UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2003
[ ] 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: 333-28249
PRIME AIR, INC.
(Exact name of Registrant as specified in charter)
Nevada Not Applicable
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State or other jurisdiction of I.R.S. Employer I.D. No.
incorporation or organization
Suite 601 - 938 Howe Street, Vancouver, British Columbia, V6Z 1N9
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (604) 684-5700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the Issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such fling requirements for the past 90 days.
Yes [X ] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $2,364
Documents Incorporated by Reference: None
State the number of shares outstanding of each of the Issuer's classes of common
equity as of the latest practicable date: At December 31, 2003, there were
27,084,000 shares of the Registrant's Common Stock outstanding.
The aggregate market value of the voting common stock held by non-affiliates
based on the closing price for a share of common stock as of January 20, 2004 of
$0.25 was $5,341,348.
TABLE OF CONTENTS
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PRIME AIR, INC.
INDEX
PART I PAGE NO.
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ITEM 1. . . Description of Business 3
ITEM 2. . . Description of Property 12
ITEM 3. . . Legal Proceedings 12
ITEM 4. . . Submission of Matters to a Vote of Security Holders 13
PART II
ITEM 5. . . Market for Common Equity and Related Stockholder Matters 13
ITEM 6. . . Management's Discussion and Analysis or Plan of Operation 15
ITEM 7. . . Financial Statements 16
ITEM 8. . . Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 33
ITEM 8A.. . Controls and Procedures 34
PART III
ITEM 9. . . Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of Exchange Act 34
ITEM 10.. . Executive Compensation 36
ITEM 11.. . Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 37
ITEM 12.. . Certain Relationships and Related Transactions 37
ITEM 13.. . Exhibits and Reports on Form 8-K 38
ITEM 14.. . Principal Accounting Fees and Services 39
2
FORWARD-LOOKING STATEMENTS
Some of the information presented in or incorporated by reference into this
report constitutes "forward-looking statements." Although the Company believes
that its expectations are based upon reasonable assumptions within the bounds of
its knowledge of its proposed business and operations, it is possible that
actual results may differ materially from its expectations. Factors that could
cause actual results to differ from expectations include but are not limited to
the inability of the Company to raise the additional capital necessary to fund
its principal operations, dependence on a limited number of persons, and ability
to attract tenants and air service to its terminal facility at the Permberton,
British Columbia airport.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Prime Air, Inc, a Nevada corporation (the "Company") is engage in the
business of managing and operating a commercial and local air terminal facility
in the Whistler - Pemberton, British Columbia, Canada, area. It also intends to
operate aircraft service out of the facility. The Company conducts its
operations through its subsidiary, Prime Air, Inc. ("Prime Air (BC)"), a company
originally incorporated under the laws of the Province of British Columbia,
Canada, on March 10, 1989, under the name "High Mountain Airlines Inc." Prime
Air (BC) has entered into a lease and operating agreement with the Village of
Pemberton, British Columbia, Canada, to plan, develop, construct, manage, and
operate a terminal facility at the Pemberton Airport. Prime Air (BC) has
constructed the basic terminal building and proposes to facilitate air service
to Pemberton Airport to serve the nearby resort community of Whistler. In
addition, on September 26, 2003, the Company entered into an agreement with
Galvin Flying Service, Inc. to provide Fixed Basic Operations (FBO) services in
anticipation providing air service to Pemberton. Previously, the Company
entered into a Memorandum of Understanding with Voyageur Airways Limited
("Voyageur") to provide scheduled and charter passenger and cargo service from
Vancouver International Airport. That Memorandum of Understanding has expired,
although the parties continue to have discussions. Currently, there is no
commercial passenger service to Pemberton Airport.
HISTORY
Prime Air, Inc. was incorporated in the State of Nevada on November 10,
1996, for the purpose of changing the domicile of the Company from the State of
Delaware. The predecessor to the Company was incorporated in the State of
Delaware on April 4, 1995. The change of domicile was completed on December 15,
1997.
Prior to incorporation in the State of Delaware, the Company was originally
incorporated pursuant to the laws of the State of Utah on August 30, 1993, under
the name "Astro Enterprises, Inc." (referred to hereafter as "the Utah
Corporation"). The Utah corporation changed its name to "Prime Air, Inc." on
June 28, 1994.
3
In June 1994, the Utah Corporation entered into a Merger Agreement with
Prime Air (BC). Pursuant to the terms of the Merger Agreement, the shareholders
of Prime Air (BC) exchanged all of their outstanding Prime Air (BC) shares for a
controlling number of shares of the Utah corporation, such that upon completion
of the exchange, the shareholders of Prime Air (BC) owned approximately 90% of
the outstanding shares of the Utah Corporation and Prime Air (BC) became a
wholly owned subsidiary of the Utah Corporation. The transaction was not a
statutory merger. Management believes that the closing of such agreement was
effected on June 28, 1994. In connection with the exchange of shares, the Utah
Corporation effected a one-for-one hundred reverse split of its outstanding
shares effective June 28, 1994, immediately prior to such closing. As a result
of the stock-for-stock exchange, the former shareholders of Prime Air (BC)
received 2,700,000 post-reverse spit shares, the 170 existing shareholders of
the Utah Corporation retained 120,000 post-reverse split shares, and the
Worthington Company, an entity controlled by Mr. Paul Parshall, retained 180,000
post-reverse split shares. In addition, the Worthington Company received
consulting fees totaling $70,000 US from Prime Air (BC) for services performed
in connection with the reorganization. Also, as a part of the reorganization,
Mr. Parshall resigned as the sole director of the Utah Corporation and appointed
Mr. Blaine Haug as the sole director. Mr. Parshall is no longer associated with
the Company. Also in connection with the reorganization, the name of the Utah
Corporation was changed to Prime Air, Inc. and the number of authorized shares
of Common Stock of the Utah Corporation was changed to 25,000,000 shares, par
value $0.001. At the time of the stock-for-stock exchange between the Utah
Corporation and Prime Air (BC), the Utah Corporation had no assets. The
reorganization was entered into because Prime Air (BC) wanted controlling
interest in a public shell corporation.
On or about April 4, 1995, the Utah Corporation effected a change of
domicile to the State of Delaware by incorporating another corporation in such
state, acquiring all of the assets and liabilities of the Utah Corporation, and
issuing shares of the Delaware corporation to the shareholders of the Utah
Corporation on a one-for-one basis. The Utah Corporation was voluntarily
dissolved by the State of Utah on May 18, 1995. The change of domicile was
initiated and completed based upon the recommendations of Mr. Paul Parshall, an
officer and director of the Utah Corporation at such time.
The original purpose of the Utah Corporation incorporated in 1993 as set
forth in its articles of incorporation, was to acquire the assets and certain
liabilities of another Utah corporation incorporated in 1985 and previously
dissolved by the State of Utah on May 1, 1990, and also incorporated under the
name "Astro Enterprises, Inc." Current management of the Company, none of whom
were affiliated with the Utah Corporation prior to the share exchange in June
1994, believed that the former management of the Utah Corporation at the time of
its incorporation issued approximately 120,000 shares of the Company's common
stock to the shareholders of the corporation dissolved in 1990 with the same
name thus creating approximately 170 shareholders of the Utah Corporation.
Management does not believe that any other relationship existed between the two
entities or with former management of the corporation dissolved in 1990 and
known as Astro Enterprises, Inc.
4
Commencing February 1998, the Company attempted to offer and sell up to
2,000,000 units (the "Units"), each Unit consisting of one share of common stock
of the Company and one Class A Warrant and one Class B Warrant. The Units were
offered by British West Indies Securities Company Limited as selling agent for
the offering. The offering terminated March 31, 1998, and no Units were sold.
The selling agreement with British West Indies Securities Company Limited also
expired on such date.
On April 23, 1998, the shareholders approved a forward split of the
outstanding shares of common stock of the Company at the rate of two shares for
each one share outstanding. The forward stock split was effective on May 15,
1998. In addition, the shareholders approved a stock option plan on April 23,
1998, known as the 1998 Stock Option and Stock Appreciation Right Plan (the
"Plan"). The Plan provides for the issuance of options to acquire up to
1,000,000 shares of common stock of the Company. No options have been granted
pursuant to the Plan, and the Plan has subsequently been terminated.
Commencing June 1998, the Company attempted to offer and sell up to
8,000,000 shares of common stock. This offering terminated August 31, 1998. No
shares were sold. Commencing October 1998, the Company engaged the Investment
Banking firm of Chanen, Painter & Company Ltd. for the purpose of providing
equity financing to enable start up of air services. That engagement was not
completed and all associations thereto expired and were terminated in February
2000.
The Company entered into a "Memorandum of Proposed Agreement" with 519222
Ontario Limited, a corporate entity associated with Voyageur Airways Limited,
which, subject to the final approval of Voyageur and the Company, will allow a
merger which combines 25% of the assets of Voyageur with 70% of the assets of
the Company. No definitive agreement was ever entered into and no transaction
with Voyageur is contemplated at this time. However, although no agreement was
entered into, Voyageur continues to work with the Company for the purpose of
establishing an air service. See "Proposed Air Service" contained in the Item
1.
Prime Air, Inc., does not intend to own or directly operate aircraft.
However, Prime Air, Inc. intends to derive income from the Company, "wet
leasing" aircraft for the purpose of transporting passengers from and to the
Pemberton facility and intends to derive income from leasing/operating the
Terminal Building as a rental property for retail space available and collect
and receive passenger fees from individuals utilizing the facility as described
and permitted in the "Airport Lease and Operating Agreement" discussed below.
AIRPORT LEASE AND OPERATING AGREEMENT
On October 29, 1993, Prime Air (BC) entered into a Lease and Operating
Agreement (the "Airport Agreement") with the Corporation of the Village of
Pemberton, British Columbia, Canada (hereinafter the "Village of Pemberton"), in
which Prime Air (BC) agreed to undertake the planning, development,
construction, management, and operation of a terminal facility at the Pemberton
Airport. In return, the Village of Pemberton granted to Prime Air (BC) an
exclusive lease involving certain lands located at the Pemberton Airport
(registered under the Land Title Act, KN056037 under Parcel Identification
Number 002-606-801, being that part of District Lot 4769, Lillooet District,
5
Except Plan KAP 44479) to enable Prime Air (BC) to undertake the planning,
development, construction, management, and operation of a terminal facility.
