Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
AMENDMENT NO. 1
(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, 1997
[ ] 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 APPLIED FOR
State or other jurisdiction of I.R.S. Employer I.D. No.
incorporation or organization
8598 112 STREET, FT. SASKATCHEWAN, ALBERTA, CANADA T8L 3V8
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (403) 998-3400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
None N/A
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. (1) Yes [X
] No [ ] (2) 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. [X]
State issuer's revenues for its most recent fiscal year: -0-
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days: The aggregate market value of the voting stock held
by non-affiliates of the Registrant computed by using the closing sale price
on April 13, 1998, was $1,282,155.
State the number of shares outstanding of each of the Issuer's classes of
common equity as of the latest practicable date: At April 13, 1998, there were
8,282,155 shares of the Registrant's Common Stock outstanding.
Documents Incorporated by Reference: Exhibits from the Registrant's
registration statement on Form S-4 and from prior periodic reports are
incorporated by reference into Item 13 of Part III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Prime Air, Inc. (the "Company") 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.
The Company is the parent of a wholly owned 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." for the purpose of establishing air service to serve
the Whistler, British Columbia, Canada, area. 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.
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.
In June 1994 the Utah Corporation originally incorporated as Astro
Enterprises, Inc. entered into an agreement with Prime Air (BC) which
agreement was designated as a "Merger Agreement." Pursuant to the terms of
this Agreement the shareholders of Prime Air (BC) exchanged all of the
outstanding shares of Prime Air (BC) 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. 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, believe 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.
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.
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 to enable Prime Air (BC) to undertake the planning, development,
construction, management, and operation of a terminal facility.
The Pemberton Airport is approximately 20 miles north of Whistler Resort
on Highway 99. 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 6,800
permanent residents and attracts approximately 1,500,000 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.
The Airport Agreement provides 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 11,200 square feet, of which approximately 5,500 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 $644,740 ($592,949 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
$2,500 per year thereafter, plus 5% of the gross receipts derived from the
operation of the terminal facility. 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.
Air Service
Prime Air (BC) initially intends to establish scheduled and charter
passenger and cargo air service between Vancouver International Airport and
Pemberton Airport. Thereafter, Prime Air (BC) will seek to establish such
services between Pemberton Airport and other Canadian and United States
destinations. 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,
and thereafter from other Canadian and United States locations, 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 provide the certifications, authorizations, expertise,
facilities, personnel, and resources necessary to operate, maintain and
service the aircraft. The parties intend to negotiate and enter into a
definitive agreement prior to commencing operations.
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. 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.
Voyageur will conduct all in-flight operations as an independent
contractor to Prime Air (BC). Management of Prime Air (BC) believes that
Voyageur meets all of the criteria set forth above.
Voyageur will be responsible for the carriage of full flight and ground
risk insurance including aircraft hull and passenger and third party liability
for the operations conducted by Voyageur. Prime Air (BC) will be responsible
for insuring the terminal building and property at the Pemberton Airport and
for passenger liability at the airport terminal operation.
Voyageur will be responsible for any environmental damage caused by the
operation and maintenance of its aircraft. Prime Air (BC) will be responsible
for any environmental damage caused by the operation and maintenance of its
aircraft.
Marketing
Prime Air (BC) intends to hire two industry professionals to spearhead
its sales drive by making direct sales calls to key tour wholesalers and
operators, attending travel, ski, and golf shows, and calling on connector
airlines and hotel groups. Particular emphasis will be placed on targeting
certain geographic regions which traditionally provide the greatest number of
visitors to Whistler. Management believes also that a major part of the
marketing strategy will involve seeking a major international airline and
negotiating Whistler as a final destination in their ticketing and
reservations.
Competition
Prime Air (BC) will compete with other charter and airline companies
based in the Vancouver and Seattle area which currently service customers
whose final destination is Whistler Resort. To a limited degree the company
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 two employees as of December 1,
1997, consisting of Mr. Smith and Mr. Haug who were employed part-time.
ITEM 2. DESCRIPTION OF PROPERTY
In addition to the Pemberton Airport facility described above, the
Company maintains its principal executive offices at facilities shared with
the business of the President of the Company, which facilities are furnished
at no cost to the Company.
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. Management of the Company
does not believe that there are any material proceedings to which any
director, officer or affiliate of the Company, or its subsidiary, any owner of
record of beneficially of more than 5 percent of the Common Stock of the
Company, or any associate of any such director, officer, affiliate of the
Company, or its subsidiary, or security holder is a party adverse to the
Company, or it subsidiary, or has a material interest adverse to the Company,
or it subsidiary.
