loss and its components (revenue, expense, gain and loss). In accordance with ASC 220, items requiring recognition as components of comprehensive income (loss) are required to be classified by their nature. Furthermore, the Company is required to display the accumulated balances of other comprehensive income (loss) separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. For the three months ended December 31, 2012 and 2011, there were no items that gave rise to other comprehensive income (loss), and net loss equaled comprehensive loss.

Recently Issued Pronouncements

Recently Issued Pronouncements

The Company does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.

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Commitments and Contingencies (Details 1) (USD $)	Nov. 30, 2012	Jul. 31, 2012	Dec. 31, 2012 Senior secured convertible promissory notes [Member]
Summary of carrying value of senior secured convertible promissory note
Par value of senior secured convertible promissory notes	$ 100	$ 4,600,000	$ 2,800,000
Discount related to embedded conversion feature			(960,000)
Discount related to detachable warrants			(1,142,000)
Accretion of discounts			44,000
Carrying value of senior secured convertible promissory notes			$ 742,000

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Summary of Significant Accounting Policies (Details 1) (USD $)	Dec. 31, 2012	Nov. 30, 2012
Level 1 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	$ 0
Level 2 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
Level 3 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	3,051,000	3,110,000
Senior secured convertible promissory notes embedded conversion feature [Member]
Derivative liability at fair market value
Derivative liability at fair market value		960,000
Senior secured convertible promissory notes embedded conversion feature [Member] | Level 1 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
Senior secured convertible promissory notes embedded conversion feature [Member] | Level 2 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
Senior secured convertible promissory notes embedded conversion feature [Member] | Level 3 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	960,000	960,000
Warrants [Member] | Level 1 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
Warrants [Member] | Level 2 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
Warrants [Member] | Level 3 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	1,142,000	1,142,000
HF Warrant [Member] | Level 1 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
HF Warrant [Member] | Level 2 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
HF Warrant [Member] | Level 3 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	336,000	336,000
Warrant Amendment [Member] | Level 1 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
Warrant Amendment [Member] | Level 2 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
Warrant Amendment [Member] | Level 3 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	107,000	166,000
Additional LW Warrant [Member] | Level 1 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
Additional LW Warrant [Member] | Level 2 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
Additional LW Warrant [Member] | Level 3 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	480,000	480,000
HF Overfly Warrant [Member] | Level 1 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
HF Overfly Warrant [Member] | Level 2 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	0
HF Overfly Warrant [Member] | Level 3 [Member]
Derivative liability at fair market value
Derivative liability at fair market value	$ 26,000	$ 26,000

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Equity Transactions (Tables)

6 Months Ended

Dec. 31, 2012

Class of Warrant or Right [Line Items]

Summary of Monte Carlo model to estimate the fair value for the warrants issued

	EarlyBirdCapital Warrants						LW Air Warrants						Hugh Fuller Warrants						Senior Secured  Convertible Promissory Notes
	Third Party Aircraft Purchase AgreementA			Purchase AgreementB			Additional LW WarrantC			Warrant AmendmentD			HF WarrantE			HF Overfly WarrantF			Detachable WarrantsG			Embedded Conversion Feature H
Date of Issuance		August 3, 2012			November 25, 2012			November 30, 2012			November 30, 2012			November 30, 2012			November 30, 2012			November 30, 2012			November 30, 2012
Underlying stock value1	$	0.40		$	0.15		$	0.15		$	0.15		$	0.15		$	0.15		$	0.15		$	0.15
Exercise price2	$	0.60		$	0.50		$	0.50		$	0.50		$	0.50		$	0.50		$	0.50		$	0.25
Term3		3.06			5.00			3.00			2.88			5.00			3.00			5.00			3.00
Volatility		75.00	%		85.00	%		85.00	%		85.00	%		85.00	%		85.00	%		85.00	%		85.00	%
Interest rate1,3		0.32	%		0.70	%		0.40	%		0.40	%		0.70	%		0.40	%		0.70	%		0.40	%
Number of simulations4		One million			One million			One million			One million			One million			One million			One million			One million
Fair Value of Warrant on Date of Issuance	$	0.07		$	0.10		$	0.08		$	0.03		$	0.04		$	0.04		$	0.10		$	0.09

¹  As of the valuation date (date of issuance)

²  Per warrant agreement

³  Based on vesting period on date of issuance, amount stated in years.