There are no competing facilities at the Pemberton airport. The Lease
between the Village of Pemberton and Prime Air Inc., provides Prime Air the
exclusive use of the terminal facility and lands to:
(a) operate the terminal facilities as an international airport
terminal serving passengers and cargo arriving at and departing from the
airport; and
(b) operate, or cause to be operated, from the terminal facilities,
such services, concessions, agencies and businesses as it, in its discretion,
determines necessary or desirable for the proper and efficient operation of the
airline business, including without limitation: (i) ground transportation
service to and from the Airport; (ii) motor vehicle rentals; (iii) food and
beverage outlets; (iv) souvenir sales; and (v) air and ground transportation
ticket sales.
Construction of the air terminal building was completed in 1996. To that
extent, the overall size of the building is in excess of 10,000 square feet,
with approximately 6,240 square feet presently being fully habitable. The
remaining area requires "finishing" with anticipated construction costs to cost
approximately $50/square foot to $100/square foot depending on requirements.
Management intends to defer that cost to tenant improvement until it has signed
a lease with tenants who will ultimately occupy the space.
The Company's priority is to establish an air services related activity
base, then lease a portion of the terminal facility to related potential
tenants. Until there is air service activity at the site, it is unlikely that
the undeveloped space would reach its highest and best use.
Once operational, there are three potential sources of revenues; commercial
air services, Pemberton airport services and Fixed Base Operations. Commercial
air services include the actual operation of charter or scheduled air services
to the site. It is anticipated that the Company would contract with an aircraft
company to provide these services. However, in order to realize potential
revenues from this source, additional amounts must be invested in
infra-structure. The Company anticipates that it will not initiate commercial
air services activities until it is satisfied that sufficient capital for this
purpose is in place. No assurance can be given that the Company will be able to
provide commercial aircraft services. The second source of potential income,
Pemberton Airport services, is largely predicated on the existence of air
services. This income source would include baggage handling and other passenger
related services. Rental of commercial space at the terminal facility also
falls into this category. The third source of income may be rental income
derived from Galvin Flying (or alternative experienced FBO) which will perform
the Fixed Base Operations (FBO) activities that include providing fuel,
logistics, hangar/tie-down rental, accommodation, and other services, to both
the commercial and privately operated aircraft. It is Prime Air's intention to
assign that function to an established FBO company resulting in Prime Air
earning certain amounts from ancillary activities related to FBO activities.
6
On September 26, 2003, a Memorandum of Understanding was entered into
between Prime Air, Inc., and Galvin Flying Service, Inc., of Seattle Washington
in which Galvin intends to provide Fixed Based Operation Services at the
Pemberton Airport. Under the Memorandum, the Company will engage Galvin to
operate as its exclusive FBO for all aircraft services not related to any
proposed transaction with Voyageur Airways. The engagement of Galvin is subject
to the Company and Galvin entering into a definitive agreement. No assurance
can be given that a definitive agreement will be entered into. Further during
the later part of 2003, an aviation excursion trip operator tenant entered into
a month to month agreement with Prime Air to use the terminal for Cdn $500 per
month. Management continues to meet with individuals and businesses with
respect to developing the prospect of charter or scheduled air service
operations. No commitments, to the date, have been received with respect to
this item.
Based on its Memorandum of Understanding with Galvin Flying, the Company
intends to provide notice to the Village of Pemberton with respect to the
exercise of its option to use lands for purposes of future FBO activity. The
lands specified are physically detailed within the Lease between the Village of
Pemberton and Prime Air Inc. and are appropriately filed in the Land Registry
office of the Province of British Columbia.
The term of the lease commenced as of the Effective Date (June 1, 1995) and
is set to continue in full force and effect for an initial term ending on the
second anniversary of the Terminal Opening Date. Effective October 31, 1996 a
further notice was provided to complete the Extension of Term for three years,
completed by delivering to Pemberton written notice of extension of the Term
prior to the second anniversary of the Terminal Opening Date and a further five
years to October 31, 2005 by delivering to Pemberton written notice of extension
of the Term. An additional ten years may be exercised by delivering to
Pemberton written notice of extension of the Term not less than six months prior
to the tenth anniversary of the Terminal Opening Date; and a final additional
ten years by delivering to Pemberton written notice of the extension of the Term
not less than six months prior to the twentieth anniversary of the Terminal
Opening Date. Therefore, provided that the Company is not in default under the
lease, it will have the right to use the terminal facility until 2025.
Payment of terminal rent to the Village of Pemberton is described as
follows. Prime Air shall pay to Pemberton as a basic rent for the Terminal
Lands for each and every year without set-off, deduction or abatement the amount
calculated and paid in accordance with the following: (a) the Terminal Rent
payable for the first, second, third, fourth, fifth and sixth years shall be the
full amount of Cdn$100; and (b) for each year subsequent to the sixth year, an
amount equal to five percent (5%) of the gross receipts for such year, but not
less than Cdn $2,500.
The Pemberton Airport is approximately 20 miles north of Whistler Resort.
Whistler Resort is a ski resort located at the base of Whistler Mountain and
Blackcomb Mountain approximately 75 miles north of Vancouver, British Columbia,
Canada. The resort has approximately 8,000 permanent residents and attracts
approximately 3,000,000 visitors annually. Currently only ground transportation
is available to the resort, except for private flights into Pemberton Airport.
The nearest airport facility to Whistler Resort is Pemberton Airport. There is
presently no regular air service into Pemberton Airport.
7
The Airport Agreement provided that Prime Air (BC) must construct a
terminal facility on or before October 21, 1994, which date was extended to June
1, 1996, by the Council for the Village of Pemberton. Prior to such extended
date, Prime Air (BC) completed the terminal facility at the Pemberton Airport.
The terminal constructed by Prime Air (BC) has a total square footage of 10,240
square feet, of which approximately 6,240 of interior space has been finished
and is ready for its intended use as an airport terminal. The finished portion
consists of an arrival and departure lounge, baggage holding area, office, two
public washrooms with a total of 14 cubicles, reception area, and a utility
room. There is also a water and a waste treatment plant housed in a separate
building. The total construction costs of the facility were $647,126 ($595,335
for the terminal building, $20,989 for engineering and design, $18,699 for
environmental work; and $12,103 for insurance and permits) and were financed
through the sale of the Company's stock. During calendar year 1996, the Company
sold 1,510,558 shares of its common stock at $0.50 per share for total proceeds
of $755,279. The limited offering was conducted pursuant to Rule 504 of
Regulation D promulgated by the Securities and Exchange Commission. The
offering was conducted for the purpose of raising funds for the completion of
construction of the airport terminal facility at Pemberton. At the time of such
offering the Company was not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, and was not an
investment company. The aggregate offering price of all securities sold within
the twelve months preceding the start of and during the offering did not exceed
$1,000,000. There is currently no debt against the terminal building. The
initial term of the Airport Agreement, and the right of Prime Air (BC) to
operate the terminal facility, was two years with provisions allowing Prime Air
(BC) to extend such initial term for addition terms totaling in the aggregate
thirty years, provided that Prime Air (BC) shall continue to fulfill its
obligations under the Airport Agreement, including the payment of rent in the
amount of $100 per year for the first five years, and the payment of property
taxes imposed by municipal authorities plus 5% of the gross receipts derived
from the operation of the terminal facility for each year thereafter. The
Airport Agreement also grants to Prime Air (BC) the option to lease and use
certain other lands at the Pemberton Airport for fixed base operations. The
Airport Agreement may be terminated by the Village of Pemberton in the event of
a material default by Prime Air (BC) or if Prime Air shall become bankrupt. The
terminal facilities shall become the property of the Village of Pemberton at the
expiration of the Airport Agreement. Prime Air (BC) has submitted a request
under the Airport Agreement for a five year extension beginning October 31,
1999. The Airport Agreement provides for two additional ten year extensions of
the lease following the five year extension. The Company believes that it is
in compliance with the terms of lease.
PROPOSED AIR SERVICE
Prime Air (BC) initially intends to establish scheduled and charter
passenger and cargo air service between Vancouver International Airport and
Pemberton Airport by contracting with an aircraft services company. Prime Air
(BC) has entered into a Memorandum of Agreement dated January 5, 1995 (the
"Voyageur Agreement"), with Voyageur Airways Limited, an Ontario corporation
("Voyageur") to provide the initial service by supplying, operating, and
maintaining DeHavilland Dash-7 aircraft to provide scheduled and charter
passenger and cargo service, from Vancouver International Airport, to the
Pemberton Airport. The Voyager Agreement provides that Prime Air (BC) will
operate the terminal facility at Pemberton Airport and the scheduled and charter
passenger and cargo service, and will market the air services. Voyageur will
8
provide the certifications, authorizations, expertise, facilities, personnel,
and resources necessary to operate, maintain and service the aircraft. The
Voyageur Agreement expired under its terms. However, Prime Air (BC) and
Voyageur are continuing to have discussion with Voyageur to provide aircraft
services to Pemberton.
GOVERNMENT REGULATION AND LICENSING
Any corporation conducting commercial air service operations in Canada must
possess a valid operating certificate and other licenses, permits,
accreditations and certificates that are issued and administered by Transport
Canada. For the purpose of this Annual Report, initially Voyageur is identified
as the corporation intended for conduct commercial air service operation in
Canada and it is the understanding of Prime Air, Inc. that Voyageur satisfies
all of the following criteria. Qualification for the required operating
certificate requires that:
1. the operator (being the entity actually providing the air service
operations) must have at least one aircraft registered under its operating
certificate. This aircraft may either be owned directly or dry leased by the
operator;
2. the aircraft utilized by the operator must be approved and certified
in Canada;
3. in respect of a domestic Canadian air service, the operator must
satisfy the statutory Canadian ownership criteria which essentially requires
that 75% of the voting interest in the operator is controlled by Canadian
citizens or permanent residents of Canada;
4. the management of the operator must include a chief pilot who holds
appropriate Canadian certification;
5. all of the operator's pilots must meet proficiency standards and
hold sufficient ratings to operate the type of aircraft being utilized;
6. the operator must demonstrate and certify that it will be able to
carry out maintenance of its aircraft according to regulated standards. Such
maintenance can either be conducted directly by the operator or subcontracted to
a qualified maintenance facility; and
7. an operations manual must be prepared for the operator and approved
by Transport Canada.