In December 1994 the U.S. Securities and Exchange Commission filed a
complaint in the United States District Court for the District of Columbia
(Case Number 1:94CV02633) against an entity known as "Astro Enterprises,
Inc.," and against Ernst Hiestand, Thomas Hiestand, Elizabeth Kuriger, Henry
Strubin, Peter Thaler, and Leonard Gotshalk, all of whom were allegedly
affiliated with such entity. The basis for such complaint was the
dissemination to the public from approximately March 1989 through May 1990, of
false and misleading information concerning the business of such entity. The
entity referenced in such action was incorporated in the State of Utah on May
23, 1985, and was involuntarily dissolved on May 1, 1990, for failure to file
an annual report with the State of Utah. In 1995 Mr. Paul Parshall executed a
consent and settlement of the foregoing action, ostensibly as the president,
director, and authorized agent of the entity named in such action. Management
does not believe such action in any way involved the Utah Corporation which
was subsequently incorporated under the same name on August 30,1993, and which
subsequently changed its name to Prime Air, Inc. and changed its domicile to
the State of Delaware. Management does not believe there is or was any legal
relationship between the "Astro Enterprises, Inc." incorporated on May 23,
1985, and the "Astro Enterprises, Inc." which was incorporated in 1993 and was
the predecessor to the Company. In addition, management does not believe that
Mr. Parshall was authorized to execute such consent on behalf of either
entity. Management is unaware whether Mr. Parshall ostensibly executed such
consent on behalf of the original Astro Enterprises, Inc. or the predecessor
to the Company. However, the allegations contained in such action reference
events all of which occurred prior to the incorporation of the predecessor to
the Company in 1993.
In May 1996 the Company entered into a settlement agreement and
undertaking with the Alberta Securities Commission (file number 100164) in
which the Company agreed to be more diligent in complying with the
requirements of the Alberta Securities Act and the rules made thereunder. In
addition, the Company paid $2,000 to the commission toward the costs of the
investigation conducted by the Commission. In February 1996 the Company
announced an offering of its common shares in Alberta newspapers. Between
February 1 and March 1, 1996, the Company received $93,040 from fifteen
investors in Alberta. The investors received an offering document which did
not conform with the form of an offering memorandum required pursuant to the
Alberta Securities Act and the distribution to the investors did not qualify
for an exemption under such act. Upon being contacted by the staff of the
securities commission, the Company placed all investment monies in trust
pending the disposition of the matter. Thereafter the Company sent an
offering memorandum in the required form and an offer of rescission to all of
the investors. After the return of monies to investors who either did not
qualify for an exemption or who elected rescission, and the filing of a proper
report with the securities commission, no further action was taken by the
securities commission.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On November 26, 1997, the Company held a special meeting of shareholders
to vote upon the merger of the Delaware corporation into the Nevada
corporation for purposes of changing the domicile of the Company from the
State of Delaware to the State of Nevada. The number of shares which voted
for the proposal was 4,028,417, the number of shares which voted against the
proposal was 50, and the number of shares which withheld authority to vote was
none. There were 70 shares which abstained and no broker non-votes.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company was quoted on the OTC Electronic Bulletin
Board through approximately July 23, 1996, and from March 27, 1997 until
present. There is currently no established public trading market for the
Common Stock. The table below sets forth for the periods indicated the high
and low bid quotations as reported by the OTC Bulletin Board. These
quotations reflect inter-dealer prices, without retail market-up, mark-down,
or commission and may not necessarily represent actual transactions.
Quarter High Low
FISCAL YEAR ENDED
DECEMBER 31, 1996 First $0.50 $0.25
Second $0.9375 $0.4375
Third $0.75 $0.25
Fourth -- --
FISCAL YEAR ENDED
DECEMBER 31, 1997 First $0.25 $0.25
Second $1.125 $0.25
Third $0.812 $0.25
Fourth $0.6875 $0.28125
FISCAL YEAR ENDING
DECEMBER 31, 1998 First $0.6875 $0.3125
None of the shares of Common Stock is subject to outstanding options or
warrants to purchase, or securities convertible into, the Common Stock of the
Company. As of April 13, 1998, the Company had 4,203,601 shares of its Common
Stock, or approximately 50.75% of the total outstanding shares, which were
control shares as defined in Rule 144 promulgated by the U.S. Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended. None
of the shares of Common Stock is being, nor have any shares been proposed to
be, publicly offered by the Company.
As of April 13, 1998, there were approximately 368 holders of record of
the Common Stock as reported to the Company by its transfer agent.