⁴  The number of simulations is a parameter in the Monte Carlo model that improves the statistical accuracy of the fair value produced.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Depreciation and amortization computed using straight-line method over useful lives

Aircraft	5 - 20 years
Office equipment and furniture and fixtures	5 - 7 years
Flight management software/hardware	5 years
Vehicles	5 years
Improvements	Lesser of estimated useful life or the term of the lease

Derivative liability at fair market value

	Fair Market Value at December 31, 2012
	Level 1		Level 2		Level 3
Senior secured convertible promissory notes embedded conversion feature	$	—	$	—	$	960
Warrants		—		—		1,142
HF Warrant		—		—		336
Warrant Amendment		—		—		107
Additional LW Warrant		—		—		480
HF Overfly Warrant		—		—		26
Total Derivative Liabilities	$	—	$	—	$	3,051

Summary of Derivative activity

	Level 3 Fair Market Value Measurements
	Balance at November 30, 2012 (date of issuance)		Change in Fair Value of Derivative Liability 1			Balance at December 31, 2012
Senior secured convertible promissory notes embedded conversion feature	$	960	$	—		$	960
Warrants		1,142		—			1,142
HF Warrant		336		—			336
Warrant Amendment		166		(59	)		107
Additional LW Warrant		480		—			480
HF Overfly Warrant		26		—			26
Total Derivative Liabilities	$	3,110	$	(59	)	$	3,051

¹  The Company has concluded that the fair value of the derivative liabilities at December 31, 2012 was not materially different than the fair value at November 30, 2012. Therefore, there was no change in the fair value of the derivative liability recorded in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012, except as noted in the table above.

²  The 2,373,620 warrants issued in connection with the LW Warrant on September 28, 2012 were originally recorded as equity at a value of approximately $166,000. On November 30, 2012, these warrants were modified in accordance with the Warrant Amendment in the amount of 3,560,430 warrants. Simultaneous with this transaction, the Company deemed these warrants to be derivative liabilities and their value was reclassified from Additional Paid-In Capital to Derivative Liabilities in the accompanying condensed consolidated balance sheet as of December 31, 2012. The warrants were revalued using the Monte Carlo method (see note 4, Equity Transactions) as of November 30, 2012 with the decrease in fair value recorded in Change in fair value of derivative liabilities in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012.

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Commitments and Contingencies (Tables)

6 Months Ended

Dec. 31, 2012

Commitments and Contingencies [Abstract]

Long-term debt

Midsouth Services, Inc.	$	20,690
Iberia Bank		1,259
		21,949
Less current portion		(3,745	)
Less discount on capital leases		(1,270	)
Long-term debt	$	16,934

Summary of carrying value of senior secured convertible promissory note

Par value of senior secured convertible promissory notes	$	2,800
Discount related to embedded conversion feature 1		(960	)
Discount related to detachable warrants 2		(1,142	)
Accretion of discounts 3		44
Carrying value of senior secured convertible promissory notes	$	742

¹  The Notes contain an embedded conversion feature that the Company has determined is a derivative requiring bifurcation in accordance with the provisions of ASC 815. The embedded conversion feature of the Notes was valued at approximately $0.09 per Note using the Monte Carlo method at November 30, 2012. The fair value of the embedded conversion feature of approximately $960,000 was recorded as a derivative liability with the offset recorded as a discount on the Notes and included as a component of Senior secured convertible promissory notes in the accompanying condensed consolidated balance sheet as of December 31, 2012. The Company determined that the fair value of the embedded conversion feature at December 31, 2012 was not materially different than the fair value at November 30, 2012. Therefore, no change in fair value of the embedded conversion feature was recorded in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012.

²  The Notes contain detachable Warrants that the Company has determined are derivatives requiring bifurcation in accordance with the provisions of ASC 815. The detachable Warrants were valued at approximately $0.10 per warrant using the Monte Carlo method at November 30, 2012. The fair value of the detachable Warrants of approximately $1.1 million was recorded as a derivative liability with the offset recorded as a discount on the Notes and included as a component of Senior secured convertible promissory notes in the accompanying condensed consolidated balance sheet as of December 31, 2012. The Company determined that the fair value of the detachable Warrants at December 31, 2012 was not materially different than the fair value at November 30, 2012. Therefore, no change in fair value of the detachable Warrants was recorded in the accompanying condensed consolidated statements of operations for the three and six months ended December 31, 2012.

³  Accretion of the discount on the embedded conversion feature of approximately $31,000 was recorded to interest expense for the three months ended December 31, 2012 using the effective interest method. Accretion of the discount on the detachable Warrants of approximately $13,000 was recorded to interest expense for the three months ended December 31, 2012 using the effective interest method.

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Operations and Management's Plans (Details)	3 Months Ended		6 Months Ended
	Dec. 31, 2012 Units	Dec. 31, 2011 Units	Dec. 31, 2012 Units	Dec. 31, 2011 Units
New fractional ownership program shares sold [Member]
Products and Services [Line Items]
Sales by product category, units		1		2
Axis lease program shares leased [Member]
Products and Services [Line Items]
Sales by product category, units	9	16	25	42
Axis club memberships [Member]
Products and Services [Line Items]
Sales by product category, units				1
Flight hour cards [Member]
Products and Services [Line Items]
Sales by product category, units	51	84	124	192