It will be a condition of any definitive agreement that the aircraft
servicing company meets all of the criteria set forth above.
MARKETING
Prime Air (BC) intends to conduct a marketing program through a third party
marketing company as soon as sufficient funds are available. Advertising and
promotion would focus both on the Whistler area as the destination, and on
9
creating an image of convenience, quality and reliability for the air service.
Final approval of all advertising and promotion would remain with Prime Air
(BC). The corporate name and logo would be used throughout the companies
advertising materials in order to develop consumer and travel agency
familiarity.
Through a marketing company, Prime Air (BC) plans to prepare promotional
materials that would introduce the new air service, first to travel agents and
tour wholesalers, and then to the consumer. Promotion would constitute a major
portion of Prime Air (BC)'s overall marketing strategy. Familiarization flights
would be offered to select travel agencies, tour operators, and others,
potentially in conjunction with the ski areas, hotels, Whistler's Trade and
Convention Center, and the Whistler Resort Association. The objective would be
for the industry to become familiar enough with the service so that when a
customer books travel to Whistler, the travel agent would suggest that the
customer make airline reservations all the way to the Whistler area by using
Prime Air (BC)'s services.
Prime Air (BC) also plans to contact travel industry journals to introduce
and promote the service.
Prime Air (BC) also plans to focus much of its advertising on accessibility
to Whistler. Advertising would include direct mail to the travel industry and
specific potential corporate clients, brochures, schedules, and various forms of
media advertising, including magazines and newspapers. Whenever possible, Prime
Air (BC) would participate in cooperative advertising in order to develop and
reinforce the consumer's associating Prime Air (BC) with easy access to
Whistler.
Prime Air (BC) intends also to provide hotels at Whistler and the Whistler
Resort Association with schedule support materials to generate airline ticket
sales in conjunction with hotel bookings.
Prime Air (BC) plans to begin marketing and sales of its services in
advance of operating its first flight. The objective would be to generate sales
on all flights from the very beginning of flight operations. Prime Air (BC)
also plans to focus initially on creating awareness of the service within the
travel industry. Specifically, marketing staff would contact tour wholesalers,
travel agencies, convention and meeting planners and other groups that currently
book clients to Whistler.
A major component of Prime Air (BC)'s sales strategy would include the
integration of the flight schedules and fares into all of the major worldwide,
computerized reservations systems. Such networks allow travel agencies to book
their clients directly through the computerized system. To do this properly,
Prime Air (BC) would engage Voyageur management to provide the appropriate
expertise in the development of flight schedules and fares, which would include
assisting Prime Air (BC) in making the final selection of a computerized
reservation system to join.
In order to generate sales in the local Seattle and Vancouver markets,
Prime Air (BC) intends to plan several types of promotional programs. These
10
would likely include ticket packages (purchasing tickets for ten flights for the
price of nine), special introductory fares, and/or joint promotions with other
advertisers in the area.
Prime Air (BC) intends to maximize the use of the Internet as a tool to
reach the consumer with specific marketing and sales related information about
the service. As more and more airlines and computerized reservations systems
make their flight schedules and fares available on the Internet, management
believes the general public will become more adept at using the Internet as a
ready source of up-to-date marketing and sales related information about the
product. The target market group for this air service would be frequent users
of computers and the Internet. Prime Air (BC) intends to seek the services of a
marketing firm to exploit this new area of marketing potential.
COMPETITION
Regarding certain aspects of Prime Air (BC)'s business model, Prime Air
(BC) does not have any competition regarding the exclusive lease with the
Village of Pemberton through December 31, 2025 concerning the operation of the
airport because Prime Air (BC) has the exclusive right conveyed under the terms
of the lease.
However, regarding other facets of Prime Air (BC)'s business model, Prime
Air (BC) will compete with other charter and airline companies based in the
Vancouver and the Seattle area which currently service customers whose final
destination is Whistler Resort. However, the other competing airlines still
have to conduct operations at the airport and Prime Air (BC) will derive income
from other competitors' use of the airport. To a limited degree Prime Air (BC)
will compete with buses chartered or owned by tour operators. Most of these
entities are more established companies having much greater financial resources,
experience, and personnel resources than Prime Air (BC).
EMPLOYEES
The Company, including Prime Air BC, had one full-time employee as of
December 31, 2003. In addition, Messrs. Horsley and Koch spend approximately
1-2% and 10% of their respective time on Prime Air related work as consultants
during 2003.
RISK FACTORS
An investment in the Company involves certain risks. Before investing in
the Company's common shares, potential investors should consider the following:
LIMITED RENTAL REVENUES; UNCERTAIN PROFITABILITY; DEVELOPMENT STAGE COMPANY.
Since its inception, the Company has been principally engaged in developmental
and organizational activities. To date, the Company has limited rental revenue.
No substantial revenues are expected until, and only if, the Company secures
adequate funds to complete the infrastructure required to commence either
charter or scheduled commercial air service activities.
11
The Company is in the development stage, and its business is subject to all of
the risks inherent in the establishment of a new business enterprise. The
likelihood of success of the Company must be considered in light of the
problems, expenses, complications and delays frequently encountered in
connection with the formation of a new business, the development of new
products, the competitive and regulatory environment in which the Company is
operating and the possibility that its activities will not result in the
development of any commercially viable activities. There can be no assurance
that the Company's activities will ultimately result in the development of
commercial charter or scheduled air service.
NEED FOR FUTURE FINANCING. The Company will be required to raise additional
funds through public or private financing including grants that may be available
to complete the infrastructure requirements to allow air service operations.
There can be no assurance, however, that the Company will be able to obtain
additional financing on terms favorable to it, if at all. If adequate funds are
not available to satisfy short-term or long-term capital requirements, the
failure of the Company to obtain any other acceptable financing would have a
material adverse effect on the plans and operations of the Company. Without
additional financing, the Company would become unable to maintain its current
operations and would be unable to carry out its business plan. The Company has
no current understandings or commitments to obtain any additional financing from
the sale of its securities or otherwise. Additional financing from the sale of
its securities may result in dilution of the Company's then current
stockholders.
DEPENDENCE UPON A KEY OFFICER; ATTRACTION AND RETENTION OF KEY PERSONNEL. The
business of the Company is highly dependent upon the active participation of its
founder and Chief Executive Officer, Blaine Haug. The loss or unavailability to
the Company of Mr. Haug would have a material adverse effect on the Company's
business prospects and potential earning capacity. The recruitment of skilled
airline personnel is critical to the Company's success. There can be no
assurance that it will be able to attract and retain such personnel in the
future.
The process of obtaining required regulatory approvals required to commence air
service operations can be time-consuming and expensive and other regulatory
requirements can be burdensome. Moreover, there can be no assurance that the
required regulatory clearances will be obtained
DEPENDENCE ON THIRD PARTY CONTRACTORS. The Company intends to provide
commercial air services, fixed based operations, and marketing of its services
through third party contractors. Therefore, a substantial part of the Company's
business will depend on third parties.
ITEM 2. DESCRIPTION OF PROPERTY
See Item 1. Description of Business - Airport Lease and Operating
Agreement.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its properties is a party to any material
pending legal proceedings or government actions, including any material
bankruptcy, receivership, or similar proceedings.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of the shareholders during the fourth
quarter of the year ended December 31, 2003.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Beginning June 30, 2002, the Company's Common Stock is quoted on the Pink
Sheets under the symbol "PMAR". Previously, the Company's common stock was
quoted on the OTC Bulletin Board under the symbol "PMAR". The market for the
Company's Common Stock is limited, volatile and sporadic. The following table
sets forth the OTCBB high and low sales prices relating to the Company's Common
Stock for the last two fiscal years. These quotations reflect inter-dealer
prices without retail mark-up, mark-down, or commissions, and may not reflect
actual transactions.
FISCAL YEARS ENDED
------------------
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
HIGH LOW HIGH LOW
------ ----- ----- -----
First Quarter. (1) (1) $0.09 $0.01
-------------- ------ ----- ----- -----
Second Quarter (1) (1) $0.01 *
-------------- ------ ----- ----- -----
Third Quarter. $0.25 $.01 $0.01 *
-------------- ------ ----- ----- -----
Fourth Quarter $0.27 $.03 $0.01 *
-------------- ------ ----- ----- -----
* Less than $0.01
(1) No trades during the quarter.
As of March 31, 2004, the Company had approximately 352 holders of its
common stock.
The Company has never paid cash dividends.
Recent Sales of Unregistered Securities.
During the past year ended December 31, 2003, the Company sold unregistered
common stock in the following transactions.
1. On May 8, 2003, the Company issued 400,000 shares of common stock in the
aggregate at a value of $0.05 per share to Messrs. Haug, Koch, Horsley and
Eberhard for 2002 director fees. Each director received 100,000 shares. The
Company relied on section 4(2) as an exemption from registration.
13
2. On May 8, 2003, the Company issued 400,000 shares of common stock in
the aggregate at a value of $0.05 per share to Mr. Koch, a then director of the
Company, for accounting services provided to the Company in 2002 The Company
relied on section 4(2) as an exemption from registration.
3. On May 8, 2003, the Company issued 400,000 shares of common stock in
the aggregate at a value of $0.10 per share to Mr. Haug for his services as
president for 2002. The Company relied on section 4(2) as an exemption from
registration.
4. On September 10, 2003, the Company sold 1,000,000 shares of common
stock to one corporate investor at $0.05 per share raising in the aggregate
$50,000. No underwriter or placement agent was involved. The Company relied on
section 4(2) as an exemption from registration.
5. On October 9, 2003, the Company issued 400,000 shares of common
stock in the aggregate at a value of $0.05 per share to Messrs. Haug, Koch,
Horsley and Eberhard for 2003 director fees. Each director received 100,000
shares. The Company relied on section 4(2) as an exemption from registration.
6. On October 9, 2003, the Company issued 185,000 shares of common
stock in the aggregate at a value of $0.05 per share to three persons for
aviation consulting services in 2003. Each consultant was familiar with the
Company and the Company relied on section 4(2) as an exemption from registration
7. On October 9, 2003, the Company issued 400,334 shares of common
stock in the aggregate at a value of $0.05 per share to Mr. Koch, a then
director of the Company, for accounting services provided to the Company in
2003. The Company and the Company relied on section 4(2) as an exemption from
registration.