No cash dividends have been declared or paid as yet on the Common Stock
and the Board of Directors has not established a dividend policy.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company is a development stage company and conducts all operations
through its wholly owned subsidiary, Prime Air (BC). The Company has had no
material revenues in the past. During the year ended December 31, 1997, the
only income received was bank interest of $4,020.
During the last three years, the operations of the Company have been
funded from equity participation of the owners. Total cash raised from equity
funding from March 1992 to December 31, 1994 was $349,808, $131,755 for 1995
and $756,763 for 1996. No funds were raised during 1997, but the Company did
convert $130,751 into common stock of the Company.
The Company has realized a cumulative loss of $828,919 since March 1992,
and anticipates similar losses until operations begin, which is expected in
late 1998.
The Company has sufficient working capital to meet its immediate
obligations, but does not have any cash available to allow operations to
commence. The Company intends to use the net proceeds of this offering to
commence its principal operations. No significant purchases of equipment,
other than outlined above, are anticipated in the next year. See "Use of
Proceeds."
Prime Air (BC)'s sole fixed obligation is the payment of $CND100 per
annum to the Village of Pemberton under the terms of its Airport Lease and
Operating Agreement. At present the company also expects to pay an additional
$50,000 in the current year to cover legal fees, insurance, and property
taxes, regardless of the date of operations commencement.
Should operations commence during the next twelve months, the Company
expects to hire approximately seven employees to handle terminal operations
and marketing.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are attached to this annual
report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On February 27, 1998, the Company engaged Rutherford & Company, Chartered
Accountants, as independent auditors of the Company for the year ended
December 31, 1997. The decision to retain Rutherford & Company, and not to
re-engage Orton & Company, the former independent auditor, was made by the
Board of Directors on such date. The decision not to re-engage Orton &
Company did not involve a dispute with the Company over accounting policies or
practices. The report of Orton & Company on the Company's financial
statements for the year ended December 31, 1996, did not contain an adverse
opinion or disclaimer of opinion, nor was it modified as to uncertainty, audit
scope, or accounting principals. In connection with the audit of the
Company's financial statements for such year ended December 31, 1996, there
were no disagreements with Orton & Company on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to the satisfaction of Orton & Company, would
have caused such firm to make reference to the matter in its report. Neither
the Company, nor anyone on its behalf, has consulted Rutherford & Company
regarding the application of accounting principles to a specific completed or
contemplated transaction, or the type of audit opinion that might be rendered
on the Company's financial statements, and neither written nor oral advice was
provided by Rutherford & Company that was an important factor considered by
the Company in reaching a decision as to any accounting, auditing, or
financial reporting issue.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The officers and directors of the Company are as follows:
NAME AGE POSITIONS DIRECTOR SINCE
Blaine Haug 50 Chairman 1994
Royle Smith 48 President --
John Eberhard 53 Secretary and Director 1995
Gregory Duffy 39 Treasurer --
The officers and directors of the subsidiary, Prime Air (BC), are as
follows:
NAME AGE POSITIONS DIRECTOR SINCE
Blaine Haug 50 President and Director 1989
Richard T.
Shrieves 43 Secretary and Director 1992
Set forth below is the business experience and biographical information
on each of the executive officers and directors of the Company and Prime Air
(BC):
BLAINE HAUG has been employed as the general manager of the Company since
1989. Mr. Haug currently holds an airline transport pilot license first
issued in 1978 by Canada.
ROYLE SMITH has been the president of Welcome Ford Sales Ltd., a Ford
dealership located in Edmonton, Alberta, Canada, since 1981.
JOHN EBERHARD has operated his own law practice in London, Ontario,
Canada, since 1973, and is a member of the Canadian Bar Association. He is
also a member of the Law Association of Upper Canada, Middlesex Law
Association, Association of Transportation Practitioners (U.S.A.),
Lawyer-Pilot Bar Association (U.S.A.-Canada). Mr. Eberhard graduated in 1966
with a bachelor of arts degree and in 1969 with a law degree from the
University of Western Ontario.
GREGORY DUFFY has been employed as general manager of Welcome Ford Sales
Ltd. since 1991.
RICHARD T. SHRIEVES has practiced law since 1980.
There are no known arrangements or understandings between any of the
foregoing individuals and any other person pursuant to which he or she was
elected as a director.
No remuneration was paid to the incumbent directors by the Company during
1996, except for reimbursement of out-of-pocket expenses incurred by such
individuals on behalf of the Company.
There are no arrangements known to management the effect of which would
result in a change of control of the Company, nor has such a change of control
occurred during 1997.