XML

Summary of Significant Accounting Policies (Details Textual) (USD $)	1 Months Ended				3 Months Ended				6 Months Ended		12 Months Ended						1 Months Ended	6 Months Ended		6 Months Ended	1 Months Ended	6 Months Ended			3 Months Ended		6 Months Ended		1 Months Ended	6 Months Ended	1 Months Ended	6 Months Ended				1 Months Ended		6 Months Ended			6 Months Ended				6 Months Ended
	Nov. 30, 2012	Sep. 30, 2012 Hour	Oct. 31, 2011 Hour	Jul. 31, 2011 Hour	Jan. 31, 2013	Dec. 31, 2012 Contract	Sep. 30, 2012 Aircraft	Dec. 31, 2011	Dec. 31, 2012 Investor Plan Hour Contract	Dec. 31, 2011	Jan. 31, 2013	Jun. 30, 2011	Feb. 01, 2013	Oct. 31, 2012	Sep. 28, 2012	Jun. 30, 2012	Nov. 30, 2012 Lorne Weil [Member]	Dec. 31, 2012 Lorne Weil [Member]	Sep. 28, 2012 Lorne Weil [Member]	Dec. 31, 2012 Hugh Fuller [Member]	Jan. 31, 2011 Aircraft [Member]	Dec. 31, 2012 Aircraft [Member]	Dec. 31, 2012 Flight management software and hardware [Member]	Dec. 31, 2012 Vehicles [Member]	Dec. 31, 2012 General and administrative expenses [Member]	Dec. 31, 2011 General and administrative expenses [Member]	Dec. 31, 2012 General and administrative expenses [Member]	Dec. 31, 2011 General and administrative expenses [Member]	Nov. 30, 2012 Warrants [Member]	Dec. 31, 2012 Warrants [Member]	Nov. 30, 2012 Warrants [Member] Lorne Weil [Member]	Dec. 31, 2012 Warrants [Member] Lorne Weil [Member]	Dec. 31, 2011 Warrants [Member] Lorne Weil [Member]	Dec. 31, 2012 Warrants [Member] Early Bird Capital [Member]	Dec. 31, 2011 Warrants [Member] Early Bird Capital [Member]	Nov. 30, 2012 Warrants [Member] Hugh Fuller [Member]	Sep. 28, 2012 Warrants [Member] Hugh Fuller [Member]	Dec. 31, 2012 Stock Options [Member]	Dec. 31, 2011 Stock Options [Member]	Dec. 31, 2012 Restricted Stock [Member]	Dec. 31, 2012 Series A, Convertible Preferred Stock [Member]	Dec. 31, 2011 Series A, Convertible Preferred Stock [Member]	Dec. 31, 2012 Maximum [Member] Hour	Sep. 28, 2012 Maximum [Member]	Dec. 31, 2012 Maximum [Member] Aircraft [Member]	Dec. 31, 2012 Maximum [Member] Office equipment and furniture and fixtures [Member]	Dec. 31, 2012 Minimum [Member] Hour	Dec. 31, 2012 Minimum [Member] Aircraft [Member]	Dec. 31, 2012 Minimum [Member] Office equipment and furniture and fixtures [Member]
Property, Plant and Equipment [Line Items]
Depreciable life of core aircraft																					20 years		5 years	5 years																					20 years	7 years		5 years	5 years
Original depreciable life of core aircraft																					7 years
Maintaining and operating life of aircraft																						10 years
Hour of flight hour card, sold																																											25				15
Hours purchased																																											25				3
Cash on hand						$ 1,400,000		$ 12,278,000	$ 1,400,000	$ 12,278,000		$ 5,643,000				$ 5,302,000
Common stock shares issued																				8,200,000
Share-equivalents of potentially dilutive securities						55,870,501		8,613,797	44,670,501	8,613,797																						3,560,430	2,373,620	250,000	437,887			1,679,317	1,376,100		12,412,878	4,251,857
Share-equivalents of potentially dilutive securities related to services									50,000
Aggregate shares of common stock purchased	40,000,000					2,850,000			2,850,000				2,850,000				6,000,000		2,373,620	8,400,000																645,200
Additional shares of common stock issued to LW Air																	4,000,000
Stock-based compensation expense related to plan																									200,000	200,000	300,000	400,000
Detachable warrants valued																													$ 0.08	$ 0.10	$ 0.03					$ 0.04
Period of Aircraft Leases																																											120 months				15 months
Exercise price	0.38													0.50	1.00														0.50							0.50								1.00
Fair value of warrants																																					166,000
Restricted stock outstanding																																								742,676
Stock options outstanding																																						1,679,317
Warrants issued to LW Air																		6,000,000
Warrants issued to Hugh Fuller																				8,400,000
Warrants issued to Hugh Fuller in lieu of paying additional amounts																				645,200
Reduction in principal amount of lease payment	1,800,000				200,000						100,000
Summary of Significant Accounting Policies (Textual) [Abstract]
Company's recurring net losses working capital deficit						69,000,000			69,000,000
Company's recurring net losses stock holders deficit						(53,531,000)			(53,531,000)							(53,348,000)
Payroll taxes and benefit costs								1,000,000		1,900,000
Third party fuel sale costs								400,000		900,000
Cost of used shares reclassified to cost of fractional aircraft share sales from general and administrative expenses								100,000		200,000
Restricted cash						2,300,000			2,300,000							2,200,000
Allowances for doubtful accounts						1,000,000			1,000,000							1,300,000
Increased allowances for doubtful accounts									200,000
Written off allowances for doubtful accounts									500,000
Fractional aircraft shares sold						0
Membership fee of axis club membership revenue									3 years
Repurchase guarantee expiration, terms of management and maintenance agreements												7 years
Guarantees under the program, included in deferred revenue related to fractional aircraft share sales						4,300,000			4,300,000
Number of compensation plans									1
Restricted Stock Agreement Date	Aug. 16, 2012
Price of restricted stock issued	$ 1.50
Principal balance of an aircraft	300,000
Number of Units issued	1,500,000
No of shares issued for financing aircraft									1,000,000
Warrants reissued for purchase common stock, shares							2,373,620
No of shares resulting from potential conversion of notes						11,200,000			11,200,000
No of shares related to lease payment of aircraft									7,200,000
Number offerings of securities									3
Detachable warrants issued in connection with the initial closing of the Note and Warrant Purchase Agreement									11,200,000
Rental hours per month		1,350	100	1,300					100
Total assets						81,568,000			81,568,000							91,282,000
Revenue						35,492,000		42,948,000	78,365,000	85,921,000
Net losses						(1,563,000)		(916,000)	(2,533,000)	(3,096,000)
Separate lease agreements of company						7			7
Increase in number of shares issuable	3,560,430	3,560,430
Reduction in exercise price	$ 0.50	$ 0.50
Reduction in owners monthly proceeds pursuant to each of aircraft management agreements							25,000
Reduction in owners monthly proceeds pursuant to each of aircraft management agreements, per aircraft							300,000
Aggregate reduction of monthly proceeds							1,500,000
Number of aircraft owned							5
Restricted stock, shares issued	200,000						2,000,000
Restricted stock, value							1,500,000
Restricted stock, issued price per share	$ 0.25						$ 0.75
Additional shares of common stock issued to LW Air																	4,000,000
Lease term minimum									2 years
Lease term maximum									10 years
Management and maintenance fee									one year or longer
Hour of flight hour card, sold									50
Short-term portion of aircraft costs, terms, description									The short-term portion of these costs represents twelve months of unamortized expenses for the twelve month period following the period being filed
Long-term portion of aircraft costs, terms, description									The long-term portion of these costs represents unamortized expenses greater than 12 months following the period being filed
Accrued tax liability						0
Income tax benefits recognized						0		0
Embedded conversion value	$ 0.25					$ 0.09			$ 0.09
Aggregate monthly lease payments for Aircraft									$ 528,000
Additional lease period									60 months