8. On October 9, 2003, the Company issued 400,000 shares of common
stock in the aggregate at a value of $0.05 per share to Mr. Haug for his
services as president for 2003. The Company relied on section 4(2) as an
exemption from registration.
9. On October 9, 2003, the Company issued 150,000 shares of common
stock at a value of $0.1667 per share to its former attorneys in settlement of
an outstanding debt. The Company relied on section 4(2) as an exemption from
registration.
10. On October 9, 2003, the Company sold 30,000 shares of common stock
to one investor at $0.1667 per share raising in the aggregate $5,000. No
underwriter or placement agent was involved. The Company relied on section 4(2)
as an exemption from registration.
14
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
EXECUTIVE SUMMARY
The Company's primary operation is the construction and subsequent
management and operations of an airport facility located in Pemberton, British
Columbia. Through the Company's subsidiary, Prime Air (BC) has entered into a
lease and operating agreement with the Village of Pemberton, British Columbia,
Canada to plan, develop, construct, manage and operate a terminal facility at
the Pemberton Airport.
Prime Air (BC) has constructed the basic terminal building and proposes to
facilitate regular, scheduled air service to Pemberton Airport to serve the
nearby resort community of Whistler. Sufficient funding has not been secured to
provide for costs for completion of certain infrastructure items including
landing lights, airside and groundside related equipment, advance marketing and
working capital requirements. Management estimates the requirement for a
commitment of approximately $3,000,000 to provide a satisfactory start up of
principal operations of the Pemberton terminal facility.
During 2003, the Company received limited rental revenues. Historically,
the Company has financed its building of terminal and operation through the
issuance of equity securities.
The Company intends to market and provide commercial aircraft services to
the Pemberton airport to provide access to primarily the Whistler, British
Columbia recreational area. To facilitate these services, the Company intends
to provide FBO for both commercial and private aircraft services.
RESULTS OF OPERATIONS
During the year ended December 31, 2003 the Company derived limited
revenues of $2,364 derived from the leasing of terminal space.
Expenses totaled $156,752 consisting of primarily $88,943 for consulting
fees, $21,411 in amortization related to the terminal building at Pemberton and
$35,696 in administrative expenses. Of the $88,943 in consulting services,
$80,000 was attributed to directors and officers consisting of $40,000 to the
President for his services, $20,000 in director fees and $20,000 to an
accounting firm controlled by a director for accounting services rendered. Also
during the year 2003, the Company settled outstanding trade accounts payable
which resulted in a gain of $99,814. Expenses for 2002 were similar,
aggregating in the amount of $146,207.
The Company incurred a loss from operations of $154,388 and $146,207,
respectively, for the years ended December 31, 2003 and 2002, and a net loss for
the year ended December 31, 2003 and 2002 of $54,574 and $146,207. Net loss per
share was $(0.00) and $(0.01) for the years ended December 31, 2003 and 2002.
15
LIQUIDITY
As of December 31, 2003 and 2002, the Company had a working capital deficit
of $(141,227) and $(323,374). Included in accounts payable of $213,682 as at
December 31, 2002 is a substantial amount of accounts payable from prior years
that the Company has not been able to pay due to the lack of revenues and
capital. During the year ended December 31, 2003, the Company settled
outstanding trade accounts payables owing from prior years which resulted in a
reduction in accounts payables and accrued liabilities. In addition, the
Company reduced its amounts due to related parties through the issuance of
shares. As a result of the lack of significant revenues, and working capital
deficit, the auditor's report indicates there is substantial doubt about the
Company's ability to operate as a going concern. Historically, the Company has
received loans and issued its shares of common stock to finance its operations,
and building of and further expansion of the terminal at Pemberton. It is
anticipated that the Company will continue to issue its equity securities and
rely on loans from related parties to finance its operations. However, no
assurance can be given that the Company will be able to rely on these sources
for capital.
ITEM 7. FINANCIAL STATEMENTS
Prime Air, Inc.
(A Development Stage Company)
Index
-----
Independent Auditors' Report . . . . . . . . . . . . . 17
Consolidated Balance Sheets. . . . . . . . . . . . . . 20
Consolidated Statements of Operations. . . . . . . . . 21
Consolidated Statements of Comprehensive Income (Loss) 22
Consolidated Statement of Stockholders' Equity . . . . 23
Consolidated Statements of Cash Flows. . . . . . . . . 27
Notes to the Consolidated Financial Statements . . . . 28
16
[LETTERHEAD OF MANNING ELLIOT CHARTERED ACCOUNTANTS]
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Prime Air, Inc. (A Development Stage Company)
We have audited the accompanying consolidated balance sheet of Prime Air, Inc.
(A Development Stage Company) as of December 31, 2003 and the related statement
of operations, comprehensive income, stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. Other independent auditors audited the
accompanying consolidated balance sheet of Prime Air, Inc. as of December 31,
2002 and the related statement of operations, stockholders' deficit and cash
flows for the year then ended. Those auditors expressed an unqualified opinion
on those consolidated financial statements in their report dated July 23, 2003.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Prime Air, Inc., as
of December 31, 2003, and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred operating losses
since inception and has a working capital deficiency. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ MANNING ELLIOT
CHARTERED ACCOUNTANTS
Vancouver, Canada
June 10, 2004
17
[LETTERHEAD OF RUTHERFORD & COMPANY CHARTERED ACCOUNTANTS]
Rutherford & Company
Chartered Accountants
--------------------------------------------------------------------------------
9511 Bates Road, Richmond, B.C.
CANADA V7A 1E3
Telephone (604)272-5454 Fax (604)272-5874
AUDITORS' REPORT
To the Shareholders of
PRIME AIR, INC. (A Nevada Corporation)
We have audited the consolidated balance sheets of PRIME AIR, INC. (A
Development Stage Company) as at December 31, 2002 and the consolidated
statements of operations, shareholders' equity and deficit and cash flows for
the year then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with Canadian and United States
generally accepted auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 2002 and the
results of its operations, the change in stockholders' equity and its cash flows
for the years then ended in accordance with United States generally accepted
accounting principles.
/s/ "Rutherford & Company"
Richmond, Canada
July 23, 2003 CHARTERED ACCOUNTANTS
18
[LETTERHEAD OF RUTHERFORD & COMPANY CHARTERED ACCOUNTANTS]
RUTHERFORD & COMPANY
Chartered Accountants
--------------------------------------------------------------------------------
9511 Bates Road, Richmond, B.C.
CANADA V7A 1E3
Telephone (604)272-5454 Fax (604)272-5874
COMMENTS BY AUDITOR FOR U.S. READERS
ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 1 to the financial statements. Our report to the shareholders dated July
23, 2003 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the auditors' report
when these are adequately disclosed in the financial statements.
/s/ "Rutherford & Company"
Richmond, Canada
July 23, 2003 CHARTERED ACCOUNTANTS
19
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in US dollars)
December 31, December 31,
2003 2002
-------------- --------------
ASSETS
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,691 $ 512
Prepaid expenses and deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,382 1,586
Other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,292 1,357
-------------- --------------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,365 3,455
Property and Equipment (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508,158 427,305
-------------- --------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 517,523 $ 430,760
============== ==============
LIABILITIES
Current Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,436 $ 213,682
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,500 -
Due to related parties (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,248 91,846
Notes and advances payable (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . 22,408 21,301
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,592 326,829
Contingencies and Commitments (Notes 1 and 7)
STOCKHOLDERS' EQUITY
Preferred Stock, 5,000,000 cumulative and convertible preferred shares authorized with a
par value of $0.001, none issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Common Stock, 150,000,000 common shares authorized with a par value of $0.001,
27,084,000 and 23,318,666 issued and outstanding, respectively. . . . . . . . . . . . . . 27,084 23,319
Additional Paid In Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,412,694 4,167,192
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . 58,586 (9,721)
Deficit accumulated during the development stage. . . . . . . . . . . . . . . . . . . . . (4,131,433) (4,076,859)
-------------- --------------
Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366,931 103,931
-------------- --------------
Total Liabilities and Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . $ 517,523 $ 430,760
============== ==============
20
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in US dollars)
Accumulated From
March 10, 1989
Year Ended Year Ended (Date of Inception)
December 31, December 31, December 31,
2003 2002 2003
-------------- -------------- -----------------------
(Unaudited)
Revenue
Rental income . . . . . . . . . . . . . . . . $ 2,364 $ - $ 2,364
-------------- -------------- -----------------------
Expenses
Flight operations . . . . . . . . . . . . . . - - 114,720
Advertising and Promotion . . . . . . . . . . 67 - 40,461
Amortization. . . . . . . . . . . . . . . . . 21,411 18,978 164,533
Consulting. . . . . . . . . . . . . . . . . . 8,943 10,000 39,734
Consulting to related parties (Note 5(b)) . . 80,000 80,000 2,799,696
General and Administrative. . . . . . . . . . 35,696 29,766 769,807
Professional fees . . . . . . . . . . . . . . 10,635 7,463 304,660
-------------- -------------- -----------------------
156,752 146,207 4,233,611
-------------- -------------- -----------------------
Loss from Operations . . . . . . . . . . . . . (154,388) (146,207) (4,231,247)
Gain on settlement of debt . . . . . . . . . . 99,814 - 99,814
-------------- -------------- -----------------------
Net Loss For the Period. . . . . . . . . . . . $ (54,574) $ (146,207) $ (4,131,433)
============== ============== =======================
Net Loss Per Common Share - Basic and Diluted. $ (0.00) $ (0.01)
============== ==============
Weighted Average Shares Outstanding. . . . . . 24,957,000 22,899,000
============== ==============
21
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Expressed in US dollars)
From March 10,
1989 (date of
Year Ended Year Ended inception) to
December 31 December 31 December 31
2003 2002 2003
(Unaudited)
----------- ----------- ----------------
Net loss $ (54,574) $ (146,207) $ (4,131,433)
Other comprehensive income:
Foreign currency translation adjustment 68,307 3,394 58,586
----------- ----------- ----------------
Comprehensive income (loss): $ 13,733 $ (142,813) $ (4,072,847)
=========== =========== ================
22
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
From March 10, 1989 (Date of Inception) to December 31, 2003
(Expressed in US dollars)
Deficit
Accumulated Accumulated
Additional Share Other During The
Common Shares Paid In Subscriptions Comprehensive Development
Shares Amount Capital Receivable Income (loss) Stage Total