Compliance with Section 16(a) of the Exchange Act:
The Company's common stock is not registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended, and therefore no disclosure
is required pursuant to this item.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate executive compensation
earned by or paid to the named executive officers by any person for all
services rendered in all capacities to the Company for the fiscal years ended
December 31, 1995, 1996, and 1997:
Name and Principal Position Year Restricted Stock Awards
Blaine Haug 1995 -0-
Chairman 1996 $62,500(1)
1997 $50,000(2)
Royle Smith 1995 -0-
President 1996 $173,438(3)
1997 $62,500(4)
(1)These shares were issued to Mr. Haug as remuneration for management
fees for 1996. For purposes of this table only, the valuation of the 200,000
shares of restricted stock is based upon the market value of the stock which
was approximately $0.3125 on March 18, 1996, the date of the award. The value
of these shares is based solely upon the closing bid price of the shares on
such date. No dividends have been paid on these shares. Notwithstanding the
valuation of the shares for purposes of this table, the Board of Directors
valued the shares at a significant discount of the market value at the time of
award based upon the limited trading volume of market shares, the relatively
short operating history of the company and the risks associated therewith, the
limited cash resources of the Company, and as an incentive to retain the
continued services of this party.
(2)These shares were issued to Mr. Haug as remuneration for management
fees for 1997. For purposes of this table only, the valuation of the 200,000
shares of restricted stock is based upon the market value of the stock which
was approximately $0.25 on April 3, 1997, the date of the award. The value of
these shares is based solely upon the closing bid price of the shares on such
date. No dividends have been paid on these shares. Notwithstanding the
valuation of the shares for purposes of this table, the Board of Directors
valued the shares at a significant discount of the market value at the time of
award based upon the limited trading volume of market shares, the relatively
short operating history of the company and the risks associated therewith, the
limited cash resources of the Company, and as an incentive to retain the
continued services of this party.
(3)Of these shares, 100,000 were issued to Mr. Smith on January 9, 1996,
for accepting the office of Executive Vice-President; 300,000 were issued to
him on January 9, 1996, for consulting fees regarding the completion of the
Pemberton Airport terminal facility; 200,000 were issued to him on March 18,
1996, as remuneration for management fees for 1996; and 25,000 were issued to
Welcome Ford Sales Ltd., a company controlled by him, on March 29, 1996, for
administration fees rendered regarding the completion of the Pemberton Airport
terminal facility. The valuation of 100,000 and the 300,000 shares of the
restricted shares is based upon the market value of the stock which was
approximately $0.25 on January 9, 1996, the date of the award; the valuation
of 200,000 shares of the restricted shares is based upon the market value of
the stock which was approximately $0.3125 on March 18, 1996, the date of the
award; and the valuation of 25,000 shares of the restricted shares is based
upon the market value of the stock which was approximately $0.4375 on March
29, 1996, the date of the award. The aggregate value of these shares is based
solely upon the closing bid price of the shares on such dates. No dividends
have been paid on these shares. Notwithstanding the valuation of the shares
for purposes of this table, the Board of Directors valued the shares at a
significant discount of the market value at the time of award based upon the
limited trading volume of market shares, the relatively short operating
history of the company and the risks associated therewith, the limited cash
resources of the Company, and as an incentive to retain the continued services
of this party.
(4)Of these shares, 100,000 were issued to Mr. Smith on April 3, 1997,
and another 100,000 were issued on June 18, 1997, as remuneration for
management fees for 1997. The valuation of 100,000 awarded on April 3, 1997,
is based upon the market value of the stock which was approximately $0.25 on
such date, and the valuation of other 100,000 shares is based upon the market
value of the stock which was approximately $0.375 on June 18, 1997, the date
of the award. The aggregate value of these shares is based solely upon the
closing bid prices of the shares on such dates. No dividends have been paid
on these shares. Notwithstanding the valuation of the shares for purposes of
this table, the Board of Directors valued the shares at a significant discount
of the market value at the time of award based upon the limited trading volume
of market shares, the relatively short operating history of the company and
the risks associated therewith, the limited cash resources of the Company, and
as an incentive to retain the continued services of this party.