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Equity Transactions (Details Textual) (USD $)	1 Months Ended			3 Months Ended		6 Months Ended								3 Months Ended		6 Months Ended			6 Months Ended			1 Months Ended	6 Months Ended			3 Months Ended	6 Months Ended		3 Months Ended	6 Months Ended		3 Months Ended					1 Months Ended	3 Months Ended	6 Months Ended	1 Months Ended	6 Months Ended				3 Months Ended					6 Months Ended		6 Months Ended						6 Months Ended			3 Months Ended
	Aug. 31, 2012 Hour	Feb. 29, 2012 NonEmployee_Directors	Jul. 31, 2011 Hour	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Feb. 01, 2013	Jan. 31, 2013	Nov. 30, 2012	Oct. 31, 2012	Sep. 28, 2012	Jun. 30, 2012	Dec. 31, 2012 General and administrative expenses [Member]	Dec. 31, 2011 General and administrative expenses [Member]	Dec. 31, 2012 General and administrative expenses [Member]	Dec. 31, 2011 General and administrative expenses [Member]	Nov. 30, 2012 Hugh Fuller [Member]	Dec. 31, 2012 Early Bird Capital [Member]	Nov. 25, 2012 Early Bird Capital [Member]	Aug. 03, 2012 Early Bird Capital [Member] Warrants	Sep. 30, 2012 Lorne Weil [Member] Hour	Dec. 31, 2012 Lorne Weil [Member]	Nov. 30, 2012 Lorne Weil [Member]	Sep. 28, 2012 Lorne Weil [Member]	Dec. 31, 2012 Warrant Amendment [Member]	Dec. 31, 2012 Warrant Amendment [Member]	Nov. 30, 2012 Warrant Amendment [Member]	Dec. 31, 2012 HF Overfly Warrant [Member]	Dec. 31, 2012 HF Overfly Warrant [Member]	Nov. 30, 2012 HF Overfly Warrant [Member]	Dec. 31, 2012 Holders [Member]	Nov. 30, 2012 Holders [Member]	Dec. 31, 2012 LW Air Warrants [Member]	Nov. 30, 2012 LW Air Warrants [Member]	Dec. 31, 2012 LW Air Amendment Warrants [Member]	Nov. 30, 2012 HF Warrant [Member]	Dec. 31, 2012 HF Warrant [Member]	Dec. 31, 2012 HF Warrant [Member]	Nov. 30, 2012 Senior Secured Notes Detachable Warrant [Member]	Dec. 31, 2012 Senior Secured Notes Detachable Warrant [Member]	Nov. 25, 2012 Senior Secured Notes Detachable Warrant [Member]	Dec. 31, 2012 Early Bird Capital Purchase Agreement Warrants [Member]	Nov. 25, 2012 Early Bird Capital Purchase Agreement Warrants [Member]	Dec. 31, 2012 Restricted Stock [Member] Lorne Weil [Member]	Nov. 30, 2012 Restricted Stock [Member] Lorne Weil [Member]	Dec. 31, 2012 Restricted Stock [Member] HF Warrant [Member]	Nov. 30, 2012 Restricted Stock [Member] HF Warrant [Member]	Dec. 31, 2012 2006 Long-Term Incentive Plan [Member]	Dec. 31, 2012 Maximum [Member]	Sep. 28, 2012 Maximum [Member]	Dec. 31, 2012 Minimum [Member]	Dec. 31, 2012 Series A Preferred Stock [Member]	Dec. 31, 2012 Series A Preferred Stock [Member] 2006 Long-Term Incentive Plan [Member]	Dec. 31, 2012 Series A Preferred Stock [Member] Maximum [Member]	Dec. 31, 2012 Series A Preferred Stock [Member] Minimum [Member]	Dec. 31, 2012 July 2011 [Member]	Dec. 31, 2012 July 2011 [Member] 2006 Long-Term Incentive Plan [Member]	Dec. 31, 2012 February 2012 [Member] 2006 Long-Term Incentive Plan [Member]	Dec. 31, 2012 February 2012 [Member] 2006 Long-Term Incentive Plan [Member] Restricted Stock [Member]	Sep. 30, 2012 September 2012 [Member]	Sep. 30, 2012 September 2012 [Member] Amended and Restated Long-Term Incentive Plan [Member] Stock Options [Member]	Sep. 30, 2012 September 2012 [Member] Amended and Restated Long-Term Incentive Plan [Member] Executives and management [Member]	Sep. 30, 2012 September 2012 [Member] Amended and Restated Long-Term Incentive Plan [Member] Employees [Member] Stock Options [Member]
Class of Stock [Line Items]
Common stock, shares outstanding																																																	40,903,717
Common stock available for future issuance																																																	639,516
Preferred stock, shares outstanding																																																					152,000
Common stock reserved																																																						12,142,878
Conversion price of Preferred Shares																																																		$ 3.57		$ 3.35			$ 5.15	$ 3.57
Reduced conversion price																																																							$ 3.35	$ 1.25
Dividend accrued but not paid				$ 703,000	$ 388,000	$ 703,000	$ 388,000																																														$ 700,000
Preferred stock dividend rate																																																		9.50%		9.00%