$ $ $ $ $ $
Balance at Inception on
March 10, 1989
(unaudited) . . . . . . - - - - - - -
Issue of common shares
for cash
at $.001/share. . . . . 1,260,474 1,260 (630) - - - 630
Net loss for the year
ended March 31, 1990. . - - - - - (17,956) (17,956)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance, March 31, 1990
(unaudited) . . . . . . 1,260,474 1,260 (630) - - (17,956) (17,326)
Issue of common shares
for cash
at $.001/share. . . . . 315,118 315 (157) - - - 158
Net loss for the year
ended March 31, 1991. . - - - - - (49,419) (49,419)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance, March 31, 1991
(unaudited) . . . . . . 1,575,592 1,575 (787) - - (67,375) (66,587)
Net loss for the year
ended March 31, 1992. . - - - - - (10,990) (10,990)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance, March 31, 1992
(unaudited) . . . . . . 1,575,592 1,575 (787) - - (78,365) (77,577)
Issue of common shares
for cash
at $.13866/share . . . . . 264,176 264 36,367 - - - 36,631
at $.10677/share . . . . . 34,138 34 3,611 - - - 3,645
Net loss for the year
ended March 31, 1993. . - - - - - (38,426) (38,426)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance, March 31, 1993
(unaudited) . . . . . . 1,873,906 1,873 39,191 - - (116,791) (75,727)
Issue of common shares
for services
at $.07906/share. . . . 184,346 184 14,390 - - - 14,574
Issue of common shares
for cash
at $.001/share . . . . . . 600,000 600 (300) - - - 300
at $.05449/share . . . . . 6,680 7 357 - - - 364
at $.07707/share . . . . . 47,268 47 3,596 - - - 3,643
at $.13966/share . . . . . 38,802 39 5,380 - - - 5,419
at $.16508/share . . . . . 46,322 46 7,601 - - - 7,647
at $.23111/share . . . . . 174,890 175 40,243 - - - 40,418
at $.34663/share . . . . . 31,512 32 10,891 - - - 10,923
at $.46217/share . . . . . 15,756 16 7,266 - - - 7,282
Net loss for the year
ended March 31, 1994. . - - - - - (50,846) (50,846)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance, March 31, 1994
(unaudited) . . . . . . 3,019,482 3,019 128,615 - - (167,637) (36,003)
Issue of common shares
for services
at $.21124/share. . . . 1,874,956 1,875 394,191 - - - 396,066
Issue of common shares
for cash
at $.18687/share . . . . . 497,384 498 92,448 - - - 92,946
at $.23117/share . . . . . 608,178 608 139,982 - - - 140,590
Net loss for the year
ended June 28, 1994 . . - - - - - (437,013) (437,013)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance, June 28, 1994
(unaudited) . . . . . . 6,000,000 6,000 755,236 - - (604,650) 156,586
23
Deficit
Accumulated Accumulated
Additional Share Other During The
Common Shares Paid In Subscriptions Comprehensive Development
Shares Amount Capital Receivable Income (loss) Stage Total
$ $ $ $ $ $
Balance Forward. . . . . . 6,000,000 6,000 755,236 - - (604,650) 156,586
Share subscription
at $.1835/share . . . . - - (7,313) (20) - (7,333)
Net loss for the year
ended March 31, 1994. . - - - - - (135,530) (135,530)
Balance,
December 31, 1994
(unaudited) . . . . . . 6,000,000 6,000 747,923 (20) - (740,180) (13,723)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Issue of common shares
for cash and/or
services
at $.11711/share. . . . 1,125,100 1,125 130,630 - - - 131,755
Net loss for the year
ended March 31, 1995. . - - - - - (71,266) (71,266)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance,
December 31, 1995
(unaudited) . . . . . . 7,125,100 7,125 878,553 (20) (811,446) 74,212
Issue of common shares
for cash at $.25/share. 3,021,116 3,021 752,259 - - - 755,280
Issue of common shares
for services
at $.25/share . . . . . 2,967,346 2,967 738,870 - - - 741,837
Net loss for the year
ended
December 31, 1996 . . . - - - - - (978,770) (978,770)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance,
December 31, 1996
(unaudited) . . . . . . 13,113,562 13,113 2,369,682 (20) - (1,790,216) 592,559
Issue of common shares
for services
at $.26/share . . . . . 656,000 656 169,904 - - - 170,560
Issue of common shares
for debt settlements:
at $.25/share. . . . . . . 248,504 249 61,876 - - - 62,125
at $.25205/share . . . . . 72,760 73 18,266 - - - 18,339
at $.26523/share . . . . . 189,600 189 50,098 - - - 50,287
Net loss for the year
ended
December 31, 1997 . . . - - - - - (359,929) (359,929)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance,
December 31, 1997
(unaudited) . . . . . . 14,280,426 14,280 2,669,826 (20) - (2,150,145) 533,941
Issue of common shares
for debt settlements:
at $.19415/share . . . . . 20,000 20 3,853 - - - 3,873
at $.20082/share . . . . . 36,430 37 7,260 - - - 7,297
Issue of common shares
for services
at $.19790/share. . . . 3,327,454 3,327 655,177 - - - 658,504
Issue of common shares
for debt settlements
at $.25/share . . . . . 64,800 65 16,135 - - - 16,200
Issue of common shares
for services
at $.25/share . . . . . 290,000 290 72,210 - - - 72,500
Transfer agent adjustment. (6,000) (6) - - - - (6)
Write off of
uncollectable share
subscription
receivable. . . . . . . - - 7,313 20 - - 7,333
Net loss for the year
ended
December 31, 1998 . . . - - - - - (880,318) (880,318)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance,
December 31, 1998
(unaudited) . . . . . . 18,013,110 18,013 3,431,774 - - (3,030,463) 419,324
24
Deficit
Accumulated Accumulated
Additional Share Other During The
Common Shares Paid In Subscriptions Comprehensive Development
Shares Amount Capital Receivable Income (loss) Stage Total
$ $ $ $ $ $
Balance Forward. . . . . . 18,013,110 18,013 3,431,774 - - (3,030,463) 419,324
Issue of common shares
for debt settlements:
At $.20/share. . . . . . . 201,250 202 40,048 - - - 40,250
At $.25/share. . . . . . . 423,200 423 105,377 - - - 105,800
Issue of common shares
for services
at $.2339/share . . . . 1,010,000 1,010 235,229 - - - 236,239
Foreign currency
translation . . . . . . - - - - 21,491 - 21,491
Net loss for the year
ended
December 31, 1999 . . . - - - - - (572,477) (572,477)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance,
December 31, 1999
(unaudited) . . . . . . 19,647,560 19,648 3,812,428 - 21,491 (3,602,940) 250,627
Issue of common shares
for cash at $.08/share. 500,000 500 39,500 - - - 40,000
Issue of common shares
for debt settlements
at $.08/share. . . . . . . 4,100 4 324 - - - 328
at $.10/share. . . . . . . 871,006 871 86,230 - - - 87,101
Foreign currency
Translation . . . . . . - - - - (12,225) - (12,225)
Net loss for the year
ended
December 31, 2000 . . . - - - - - (191,511) (191,511)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance,
December 31, 2000 . . . 21,022,666 21,023 3,938,482 - 9,266 (3,794,451) 174,320
Issue of common shares
for cash at $.08/share. 300,000 300 23,700 - - - 24,000
Issue of common shares
for debt settlement
at $.08/share. . . . . . . 250,000 250 19,750 - - - 20,000
at $.10/share. . . . . . . 400,000 400 39,600 - - - 40,000
Transfer agent
Adjustment. . . . . . . 6,000 6 - - - - 6
Foreign currency
translation . . . . . . - - - - (22,381) - (22,381)
Net loss for the year
ended
-------------- ------------ ----------- --------------- --------------- ------------- ----------
December 31, 2001 . . . - - - - - (136,201) (136,201)
Balance,
December 31, 2001 . . . 21,978,666 21,979 4,021,532 - (13,115) (3,930,652) 99,744
Issue of common shares
For cash
at $.05/share . . . . . 320,000 320 15,680 - - - 16,000
Issue of common shares
for debt settlement
at $.10/share. . . . . . . 500,000 500 49,500 - - - 50,000
at $.15/share. . . . . . . 420,000 420 62,580 - - - 63,000
at $.18/share. . . . . . . 100,000 100 17,900 - - - 18,000
Foreign currency
translation . . . . . . - - - - 3,394 - 3,394
Net loss for the year
ended
December 31, 2002 . . . - - - - - (146,207) (146,207)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance,
December 31, 2002 . . . 23,318,666 23,319 4,167,192 - (9,721) (4,076,859) 103,931
25
Deficit
Accumulated Accumulated
Additional Share Other During The
Common Shares Paid In Subscriptions Comprehensive Development
Shares Amount Capital Receivable Income (loss) Stage Total
$ $ $ $ $ $
Balance Forward. . . . . . 23,318,666 23,319 4,167,192 - (9,721) (4,076,859) 103,931
Issue of common shares
for cash
at $.05/share. . . . . . . 1,000,000 1,000 49,000 - - - 50,000
at $.1667/share. . . . . . 30,000 30 4,970 - - - 5,000
Issue of common shares
for debt settlement
at $.05/share. . . . . . . 1,785,334 1,785 87,482 - - - 89,267
at $.10/share. . . . . . . 800,000 800 79,200 - - - 80,000
at $.1667/share. . . . . . 150,000 150 24,850 - - - 25,000
Foreign currency
translation . . . . . . - - - - 68,307 - 68,307
Net loss for the year
ended
December 31, 2003 . . . - - - - - (54,574) (54,574)
-------------- ------------ ----------- --------------- --------------- ------------- ----------
Balance,
December 31, 2003 . . . 27,084,000 27,084 4,412,694 - 58,586 (4,131,433) 366,931
============== ============ =========== =============== =============== ============= ==========
26
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in US dollars)
Accumulated from
March 10, 1989
Year Ended Year Ended (Date of Inception) to
December 31, December 31, December 31,
2003 2002 2003
(Unaudited)
-------------- -------------- ------------------------
CASH FLOWS TO OPERATING ACTIVITIES
Net loss for the period . . . . . . . . . . . . . . . . . . . . $ (54,574) $ (146,207) $ (4,131,433)
Adjustments to reconcile net loss to net cash used in operating
activities:
Expenses settled with issuance of debt. . . . . . . . . . . . . 89,267 90,000 179,267
Services paid by issue of common stock. . . . . . . . . . . . . - - 3,071,182
Amortization. . . . . . . . . . . . . . . . . . . . . . . . . . 21,411 18,978 159,995
Gain on settlement of debt. . . . . . . . . . . . . . . . . . . (99,814) - (99,814)
Changes in operating assets and liabilities:
(Increase) in other receivables . . . . . . . . . . . . . . . . (206) - (1,292)
(Increase) in prepaid expenses. . . . . . . . . . . . . . . . . (2,657) (221) 5,382
Increase in due to related parties. . . . . . . . . . . . . . . 10,471 - 39,248
(Decrease) increase in accounts payable and accrued
liabilities. . . . . . . . . . . . . . . . . . . . . . . . . (5,823) 2,486 88,936
-------------- -------------- ------------------------
Net Cash Used by Operating Activities . . . . . . . . . . . . . (41,925) (34,964) (688,529)
-------------- -------------- ------------------------
CASH FLOWS TO INVESTING ACTIVITIES
Purchase of property and equipment. . . . . . . . . . . . . . . (10,123) (953) (658,202)
-------------- -------------- ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes and advances payable. . . . . . . . . . . . 1,433 18,205 51,777
Proceeds from issuance of common shares . . . . . . . . . . . . 55,000 16,000 1,372,631
-------------- -------------- ------------------------
Net Cash Provided by Financing Activities . . . . . . . . . . . 56,433 34,205 1,424,408
-------------- -------------- ------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH . . . . . . . . . . . . (2,206) 135 (74,986)
-------------- -------------- ------------------------
INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . . 2,179 (1,577) 2,691
CASH, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . 512 2,089 -
-------------- -------------- ------------------------
CASH, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 2,691 $ 512 $ 2,691
============== ============== ========================
NON-CASH FINANCING AND INVESTING ACTIVITIES
Common stock issued for services. . . . . . . . . . . . . . . . $ - $ - $ 3,071,182
Common stock issued for debt. . . . . . . . . . . . . . . . . . $ 194,267 $ 131,000 $ 776,867
Expenses settled with issuance of debt. . . . . . . . . . . . . $ 89,267 $ 90,000 $ 179,267
SUPPLEMENTAL DISCLOSURES
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ - $ -
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . $ - $ - $ -
27
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL SATEMENTS
1. Development Stage Company
The Company was incorporated under the laws of the State of Nevada on November
10, 1996, for the purpose of changing the domicile of the Company from the State
of Delaware to the State of Nevada. This change was approved by the shareholders
of both corporations on November 26, 1997 and effected through a "Plan and
Agreement of Merger" with the surviving corporation being Prime Air, Inc.