Blaine Haug has a written employment agreement with the Company to act as
assistant general manager of the company and which covers any and all services
performed by him for the Company or any of its wholly or majority owned
subsidiaries. Mr. Haug will devote all of his time to the affairs of the
Company and its subsidiary under this agreement. The agreement provides that
the Company will pay him $100,000 US per annum, payable in cash or in common
stock of the company at a price of $0.50 per share for the year ended
December 31, 1996, and for future years at a price mutually agreed by the
parties. The agreement expressly states that Mr. Haug will exercise the share
option payment for 1996. Therefore, the Company issued 200,000 shares of
Common Stock to Mr. Haug in lieu of any cash compensation for 1996. Mr. Haug
is also to receive reimbursement for all out-of-pocket expenses incurred in
connection with his duties; to receive all reasonable travel expenses incurred
in the course of his duties as assistant general manager; and to be permitted
to participate in any profit sharing, deferred compensation, stock
appreciation rights, stock option and other plans and programs adopted by the
company. If Mr. Haug is unable to perform his duties because of illness or
mental or physical disability, he will receive compensation and benefits for
one year. The term of the agreement is from January 1, 1996, through December
31, 2000, renewable by mutual consent for successive five year periods. The
agreement also allows Mr. Haug to provide management services to any other
person, firm, or corporation during the term of the agreement. The Company
may terminate the employment agreement upon 90 days' written notice, but would
be obligated to pay compensation through the remaining term of the agreement.
Mr. Haug may terminate the agreement upon 90 days' written notice but would
only receive compensation through the date of termination. Upon Mr. Haug's
death, his widow or estate would receive compensation for six months from the
date of death. If the employment agreement is terminated by the company
because of illness or mental or physical disability, Mr. Haug would receive
compensation and benefits for six months from such date. Also, the employer
may not amalgamate, merge, or consolidate with another person or corporation
unless such other person or corporation either expressly assumes the agreement
for a term of five years from the closing date or pays Mr. Haug his full
compensation for a term of five years or $500,000. (This provision has been
waived by Mr. Haug for purposes of the Merger.) The employment contract is
deemed to provide personal services by Mr. Haug and therefore, the duties and
obligations of Mr. Haug are not assignable by him, although he is permitted to
assign all or a portion of his compensation. The agreement contains an
indemnity provision which requires the Company to indemnify and save harmless
Mr. Haug, his heirs, successors and legal representatives, from expenses and
costs associated with any action to which he is a party by reason of being or
having been an assistant general manager of the company, if he acted honestly
and in good faith with a view to the best interests of the company, and
otherwise in accordance with the bylaws of the company. The employment
agreement is to be governed by and construed in accordance with the laws of
the Province of British Columbia, and any controversy or claim relating to the
agreement is to be settled by arbitration in accordance with the provisions of
the Arbitration Act of British Columbia.
Royle Smith has a written employment agreement with the Company to act as
general manager of the company and which covers any and all services performed
by him for the Company or any of its wholly or majority owned subsidiaries.
Mr. Smith will devote approximately 75% of his time to the affairs of the
Company and its subsidiary under this agreement. The agreement provides that
the Company will pay him $100,000 US per annum, payable in cash or in common
stock of the company at a price of $0.50 per share for the year ended
December 31, 1996, and for future years at a price mutually agreed by the
parties. The agreement expressly states that Mr. Smith will exercise the
share option payment for 1996. Therefore, the Company issued 200,000 shares
of Common Stock to Mr. Smith in lieu of any cash compensation for 1996. Mr.
Smith is also to receive reimbursement for all out-of-pocket expenses incurred
in connection with his duties; to receive all reasonable travel expenses
incurred in the course of his duties as assistant general manager; and to be
permitted to participate in any profit sharing, deferred compensation, stock
appreciation rights, stock option and other plans and programs adopted by the
company. If Mr. Smith is unable to perform his duties because of illness or
mental or physical disability, he will receive compensation and benefits for
one year. The term of the agreement is from January 1, 1996, through December
31, 2000, renewable by mutual consent for successive five year periods. The
agreement also allows Mr. Smith to provide management services to any other
person, firm, or corporation during the term of the agreement. The Company
may terminate the employment agreement upon 90 days' written notice, but would
be obligated to pay compensation through the remaining term of the agreement.
Mr. Smith may terminate the agreement upon 90 days' written notice but would
only receive compensation through the date of termination. Upon Mr. Smith's
death, his widow or estate would receive compensation for six months from the
date of death. If the employment agreement is terminated by the company
because of illness or mental or physical disability, Mr. Smith would receive
compensation and benefits for six months from such date. Also, the employer
may not amalgamate, merge, or consolidate with another person or corporation
unless such other person or corporation either expressly assumes the agreement
for a term of five years from the closing date or pays Mr. Smith his full
compensation for a term of five years. (This provision has been waived by Mr.