Fair value of share																			$ 0.40										$ 0.15	$ 0.15				$ 0.15		$ 0.15		$ 0.15	$ 0.15		$ 0.15		$ 0.15														$ 1.90
Exercise price																			$ 0.60									$ 0.50	$ 0.50	$ 0.50				$ 0.50		$ 0.50		$ 0.50	$ 0.50		$ 0.50		$ 0.50														$ 2.25
Stock-based compensation expense related to plan														200,000	200,000	300,000	400,000
Number of warrants issued																					50,000
Warrant Expiration date				Nov. 30, 2017		Nov. 30, 2017															Aug. 02, 2015				Oct. 19, 2015			Oct. 19, 2015			Nov. 30, 2015						Nov. 30, 2017							Nov. 25, 2017
Number of shares per warrant																					1
Exercise price of common stock																					$ 0.60				$ 1.00						$ 0.50						$ 0.50									$ 0.50
Redemption price of warrant																				0.01	0.01				0.01			0.01			0.01						0.01
Weighted average price of the Company's common stock on the exercise price of warrant																			200.00%				300.00%				300.00%			300.00%									300.00%
Flight hours per annum under lease agreement	400		125																			1,350
Common stock shares purchased																															645,200		11,200,000													6,000,000
Interest expense				815,000	1,240,000	1,807,000	2,296,000																									100,000
Exercise price										0.38	0.50	1.00																					0.50				0.50														1.00
Estimated fair value per warrant																					0.07				0.07			0.03			0.04		0.08											0.10		0.08
Stock awards granted																																																										30,000	60,000	80,000			600,000
Stock options granted																																																										425,000						595,650
Increase in the number of common stock issuable upon exercise																												3,560,430
Expense over warrant				100,000																						100,000			100,000									100,000							100,000
Issuance of additional common stock																																														4,000,000
Principal amount of lease payment										1,800,000																																						1,800,000
Fully vested restricted stock issued by company																																					8,200,000
Reductions in lease payment per month for the first year				100,000		100,000			200,000																																						100,000	200,000
Issue of senior secure convertible promissory notes																																	2,800,000
Vesting period																																																													3 years	3 years
Expensed to cost of flight operations																												100,000			30,000				500,000		300,000			1,100,000	100,000	1,000,000
Estimated fair value of warrant																																					$ 0.04
Period of air craft lease						15 months																																	15 months
Terms of expensed to cost of flight operations						3 years																					3 years			3 years									5 years	5 years	3 years
Lease term extend																																							60 months
Extended lease termination date																																							Nov. 30, 2017
Lease agreement for the aircraft																																					250,000
Numerical value of the current payoff amount																																					1,500,000
Warrant holders permit to purchase common share																																					1							1
Estimated fair value of conversion feature																																								90,000
Extend the term of the Floor Plan Financing Agreement																																							8 months
Extended financing agreement date																																							Aug. 30, 2013
Shares purchased on warrants issued				2,850,000		2,850,000		2,850,000		40,000,000								8,400,000						6,000,000	2,373,620												8,400,000							250,000
Exercise price of warrants																																												$ 0.50
Number of shares issued for financing aircraft																																					1,000,000
Principal balance of aircraft to be refinanced																																					300,000
Number of shares related to lease payment of aircraft																																					7,200,000
Interest portion of lease payments of aircraft leases																																					$ 1,800,000
Equity Transactions (Textual) [Abstract]
Fair value stock option				$ 0.42
Number of Non-Employee Directors		7