(Nevada). The articles of merger were filed with the appropriate State
authorities on December 15, 1997, which became the effective date of the merger.
The Delaware Corporation was incorporated on April 4, 1995, for the purpose of
changing the domicile of the Company from the State of Utah to the State of
Delaware by acquiring all of the assets and liabilities of the Utah Corporation,
and issuing shares of the Delaware Corporation to the shareholders of the Utah
Corporation on a one for one basis. The Utah Corporation was voluntarily
dissolved by the State of Utah on May 18, 1995.
The Utah Corporation was incorporated on August 30, 1993 as Astro Enterprises,
Inc. ("Astro"). On June 28, 1994, pursuant to appropriate shareholder
agreements, the Utah Corporation acquired all outstanding shares of Prime Air
(BC) Inc., a private Canadian corporation ("the Canadian Corporation") in
exchange for shares of its capital stock on a .787796 to 1 basis, thereby
providing the shareholders of the Canadian Corporation with 90% of the
outstanding common shares of Astro. The acquisition was a capital transaction
in substance and therefore was accounted for as a recapitalization of Astro. The
Canadian Corporation was incorporated on March 10, 1989. Astro then changed its
name to Prime Air, Inc., which subsequently was acquired as a wholly owned
subsidiary by the Delaware Corporation, as described above. Prior to the
acquisition, Astro had no principal operations and had nominal net assets.
The Company is a development stage company as defined by Statement of Financial
Accounting Standards ("SFAS") No. 7. In a development stage company, management
devotes most of its activities in developing a market for its products and/or
services. The Company is presently in its developmental stage and currently has
minimal sources of revenue to provide incoming cash flows to sustain future
operations. The Company's present activities relate to the construction and
ultimate exclusive operation of an international passenger and cargo air
terminal facility in the Village of Pemberton, British Columbia; and the
operation of scheduled flight services between that facility and certain major
centers in Canada and the United States in conjunction with Voyageur Airways
Limited. Terminal building construction was substantially completed in May 1996.
The future successful operation of the Company is dependent upon its ability to
obtain the financing required to complete the terminal facility and commence
operations on an economically viable basis. The ability of the Company to emerge
from the development stage with respect to any planned principal business
activity is dependent upon its successful efforts to raise additional equity
financing and/or attain profitable operations. Management believes the Company
will be able to generate sufficient funds to meet its obligations for a period
of at least twelve months from the balance sheet date. There is no guarantee
that the Company will be able to raise any equity financing or sell any of its
services at a profit. There is substantial doubt regarding the Company's ability
to continue as a going concern.
2. Summary of Significant Accounting Policies
a) Basis of Presentation
These consolidated financial statements include the accounts of the Company and
its wholly-owned operating subsidiary, Prime Air Inc. (a Canadian corporation).
All intercompany transactions and balances have been eliminated. The results of
operations and cash flows for the period from the date of inception (March 10,
1989) to December 31, 2003 are presented for information purposes only. These
amounts are unaudited and accordingly no audit opinion has been expressed
relating to these amounts.
b) Year End
The Company's fiscal year end is December 31.
c) Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the periods. Actual results could differ from those estimates.
d) Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three
months or less at the time of issuance to be cash equivalents.
28
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL SATEMENTS
2. Summary of Significant Accounting Policies (continued)
e) Other Comprehensive Income (Loss)
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the
reporting and display of comprehensive loss and its components in the financial
statements. As at December 31, 2003 and 2002, the Company's only component of
comprehensive income (loss) was foreign currency translation adjustments.
f) Property and Equipment
Property and equipment is carried at cost less accumulated amortization.
Amortization is computed on the following methods over the estimated useful life
of the asset at the following annual rates:
Air terminal - Straight-line over 30-year term of land and airport facilities
lease
Furniture and equipment - 20% Declining-balance
Computer equipment - 30% Declining-balance
g) Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long Lived Assets", the carrying value of long-lived assets is reviewed on a
regular basis for the existence of facts or circumstances that may suggest
impairment. The Company recognizes an impairment when the sum of the expected
undiscounted future cash flows is less than the carrying amount of the asset.
Impairment losses, if any, are measured as the excess of the carrying amount of
the asset over its estimated fair value.
h) Foreign Currency Translation
The functional currency of the Company's Canadian subsidiary is the Canadian
dollar. The financial statements of this subsidiary are translated to United
States dollars in accordance with SFAS No. 52 "Foreign Currency Translation"
using period-end rates of exchange for assets and liabilities, and average rates
of exchange for the year for revenues and expenses. Translation gains (losses)
are recorded in accumulated other comprehensive income (loss) as a component of
stockholders' equity. Foreign currency transaction gains and losses are included
in current operations.
i) Revenue Recognition
The Company recognizes revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue Recognition
in Financial Statements." Revenue is recognized only when the price is fixed or
determinable, persuasive evidence of an arrangement exists, the service is
performed, and collectibility is reasonably assured. The Company receives income
from the rental of the air terminal located in Pemberton, BC, Canada.
j) Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with SFAS No.
128, "Earnings per Share" (SFAS 128). SFAS 128 requires presentation of both
basic and diluted earnings per share (EPS) on the face of the income statement.
Basic EPS is computed by dividing net income (loss) available to common
shareholders (numerator) by the weighted average number of shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period including stock options,
using the treasury stock method, and convertible preferred stock, using the
if-converted method. In computing Diluted EPS, the average stock price for the
period is used in determining the number of shares assumed to be purchased from
the exercise of stock options or warrants. Diluted EPS excludes all dilutive
potential shares if their effect is anti dilutive.
k) Stock-Based Compensation
The Company records stock-based compensation in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation". Common stock issued by the Company
for services is recognized as compensation expense based on the fair market
value of the stock award or fair market value of the goods and services
received, whichever is more reliably measurable. The Company does not currently
have a stock option plan.
29
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL SATEMENTS
2. Summary of Significant Accounting Policies (continued)
l) Financial Instruments
The fair values of cash, prepaid expenses, other receivables, notes payable,
advances payable, accounts payable and accrued liabilities were estimated to
approximate their carrying values due to the immediate or short-term maturity of
these financial instruments. The Company's operations are in Canada and
virtually all of its assets and liabilities have exposure to market risks from
changes in foreign currency rates. The financial risk is the risk to the
Company's operations that arise from fluctuations in foreign exchange rates and
the degree of volatility of these rates. Currently, the Company does not use
derivative instruments to reduce its exposure to foreign currency risk.
m) Income Taxes
The Company utilizes the liability method of accounting for income taxes as set
forth in SFAS No. 109, Accounting for Income Taxes ("SFAS 109"). Under the
liability method, deferred taxes are determined based on the temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates. A valuation allowance is recorded when it
is more likely than not that some of the deferred tax assets will not be
realized.
n) Recent Accounting Pronouncements
In December 2003, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 104, "Revenue Recognition" (SAB 104), which supersedes SAB 101,
"Revenue Recognition in Financial Statements." The primary purpose of SAB 104 is
to rescind accounting guidance contained in SAB 101 related to multiple element
revenue arrangements, which was superseded as a result of the issuance of EITF
00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." While
the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the
revenue recognition principles of SAB 101 remain largely unchanged by the
issuance of SAB 104. The adoption of SAB 104 did not have a material impact on
the Company's financial statements.