Smith for purposes of the Merger.) The employment contract is deemed to
provide personal services by Mr. Smith and therefore, the duties and
obligations of Mr. Smith are not assignable by him, although he is permitted
to assign all or a portion of his compensation. The agreement contains an
indemnity provision which requires the Company to indemnify and save harmless
Mr. Smith, his heirs, successors and legal representatives, from expenses and
costs associated with any action to which he is a party by reason of being or
having been an assistant general manager of the company, if he acted honestly
and in good faith with a view to the best interests of the company, and
otherwise in accordance with the bylaws of the company. The employment
agreement is to be governed by and construed in accordance with the laws of
the Province of British Columbia, and any controversy or claim relating to the
agreement is to be settled by arbitration in accordance with the provisions of
the Arbitration Act of British Columbia.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information furnished by current
management concerning the ownership of common stock of the Company as of April
1, 1998, of (i) each person who is known to the Company to be the beneficial
owner of more than 5 percent of the Common Stock; (ii) all directors and
executive officers; and (iii) directors and executive officers of the Company
as a group:
Amount and Nature
Name and Address of Beneficial
of Beneficial Owner Ownership(1) Percent of Class
Phillip Johnston 2,408,226(2) 29.08%
PMB7 Hibiscus Square Pond St.
Grand Turk
Turks and Caicos Island, BWI
British West Indies Securities 600,000 7.24%
P.O. Box CB-13926
Nassau, The Bahamas, B.W.I.
Patricia Jarvis 522,705 6.31%
P.O. Box 1056
Renton, WA 98057
Blaine Haug 40,000 *
Royle Smith -0-
John Eberhard 107,670(3) 1.3%
Gregory Duffy 129,000 1.56%
Officers and Directors
as a Group (4 persons) 276,670 3.34%
___________
* Less than 1%
(1)Unless otherwise indicated, this column reflects amounts as to which
the beneficial owner has sole voting power and sole investment power.
(2)Of these shares, 1,469,470 are held directly of record by
Confederation Capital Corporation Ltd., and 938,756 are held directly of
record by Dolphin Trading Ltd.
(3)Of theses shares, 5,000 are beneficially owned directly and of
record by Mr. Eberhard's wife, and 88,000 are held in a brokerage account
controlled by Mr. Eberhard.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the terms of the employment agreement between the Company and
Blaine Haug, an officer and a director of the Company, the Company issued
200,000 shares of common stock of the company to Mr. Haug for services
rendered during the year ended December 31, 1996, and 200,000 shares for
services rendered during the year ended December 31, 1997.
Pursuant to the terms of the employment agreement between the Company and
Royle Smith, an officer and a director of such entity, the Company issued
200,000 shares of common stock of the company to Mr. Smith for services
rendered during the year ended December 31, 1996, and 200,000 shares for
services rendered during the year ended December 31, 1997. In addition, Mr.
Smith was issued 100,000 shares on January 9, 1996, for accepting the office
of Executive Vice-President, and 300,000 shares were issued to him on January
9, 1996, for consulting services. Also, 25,000 shares were issued to Welcome
Ford Sales Ltd., a company controlled by Mr. Smith for administration fees.
On or about January 3, 1996, the Company issued 370,336 shares of common
stock to Confederation Capital Corporation Ltd., a company controlled by Mr.
Phillip Johnston, a shareholder owning in excess of 5% of the outstanding
stock, for previous money loaned to the company. In addition, the Company
issued 94,800 shares to such entity on April 3, 1997, for repayment of
advances of $25,583 made by such entity to the Company.
The Company entered into a consulting contract (the "Consulting
Agreement") on June 10, 1996, with Silverthorn Investments, Ltd. (the
"Consultant") in which the Company agreed to retain the services of the
Consultant through June 1, 2000, unless earlier terminated as provided in the
Consulting Agreement. Pursuant to the terms of the Consulting Agreement, the
Consultant is required to be available for a minimum of 60 business days per
year to provide consulting and assistance as may be necessary to assist in
facilitating the full operations of the Company's business. In return, the
Company has agreed to pay the Consultant $100 per hour for such services. At
the option of the Company 75% of the amount due may be paid to the Consultant
in the form of common stock of the Company, based upon the average of the last
three months closing bid prices for the common shares. The Consultant is
controlled by Matthew Smith who is also the assistant secretary of the
Company.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following financial statements are
included in this report:
Auditors' Report
Comments by Auditor for U.S. Readers
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the fiscal years ended
December 31, 1997 and 1996, and from inception to December 31, 1997
Consolidated Statements of Cash Flows for the years ended December
31, 1997 and 1996, and from inception to December 31, 1997
Consolidated Statements of Stockholders' Equity and Deficit from
inception to December 31, 1997
Notes to Financial Statements
(a)(2) Exhibits. The following exhibits are included as part of this
report:
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
2.1 Plan and Agreement of Merger dated March 10, 1997 *
2.2 Merger Agreement dated June 29, 1994 *
3.1 Articles of Incorporation *
3.2 Articles of Merger dated November 26, 1997 Attached
3.4 Bylaws of the Company *
10.1 Airport Lease and Operating Agreement, as amended *
10.2 Employment Agreement with Blaine Haug *
10.3 Employment Agreement with Royle Smith *
10.4 Consulting Agreement with Siverthorn Investments, Ltd. *
10.5 Memorandum of Agreement with Voyageur Airways *
10.6 Addendum to Haug Employment Agreement *
10.7 Addendum to Smith Employment Agreement *
23 Consent of auditor Attached
*Incorporated by reference from the Company's registration statement
on Form S-4 filed with the Securities and Exchange Commission, file no.