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
OPERATING ACTIVITIES:
Net loss	$ (2,533)	$ (3,096)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	2,588	2,078
Amortization of deferred interest related to capital lease obligation		77
Amortization of capitalized interest		(404)
Gain on receipt of used share	(180)
Gain on sale of asset	(22)
Accretion of discount on indebtedness	177
Change in fair value of derivative liabilities	(59)
Loss on sale of asset	477
Stock-based compensation	313	355
Bad debt expense	174	436
Other	29
Changes in operating assets and liabilities:
Accounts receivable	340	3,344
Inventory	224	62
Aircraft costs related to fractional share sales	5,604	12,145
Prepaid expenses and other current assets	(1,998)	(297)
Cash - restricted	(39)	(1)
Deposits on aircraft	(141)	937
Other assets	191	(1,325)
Accounts payable	364	1,088
Accrued liabilities	3,616	6,860
Customer deposits	399	1,336
Deferred revenue related to fractional aircraft share sales	(6,824)	(12,843)
Unearned management fee, flight hour card and club membership revenue	(7,548)	205
Other liabilities	304	12
Net cash (used in) provided by operating activities	(4,544)	10,969
INVESTING ACTIVITIES:
Proceeds from the sale of asset		3
Capital expenditures	(526)	(2,560)
Net cash used in investing activities	(526)	(2,557)
FINANCING ACTIVITIES:
Borrowings under senior secured convertible promissory notes	2,800
Borrowings under long-term debt		2,000
Dividends paid		(699)
Principal payments on short-term debt	(250)	(500)
Principal payments on long-term debt	(1,382)	(2,578)
Net cash provided by (used in) financing activities	1,168	(1,777)
Net (decrease) increase in cash and cash equivalents	(3,902)	6,635
Cash and cash equivalents, beginning of the period	5,302	5,643
Cash and cash equivalents, end of the period	1,400	12,278
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	1,806	2,296
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING AND INVESTING ACTIVITIES:
Accretion of Series A convertible preferred stock	46	46
Dividends accrued on Series A convertible preferred stock	703	388
Common shares surrendered in lieu of payroll taxes		10
Aircraft purchased under short-term notes payable
Aircraft acquired through capital lease	4,770	6,100
Shares acquired in exchange for fractional lease	754
Shares acquired in non-cash, reciprocal transfer	1,348
Shares acquired in non-cash, non-reciprocal transfer	180
Warrants/restricted stock issued in connection with capital/operating leases	5,960
Additional aircraft cost in connection with modification of capital lease	151
Conversion of short-term note payable to capital lease		5,200
Conversion of short-term note payable to operating lease	5,750
Flight hour cards issued in consideration for repurchase of fractional aircraft shares		69
Short-term notes payable repayment upon completion of aircraft delivery rights transfer		$ 1,300