In January 2003 the FASB issued FIN 46, Consolidation of Variable Interest
Entities ("FIN 46"), which was amended in December 2003. FIN 46 requires an
investor with a majority of the variable interests (primary beneficiary) in a
variable interest entity ("VIE") to consolidate the entity and also requires
majority and significant variable interest investors to provide certain
disclosures. A VIE is an entity in which the voting equity investors do not have
a controlling financial interest or the equity investment at risk is
insufficient to finance the entity's activities without receiving additional
subordinated financial support from the other parties. Development stage
entities that have sufficient equity invested to finance the activities they are
currently engaged in and entities that are businesses, as defined in FIN 46, are
not considered VIE's. The provisions of FIN 46 were effective immediately for
all arrangements entered into with new VIE's created after January 31, 2003. For
arrangements entered into with VIE's created before January 31, 2003, the
provisions of FIN 46 are effective at the end of the first reporting period
ending after March 15, 2004. The Company does not have VIE's.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). The requirements of SFAS No.
150 apply to issuers' classification and measurement of freestanding financial
instruments, including those that comprise more than one option or forward
contract. SFAS No. 150 does not apply to features that are embedded in a
financial instrument that is not a derivative in its entirety. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003, except for mandatory redeemable financial
instruments of non-public entities. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of SFAS No. 150 and still existing
at the beginning of the interim period of adoption. Restatement is not
permitted. The adoption of this standard did not have a material effect on the
Company's results of operations or financial position.
o) Reclassifications
Certain amounts and/or disclosures in the prior year consolidated financial
statements have been reclassified or disclosure revised to conform with the
current year presentation.
30
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL SATEMENTS
3. Property and Equipment
Property and equipment consist of the following at December 31, 2003 and
December 31, 2002:
December 31,
December 31, 2003 2002
--------------------------------- ---------
Accumulated Net Book Net Book
Cost Amortization Value Value
-------- ------------- -------- --------
Air terminal. . . . . . $687,619 $ 181,130 $506,489 $425,493
Computer equipment. . . 1,150 403 747 802
Furniture and equipment 5,550 4,628 922 1,010
$694,319 $ 186,161 $508,158 $427,305
4. Notes and Advances Payable
The notes and advances payable are unsecured, non-interest bearing and are
without specific terms of repayment.
5. Related Party Transactions
a) Included in due to related parties is an amount of $12,846 (2002 -
$11,846), which has been advanced to the Company by a shareholder and/or a
corporation controlled by that shareholder. This shareholder controls 100% of
the related corporation.
b) During the years ended December 31, 2003 and 2002, no cash remuneration
was paid to any director or officer of the Company. The Company records services
provided by related parties at their fair value in the period when the services
are rendered and the obligation is accrued. The Company has adopted the policy
of issuing "restricted" common shares to certain directors and officers for
services rendered. During the year ended December 31, 2003 the Company incurred
$80,000 (2002: $80,000) of consulting expense provided by directors and officers
of the Company. The Company issued a total of 2,400,334 common shares to settle
debt obligations of $160,017, which related to consulting services provided by
these related parties. This amount included 1,200,000 shares issued for services
provided in the prior year. During the year ended December 31, 2002, directors
of the Company received 800,000 common shares by way of a debt settlement
covering obligations of $100,000. The common shares issued were recorded based
on the fair value of the services received.
6. Common Shares
a) During the year ended December 31, 2003, the Company issued 1,000,000
shares of common stock at $0.05 per share for cash proceeds of $50,000 and
30,000 shares of common stock at $0.1667 per share for cash proceeds of $5,000.
b) During the year ended December 31, 2003, the Company issued 185,000
shares of common stock at $0.05 per share, and 150,000 shares of common stock at
$0.1667 per share to creditors to settle debt of $34,250.
c) During the year ended December 31, 2003, the Company issued 800,000
shares of common stock at $0.10 per share to a director of the Company to settle
debt of $80,000, and 1,600,334 shares of common stock at $0.05 per share to
directors of the Company to settle debt of $80,017.
7. Commitments
The Company's wholly owned Canadian subsidiary ("subsidiary") entered into an
Airport Lease and Operating Agreement ("the "Agreement") with The Corporation of
The Village of Pemberton in British Columbia in 1993 whereby it was granted an
exclusive and irrevocable lease over the lands and airport facilities associated
with the Pemberton Airport. The initial lease term commenced on October 29, 1993
and ended on October 31, 1996. The subsidiary exercised its option for
extensions of the Agreement, which currently expires in 2004, however the
Company has two ten-year options for extension available, which require written
notice within six months prior to the expiry of the Extension Term. The Company
plans to file written notice with the Village of Pemberton to exercise the first
10-year option extension.
Rent payable under the Agreement is based on 5% of gross receipts per annum
derived from the operation of the terminal facilities, excluding amounts
received in connection with the sale of airline tickets and other forms of
transportation. The Company paid rent expense of $165 for the year ended
December 31, 2003 (2002: NIL), which represented 5% of gross rental receipts.
The lease commitment amounts for 2003 through 2007 cannot be quantified as the
amount of gross receipts for those years cannot be determined and active
operation of the terminal facilities has not yet commenced. The Company paid
property taxes imposed by municipal authorities amounting to $9,383 for the year
ended December 31, 2003 (2002: $9,859).
The Village of Pemberton, in the event of a material default or bankruptcy by
the Company, may terminate the Agreement. The terminal facilities shall become
the property of the Village of Pemberton at the expiration of the Agreement.
31
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL SATEMENTS
8. Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until
realization is more likely than not. The Company has adopted Statement of
Financial Accounting Standards No. 109 ("SFAS 109") as of its inception. The
Company has incurred net operating losses of approximately $1,444,000, which
expire starting in 2015. Net operating losses in Canada expire after seven
years. Pursuant to SFAS 109 the Company is required to compute tax asset
benefits for net operating losses carried forward. Potential benefit of net
operating losses have not been recognized in these financial statements because
the Company cannot be assured it is more likely than not it will utilize the net
operating losses carried forward in future years.
The components of the net deferred tax asset at December 31, 2003, and the
statutory tax rate, the effective tax rate and the elected amount of the
valuation allowance are scheduled below:
December 31,
2003
$
Net Operating Loss . . 65,000
Statutory Tax Rate . . 35%
Effective Tax Rate . . -
Deferred Tax Asset . . 22,750
Valuation Allowance. . (22,750)
--------------------------------------
Net Deferred Tax Asset -
======================================
9. Subsequent Events
In January, 2004 the Company issued 90,000 shares of common stock to creditors
to settle debt obligations of $6,497.
32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) Previous independent accountants
(i) On March 19, 2004, the Company dismissed Rutherford & Company
Chartered Accountants as the Company's independent accountants.
(ii) Rutherford & Company's reports on the Company's financial
statements as of and for the years ended December 31, 2002, and December 31,
2001, contained no adverse opinions or disclaimers of opinion and were not
modified or qualified as to audit scope or accounting principles, but did not
contain modifications as to the Company's ability to continue as a going
concern.
(iii) The Company's Board of Directors approved the decision to change
independent accountants.
(iv) During the two fiscal years ended December 31, 2002 and December
31,2001, and through the subsequent interim period ended March 19, 2004, to the
best of the Company's knowledge, there have been no disagreements with
Rutherford & Company, Chartered Accountants on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreement if not resolved to the satisfaction of Rutherford
& Company, Chartered Accountants would have caused them to make reference in
connection with its report on the financial statements of the Registrant for
such years.
(v) During the two fiscal years ended December 31, 2002 and December
31, 2001, and through the subsequent interim period ended March 19, 2004,
Rutherford & Company did not advise the Company on any matter set forth in Item
304(a)(1)(iv)(B) of Regulation S-B.
(vi) The Company requested that Rutherford & Company furnish it with a
letter addressed to the SEC stating whether or not it agrees with the above
statements. A copy of such letter was filed as Exhibit 16.1 to the Form 8-K
reporting the event.
(b) New Independent Accountants
On March 19, 2004, the Company engaged Manning Elliot, Chartered
Accountants to audit its financial statements for the year ended December 31,
2003. During the two most recent fiscal years end December 31, 2003 and
December 31, 2002, and through March 19, 2004, the Company did not consult with
Manning Elliot, Chartered Accountants regarding the (1) the application of
accounting principles to a specific transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's financial
statements, and no written report or oral advice was provided to the Company by
concluding there was an important factor to be considered by the Company in
reaching a decision as to an accounting, auditing or financial reporting factor
to be considered by the Company in reaching a decision to an accounting,
auditing or financial reporting issue; or (ii) any matter that was either the
33
subject of a disagreement, as the term is defined in Item 304(a)(1)(iv)(A) of
Regulation S-B or an event, as that term is defined in Item 304(a)(1)(iv)(B) or
Regulation S-B.
ITEM 8A. CONTROLS AND PROCEDURES.
We carried out an evaluation, under the supervision and with the
participation of the our management, including our Chief Executive Officer and
Chief Financial Officer, about the effectiveness of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures as of the end of the period covered by this
Form 10-KSB are effective in timely alerting them to material information
required to be included in this Form 10-KSB.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS
Set forth below is the background of the executive officers and directors
for at least the past five years of the Company.
The directors and executive officers of the Company as of December 31, 2003 are
as follows:
Name Age Position
----------------- --- ---------------------------------
Blaine Haug . . . 56 Chief Executive Officer, Chairman
Wayne Koch (1). . 53 Treasurer and Director
Nigel Horsley (2) 56 VP Communications
John Eberhard . . 61 Director
Greg Duffy. . . . 49 Director
(1) Mr. Wayne Koch resigned as a director and as an officer effective March
19, 2004.
(2) Mr. Nigel Horsley resigned as a director on June 7, 2004.
BLAINE HAUG has served as the Company's Chief Executive Officer and Chairman of
the Board since 1997. Mr. Haug is a founding director of the company. Mr.
Haug, an Airline Transport Pilot rated (Transport Canada) and Federal Aviation
Administration (FAA) equivalent for over twenty years, has flight experience in
propeller and jet aircraft and over 7,000 hours of flying time. Background
includes education in mechanical engineering. From March 1980 through December
1986, Mr. Haug was with Air Alberta, based in Red Deer, Alberta, as General
Manager and Chief Pilot, where he directed the turnaround of the company. Prior
to this he was self-employed for ten years as an aircraft broker.
34
WAYNE KOCH - serves as Treasurer and Director of Prime Air, Inc. For at least
the past five years, Mr. Koch has been principal of Koch & Associates, Certified
Management Accountants, a public accounting practice (established 1987) serving
a large number of individual, small business and non-resident clients. He also
provides accounting services to the Company as a consultant. Previous
experience includes several years as Controller of a diversified property
development company; Managing Director of a Whistler based property management
and accommodation company; lecturer at the British Columbia Institute of
Technology; Supervisor, Budgets and Program Administration, Airports Branch -
Pacific Region, Transport Canada; Systems Design Consultant within the
Government of Canada, Department of Supply and Services, Ottawa, Ontario. Mr.