333-28249.
(b) Reports on Form 8-K: A report on Form 8-K dated February 27, 1998,
was filed by the Company under Item 4 in connection with the change of
accountants.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PRIME AIR, INC.
Date: April 15, 1998 By /s/ Royle Smith, President
In accordance with the Exchange Act, this report has been signed below by
the following person on behalf of the registrant and in the capacitates and on
the dates indicated.
Date: April 15, 1998 /s/ John Eberhard, Director
Date: April 15, 1998 /s/ Blaine Haug, Director and Chairman
Date: April 15, 1998 /s/ Gregory Duffy, Chief Financial
Officer
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
(A Nevada Corporation)
Consolidated Financial Statements
December 31, 1997 and 1996
Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity and Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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, 1997 and 1996 and the
consolidated statements of operations, shareholders' equity and deficit and
cash flows for the years 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 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, 1997 and
1996 and the results of its operations and cash flows for the years then ended
in accordance with generally accepted accounting principles.
As reported in Note 1 to these financial statements, the results of
operations and cash flows for the period from the date of inception of this
organization as a development stage company on March 10, 1989 to December 31,
1997 have been compiled from information provided by management. We have not
audited, reviewed or otherwise attempted to verify the accuracy or
completeness of such information. Readers are cautioned that these statements
may not be appropriate for their purposes.
Richmond, Canada
April 4, 1998 Chartered
Accountants
Rutherford & Company
Chartered Accountants
________________________________________________
9511 Bates Road, Richmond, B.C.
CANADA V7A 1E3
Telephone (604)272-5454 Fax (604)272-5874
<PAGE>
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 2 to the financial statements. Our report to
the shareholders dated April 4, 1998 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.
Richmond, Canada
April 4, 1998 Chartered Accountants
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(all figures in US dollars)
December 31 December 31
1997 1996
ASSETS
Current Assets
Cash and short-term
deposits $ 11,388 $ 101,314
Prepaid expenses
and deposit - 12,592
GST recoverable 1,587 51,208
12,975 165,114
Capital Assets (Note 4) 613,516 620,208
$ 626,491 $ 785,322
LIABILITIES
Current Liabilities
Accounts payable
and accruals $ 83,655 $ 158,174
Notes and advances
payable (Note 5) 3,495 9,067
Notes and advances
from related parties
(Note 6) 5,400 25,522
92,550 192,763
SHAREHOLDERS' EQUITY
Capital Stock (Note 7)
Authorized:
50,000,000 common shares with
a stated par value of $.001/share
3,000,000 preferred cumulative
convertible shares with a stated
par value of $.001/share
Issued:
7,140,213 common shares
(1996: 6,556,781) 7,140 6,557
Share subscription receivable (20) (20)
Capital in excess of par value 1,355,740 1,225,244
1,362,860 1,231,781
Accumulated Deficit During
Development Stage (828,919) (639,222)
533,941 592,559
$ 626,491 $ 785,322
Approved on Behalf of the Board:
Director
Director
See Accompanying Notes
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(all figures in US dollars)
Period from
Date of Inception
Year Ended Year Ended on March 10, 1989
December 31 December 31 to December 31
1997 1996 1997
(Unaudited)
(Note 1)
Direct Costs
Flight operations $ - $ 114,720 $ 114,720
Administrative and
General
Audit and accounting 23,826 10,140 50,199
Advertising - 9,017 9,094
Amortization 21,603 21,809 43,718
Automotive - - 19,164
Consulting fees 24,583 7,156 94,368
Insurance 9,240 6,342 15,582
Interest and service
charges 1,769 7,547 9,565
Legal 34,192 25,610 59,802
Management
remuneration - - 77,287