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Subsequent Events

6 Months Ended

Dec. 31, 2012

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 5 – SUBSEQUENT EVENTS

Effective January 8, 2013, the Company resolved the insurance claims relating to hail damage to one of the Company’s fractional aircraft that was parked on the tarmac during a severe thunderstorm in Colorado in June 2012. The Company received $2.0 million in the second quarter and an additional $0.5 million in the third quarter settling the remaining damages claims with the Company’s insurer for the repair of the aircraft.

On January 17, 2013, the Company, the holders of the Notes and Warrants and Barry Gordon, as collateral agent, entered into the Amendment to Note and Warrant Purchase Agreement, Senior Secured Convertible Promissory Notes, Warrants, Security Agreement and Registration Rights Agreement. The purpose of the Note Financing Amendment was to include Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P. and David Greenhouse (collectively, the “SSF Investors”) in the financing transaction and to amend the terms by which the documents may be amended, terminated or waived.

Effective January 21, 2013, David Haslett was appointed Chief Operating Officer of the Company. Mr. Haslett was previously Managing Director of Sportech Racing since May 2000 and was responsible for leading its sales, operations, research and development, engineering and purchasing activities. Prior to joining Sportech Racing, Mr. Haslett was Managing Director, Racecourse Division of the Horserace Totalisator Board in the United Kingdom from 1996 to 2000.

Effective January 22, 2013, the Board of Directors of the Company appointed Steven Santo, Chief Executive Officer of the Company, as Chairman of the Board of Directors. Mr. Santo has served as Chief Executive Officer and a director since 2003 and succeeds Robert Lepofsky, who will remain a director of the Company. Mr. Santo will not receive any additional compensation for his role as Chairman of the Board.

In addition, effective January 22, 2013, the Board of Directors of the Company appointed Lorne Weil, a director of the Company, as Lead Director. Mr. Weil has served as a member of the Company’s Board of Directors since 2010. Mr. Weil will not receive any additional compensation for his participation as Lead Director. Upon Mr. Weil’s appointment as Lead Director, effective January 22, 2013, A. Clinton Allen resigned in his capacity as Vice Chairman of the Board of Directors. Mr. Allen will remain a director of the Company.

On January 22, 2013, the Board of Directors of the Company adopted the Fourth Amended and Restated By-Laws of Avantair, Inc. The Restated By-Laws provide for the new position of Lead Director, which was not included in the Company’s previous By-Laws. The details of the Fourth Amended and Restated By-Laws of the Company are contained in the Company’s Form 8-K filed with the SEC on January 25, 2013.

Effective January 29, 2013, the Company ceased its FBO operations at its Camarillo, CA facility and entered into a sublease agreement with an unrelated third party together with a consent agreement and Fourth Amendment with its landlord, reducing its letter of credit obligation to $0.5 million. In addition, the Company’s rental obligations will be offset by sublease rent at this facility. The Company will retain a portion of one hangar which may be used for maintenance of the Company’s aircraft. The sublease agreement transferred all FBO operations to the unrelated third party.

On February 1, 2013, at an additional closing, the Company issued to ten accredited investors, that are also participants in the fractional ownership program, Notes in an aggregate principal amount of $712,500 and Warrants to purchase an aggregate of 2,850,000 shares. See Note 1 for a description of the terms of the Notes and Warrants.

On December 12, 2012, the Company received a letter from the SSF Investors claiming that liquidated damages were payable by the Company to the SSF Investors under the Registration Rights Agreement dated October 16, 2009 by and among the Company, certain investors and EarlyBirdCapital, Inc., LLC. On February 6, 2013, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with the SSF Investors to resolve the matter and issued to the SSF Investors senior secured convertible promissory notes having an aggregate principal amount of approximately $1.1 million (the “SSF Notes”) and warrants to purchase an aggregate of 4,222,148 shares of common stock (the “SSF Warrants”). The SSF Notes bear interest at an initial rate of 2.0% per annum, which will increase to 12.0% per annum if the Company is unsuccessful in obtaining stockholder approval by March 15, 2013 to increase the Company’s authorized shares of common stock so that a sufficient number of shares are reserved for the conversion of the SSF Notes. Holders of the SSF Notes may, at their option, elect to convert all outstanding principal and accrued but unpaid interest on the SSF Notes into shares of common stock at a conversion price of $0.25 per share, but may convert only a portion of such SSF Notes if an inadequate number of authorized shares of common stock is available to effect such optional conversion. Holders of the SSF Notes are entitled to certain anti-dilution protections. The Company may prepay the SSF Notes on or after November 28, 2014. The SSF Notes have a maturity date of November 28, 2015, unless the SSF Notes are earlier converted or an event of default or liquidation event occurs. The SSF Warrants are exercisable at an exercise price of $0.50 per share, which exercise price is subject to certain anti-dilution protections, but the SSF Warrants may not be exercised unless a sufficient number of authorized shares of common stock are available for the exercise of the SSF Warrants. In addition, the SSF Warrants may be exercised on a cashless basis if a registration statement covering the shares underlying the SSF Warrants, or an exemption from registration, is not available for the resale of such shares underlying the SSF Warrants. The SSF Warrants expire on November 30, 2017. The Company accrued the settlement amount of $1.1 million to general and administrative expenses during the second quarter of fiscal year 2013.

As previously reported on the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 6, 2012, the Company entered into a Security Agreement dated November 30, 2012 to secure its senior secured convertible promissory notes issued in the Financing (defined below). In connection with the SSF Issuance, the SSF Notes will likewise be secured under the Security Agreement by a first priority security interest in substantially all of the assets of the Company that are not otherwise encumbered and excluding all aircraft, fractional ownership interests in aircraft, restricted cash, deposits on aircraft and flight hour cards.