Koch resigned as a director and executive officer of the Company on March 19,
2004.
R. NIGEL M. HORSLEY - Director. For at least the past five years Mr. Horsley
has been involved in investor relations, with an extensive background in print
and broadcast media, both in the UK and Canada including IRN in London and CKVU
TV as an Executive Producer in Vancouver. He has worked for more than a decade
in PR, mostly in high technology, including two years with Hill & Knowlton.
Currently, he is also a director of RailPower Technologies Corp. (TSX V: P). He
is also a former Vice President with General Hydrogen Corporation. Mr. Horsley
resigned on June 7, 2004.
JOHN EBERHARD, QC - Director. For at least the past five years, Mr. Eberhard
has been a practising lawyer, although not on a full-time basis. He is also a
former Crown Prosecutor, Judge on the Civil Aviation Tribunal. Mr. Eberhard has
also served as Chief Administrative Officer of the Canadian Rotary Committee for
International Development (CRCID) since 2000.
GREG DUFFY - Director. Since 1994, Mr. Duffy has served as Comptroller and
General Manager of Welcome Ford Sales, Fort Saskatunewan, Alberta, Canada, a
Ford car dealership.
DR. ALBERT BRUNO - Director since March 19, 2004. Dr. Bruno DC is a graduate
of the Palmer College of Chiropractic. In private practice since 1990, Dr. Bruno
operates a chiropractic practice and consulting business in Seattle, WA. He is
licensed in both Washington and Pennsylvania. Utilizing his business experience,
he assists in the start-up of new chiropractic clinics and the restructuring of
multi-clinic operations. Dr. Bruno has been actively involved with Prime Air
for the past 9 years as a consultant.
CHRISTOPHER BENSON - Director since June 7, 2004. For at least the past five
years, Mr. Benson has been a practicing real estate and business lawyer in the
states of Washington and Arizona. Mr. Benson represents numerous pilots and has
gained extensive working knowledge of a wide range of airport operation matters
ranging from public to private airports through his cases and the experts
involved. Mr. Benson is currently on the Board of Directors for Habitat for
Humanity, Seattle-South King County and for the past 12 years has taught
Washington State Certified Real Estate Law classes for continuing education
credits to real estate brokers, appraisers and surveyors.
35
ITEM 10. EXECUTIVE COMPENSATION
The Company, including Prime Air BC, had one employee as of December 31,
2003, consisting of Mr. Haug.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
----------------------------------------- ------------------------------------------------
Awards Payout
----------------------- -------
Restricted Securities LTIP All Other
Other Annual Stock Underlying Payout Compensation
Year Salary Bonus ($) Compensation ($) Award(s) Options (#) ($) ($)
---- ------- --------- ---------------- ----------- ----------- ------ -------------
Blaine Haug 2003 $ 0 -0- -0- 400,000 (1) -0- -0- -0-
President . 2002 $ 0 -0- -0- 400,000 (1) -0- -0- -0-
* . . . . . 2001 $ 0 -0- -0- 400,000 (1) -0- -0- -0-
(1) Mr. Haug receives 400,000 shares of the Company common stock for his
services. In addition he is reimbursed for expenses he incurs in the course of
performing his duties for the Company. Mr. Haug currently has no employment
agreement.
OPTION GRANTS IN 2003
The Company made no stock option grants during calendar year 2003.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND TEN-YEAR OPTIONS/SAR
REPRICINGS
There was no repricing of options for the fiscal year ended December 31,
2003.
FISCAL YEAR END OPTION VALUES
There are no options outstanding.
DIRECTOR FEES
During the year ended December 31, 2003, Messrs. Haug, Koch, Eberhard, and
Horsley each earned $5,000 for director services as determined by the Board.
These fees were paid through the issuance of common shares at a value of $.05
per share in 2003.
COMPENSATION PLAN TABLE
No compensation plan table has been provided since the Company has never
issued options for compensation.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Because the Company is not registered under Section 12 of the Exchange Act,
it is not subject to the reporting requirements under Section 16(a).
36
CODE OF ETHICS
Due to limited resources, the Company has not yet adopted a code of ethics.
The Company has recently engaged new corporate counsel who will assist the
Company in drafting and adopting a code of ethics.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of March 31, 2004 to (i) each person
who is known by the Company to own beneficially more than five percent (5%) of
the outstanding shares of its Common Stock, (ii) each director of the Company,
(iii) each of the Named Executive Officers and (iv) all directors and executive
officers as a group. This table is based on information provided to us or filed
with the Securities and Exchange Commission by the Company's directors,
executive officers and principal shareholders. Except as otherwise indicated,
the Company believes that the beneficial owners of the shares listed below have
sole investment and voting power with respect to such shares, subject to
community property laws. The Company does not know of any arrangements,
including any pledge by any person of securities of the Company, the operation
of which may at a subsequent date result in a change of control of the Company.
Five Percent Shareholders, Directors Common Stock Percentage
and certain Executive Officers Beneficially Owned Owned
------------------------------------- ------------------- -----------
Blaine Haug . . . . . . . . . . . . . 5,228,547 (1) 19.2%
------------------------------------- ------------------- -----------
Dr. Albert Bruno. . . . . . . . . . . 0 0
------------------------------------- ------------------- -----------
Nigel Horsley . . . . . . . . . . . . 100,000 .4%
------------------------------------- ------------------- -----------
John Eberhard . . . . . . . . . . . . 395,340 1.5%
------------------------------------- ------------------- -----------
Greg Duffy. . . . . . . . . . . . . . 94,720 0.3%
------------------------------------- ------------------- -----------
All directors and current executive
officers as a group (5 persons) . . . 5,818,607 21.4%
------------------------------------- ------------------- -----------
(1) Includes shares held by a trust under Mr. Haug's control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the years ended December 31, 2003 and 2002, certain officers and
directors received common stock for their services or consulting services. In
addition, an entity that may be deemed an affiliate of an officer and director
of the Company has lent funds to the Company for its operations. However, the
amount in value for each transaction did not exceed $60,000.
37
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits.
The following is a list of all exhibits filed as part of this Report:
Exhibit Number Name
-------------- -------------------------------------------------------------------------
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-4 filed with the Commission on
June 2, 1997)
3.2 Bylaws (Incorporated by reference to Exhibit 3.1 to Registration
Statement on Form S-4 filed with the Commission on June 2, 1997)
10.1 Airport Lease and Operating Agreement (Incorporated by reference to
Exhibit 10.1 to Registration Statement on Form S-4 filed with the
Commission on June 2, 1997)
10.2 Employment Agreement with Blaine Haug (Incorporated by reference
to Exhibit 10.2 to Registration Statement on Form S-4 filed with the
Commission on June 2, 1997)
10.3 Memorandum Agreement with Voyager Airways (Incorporated by
reference to Exhibit 10.5 to pre-effective Amendment No. 2 to
Registration Statement on Form S-4 filed with the Commission on
September 26, 1997)
10.4 Addendum to Haug Employment Agreement (Incorporated by
reference to Exhibit 10.6 to pre-effective amendment no. 1 to
Registration Statement on Form S-4 filed with the Commission on
August 6, 1997)
10.5 Memorandum of Understanding with Galvin Flying Service, Inc.
(Incorporated by reference to Exhibit 10.5 to Form 10-QSB for the
nine months ended September 30, 2003 filed with the Commission on
May 6, 2004.)
16.1 Letter regarding change in Certifying Accountants (incorporated to
Form 8-K filed with the Commission on April 1, 2004.)
31.1 CEO certification under Section 302 of Sarbanes-Oxley Act
31.2 CFO certification under Section 302 of Sarbanes-Oxley Act
32.1 CEO and CFO Certifications under Section 906 of Sarbanes-Oxley Act
(b) Reports on Form 8-K.
None
38
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Manning & Elliot served as the Company's independent accountants for the
fiscal year ended December 31, 2003, and during the course of that fiscal year
they were not engaged by the Company to provide certain non-audit services.
During the year ended December 31, 2003 and 2002, the following fees were paid
for services provided by Manning & Elliot and Rutherford & Company,
respectively.
Audit Fees. The aggregate fees paid for the annual audit of financial
statements included in the Company's Form 10-KSB for the years ended December
31, 2003 and 2002 and the review of the Company's quarterly reports for such
years, amounted to approximately $6,000 to Manning & Elliott and $7,323 to
Rutherford & Company, respectively.
Audit Related Fees. For the years ended December 31, 2003 and 2002, the
Company paid no fees to Manning & Elliott or Rutherford & Company related to
other audit related fees.
Tax Fees. For the years ended December 31, 2003 and 2002, the Company paid
no fees to Manning & Elliott nor Rutherford & Company related to tax fees.
All Other Fees. For the years ended December 31, 2003 and 2002, the
Company did not pay Manning & Elliott nor Rutherford & Company for any non-audit
services.
The Company does not have an audit committee. Prior to engaging the Company's
Independent auditors, the board of directors will review and approve the scope
of the engagement and any other services proposed to be offered by the Company's
Independent accountants. During the years ended 2003 and 2002, the Company did
not engage its Independent accountants to perform services as set for in Items
9(e)(2) and 9(e)(4) of Schedule 14A.
39
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this Annual Report on Form 10-KSB to be signed on
its behalf by the undersigned, thereunto duly authorized.
Prime Air, Inc.
June 16 2004 By: /s/ Blaine Haug
-----------------------------------------
Blaine Haug
Chairman of the Board and Chief Executive Officer
(Principal Executive and Principal Financial and
Accounting Officer)
In accordance with the Exchange Act, this Annual Report has been
signed below by the following persons on behalf of the Registrant and of the
corporations and on the dates indicated:
Date: June 16, 2004 /s/ Blaine Haug
----------------------------
Blaine Haug, Director
Date:
------------- ----------------------------
John Eberhard, Director
Date: June 17, 2004 /s/ Greg Duffy
----------------------------
Greg Duffy, Director
Date: June 17, 2004 /s/ Albert Bruno
----------------------------
Albert Bruno, Director
Date: June 18, 2004 /s/Christopher Benson
----------------------------
Christopher Benson, Director
40