In connection with the SSF Issuance, on February 6, 2013, the Company entered into a Registration Rights Agreement with SSF pursuant to which the Company has agreed to register under the Securities Act of 1933, as amended, the shares of common stock issuable upon conversion of the SSF Notes and SSF Warrants. The Company is required to file such resale registration statement on Form S-1 (or Form S-3 if the Company is eligible to use Form S-3) no later than the earlier of ten days after the Share Increase Effective Date or May 27, 2013 (“Filing Deadline”). If such registration statement is not filed with the SEC prior to the Filing Deadline, the Company will pay SSF liquidated damages payments in an amount equal to (i) 3.0% of the aggregate principal amount of the SSF Notes for the first sixty-day period following the Filing Deadline for which no registration statement is filed and (ii) thereafter 1.5% of the aggregate principal amount of the SSF Notes for each thirty-day period following the Filing Deadline for which no registration statement is filed.

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Subsequent Events (Details) (USD $)	1 Months Ended		6 Months Ended					1 Months Ended	3 Months Ended		6 Months Ended		6 Months Ended
	Jan. 31, 2013	Nov. 30, 2012 Investor	Dec. 31, 2012 Investor	Feb. 01, 2013	Oct. 31, 2012	Sep. 28, 2012	Dec. 31, 2011	Feb. 01, 2013 Subsequent Event [Member] Investor	Mar. 31, 2013 Subsequent Event [Member]	Dec. 31, 2012 Subsequent Event [Member] Aircraft	Dec. 31, 2012 Subsequent Event [Member] Aircraft	Feb. 06, 2013 Subsequent Event [Member]	Dec. 31, 2012 Senior secured convertible promissory notes [Member] Subsequent Event [Member]
Subsequent Events (Textual) [Abstract]
Notes maturity period													5 years
Term of warrants											5 years
Exercise price per share of warrants		0.38			0.50	1.00				0.50	0.50
Insurance claims relating to hail damage company										1	1
Insurance proceeds received									$ 500,000	$ 2,000,000
Letter of credit obligation										500,000	500,000
Additional closing of Notes and Warrants to purchase common stock		712,500						712,500
Number of accredited Investors		10	10					10
Rate of conversion of common shares of outstanding principal and unpaid interest								$ 0.25
Settlement Amount Payable Under Settlement Agreement								1,100,000
Common stock issued								4,222,148
Warrants issued								4,222,148
Aggregate shares of common stock purchased		40,000,000	2,850,000	2,850,000				2,850,000
Investors senior secured convertible promissory notes aggregate principal amount												$ 1,100,000
SSF Notes initial interest rate			2.00%				2.00%			2.00%	2.00%
SSF Notes increase interest rate	12.00%		12.00%								12.00%
Fail in Filing registration statement in SEC											(i) 3.0% of the aggregate principal amount of the SSF Notes for the first sixty-day period following the Filing Deadline for which no registration statement is filed and (ii) thereafter 1.5% of the aggregate principal amount of the SSF Notes for each thirty-day period following the Filing Deadline for which no registration statement is filed.
Percentage of aggregate principal amount of notes for liquidated damages payment under condition one											3.00%
Period for charging liquidated damages under condition one											60 days
Percentage of aggregate principal amount of notes for liquidated damages payment under condition two											1.50%
Period for charging liquidated damages under condition two											30 days

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Summary of Significant Accounting Policies (Details 2) (USD $)	6 Months Ended
	Dec. 31, 2012	Nov. 30, 2012
Senior secured convertible promissory notes embedded conversion feature [Member]
Summary of Derivative activity
Derivative activity, Fair Value Measurements		$ 960,000
Level 3 [Member]
Summary of Derivative activity
Derivative activity, Fair Value Measurements	3,051,000	3,110,000
Change in Fair Value of Derivative Liability	(59,000)
Level 3 [Member] | Senior secured convertible promissory notes embedded conversion feature [Member]
Summary of Derivative activity
Derivative activity, Fair Value Measurements	960,000	960,000
Change in Fair Value of Derivative Liability	0
Level 3 [Member] | Warrants [Member]
Summary of Derivative activity
Derivative activity, Fair Value Measurements	1,142,000	1,142,000
Change in Fair Value of Derivative Liability	0
Level 3 [Member] | HF Warrant [Member]
Summary of Derivative activity
Derivative activity, Fair Value Measurements	336,000	336,000
Change in Fair Value of Derivative Liability	0
Level 3 [Member] | Warrant Amendment [Member]
Summary of Derivative activity
Derivative activity, Fair Value Measurements	107,000	166,000
Change in Fair Value of Derivative Liability	(59,000)
Level 3 [Member] | Additional LW Warrant [Member]
Summary of Derivative activity
Derivative activity, Fair Value Measurements	480,000	480,000
Change in Fair Value of Derivative Liability	0
Level 3 [Member] | HF Overfly Warrant [Member]
Summary of Derivative activity
Derivative activity, Fair Value Measurements	26,000	26,000
Change in Fair Value of Derivative Liability	$ 0