Office and general 10,176 5,728 85,253
Promotion and
entertainment 711 2,702 22,004
Rent 279 2,399 34,603
Telephone and utilities 18,039 14,865 55,561
Transfer agent and
filing fees 13,636 7,149 24,865
Travel 25,464 11,172 55,879
183,518 131,636 656,944
Other Income (Expense)
Gain (loss) on foreign
exchange conversion (10,199) 5,581 14,890
Interest income 4,020 2,359 6,379
(6,179) 7,940 21,269
Net Loss Before
Non-recurring Item (189,697) (238,416) (750,395)
Non-recurring Expense
Consulting costs to
set up US corporation - - (78,524)
Net Loss For Period $ (189,697) $ (238,416) $ (828,919)
Net Loss Per Common
Share $ (0.0275) $ (0.0424)
Weighted Average
Common Shares
Outstanding 6,896,225 5,624,974
See Accompanying Notes
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all figures in US dollars)
Period from
Date of Inception
Year ended Year ended on March 10, 1989
December 31 December 31 to December 31
1997 1996 1997
(Unaudited)
(Note 1)
NET INFLOW (OUTFLOW) OF
CASH RELATED TO THE
FOLLOWING ACTIVITIES:
OPERATING
Net loss $ (189,697) $ (238,416) $ (828,919)
Non-cash charge -
amortization 21,603 21,809 43,721
(168,094) (216,607) (785,198)
Change in non-cash
working capital
balances relating
to operations (12,306) (118,373) 82,068
(180,400) (334,980) (703,130)
FINANCING
Notes and advances
payable (5,572) 5,425 3,495
Notes and advances
from related parties (20,122) (2,822) 5,400
Issue of capital stock 131,079 756,763 1,362,860
105,385 759,366 1,371,755
INVESTING
Acquisition of capital
assets (14,911) (327,647) (657,237)
NET CASH INFLOW (OUTFLOW) (89,926) 96,739 11,388
CASH, BEGINNING OF PERIOD 101,314 4,575 -
CASH, END OF PERIOD $ 11,388 $ 101,314 $ 11,388
See Accompanying Notes
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity and Deficit
(all figures in US dollars)
Capital in Accumulated
Excess of Share Deficit During
Common Shares (Less than) Subscriptions Development
Shares Amount Par Value Receivable Stage
Balance at
Inception on
March 10,
1989 - $ - $ - $ - $ -
Issue of
common
shares for
cash at
$.001/share 630,237 630 - - -
Net loss
for the year
ended
March 31,
1990 - - - - (17,956)
Balance,
March 31,
1990 630,237 630 - - (17,956)
Issue of
common
shares for
cash at
$.001/share 157,559 158 - - -
Net loss
for the
year ended
March 31,
1991 - - - - (49,419)
Balance,
March 31,
1991 787,796 788 - - (67,375)
Net loss
for the
year ended
March 31,
1992 - - - - (10,990)
Balance,
March 31,
1992 787,796 788 - - (78,365)
Issue of
common
shares for
cash at
$.277/share 132,088 132 36,499 - -
at
$.214/share 17,069 17 3,628 - -
Net loss
for the
year ended
March 31,
1993 - - - - (38,426)
Balance,
March 31,
1993 936,953 937 40,127 - (116,791)
Issue of
common
shares
for services
at nominal
value 92,173 92 (92) - -
Issue of
common
shares for
cash
at
$.001/share 300,000 300 - - -
at
$.109/share 3,340 3 361 - -
at
$.154/share 23,634 24 3,619 - -
at
$.280/share 19,401 19 5,400 - -
at
$.330/share 23,161 23 7,624 - -
at
$.463/share 87,445 88 40,330 - -
at
$.694/share 15,756 16 10,907 - -
at
$.925/share 7,878 8 7,274 - -
Net loss
for the
year ended
March 31,
1994 - - - - (36,272)
Balance,
March 31,
1994 1,509,741 $ 1,510 $ 115,550 $ - $ (153,063)
See Accompanying Notes
<PAGE>
PRIME AIR INC.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity and Deficit
(all figures in US dollars)
Capital in Accumulated
Excess of Share Deficit During
Common Shares (Less than) Subscriptions Development
Shares Amount Par Value Receivable Stage
Balance
Forward 1,509,741 $ 1,510 $ 115,550 $ - $ (153,063)
Issue of
common
shares for
services
at nominal
value 937,478 937 (937) - -
Issue of
common
shares for
cash at
$.374/share 248,692 249 92,697 - -
at
$.463/share 304,089 304 140,286 - -
Net loss
for the
period
ended
June 28,
1994 - - - - (40,947)
Balance,
June 28,
1994 3,000,000 3,000 347,596 - (194,010)
Share
subscription
at
$.367/share - - (7,313) (20) -
Net loss
for the
year ended
December 31,
1994 - - - - (135,530)
Balance,
December 31,
1994 3,000,000 3,000 340,283 (20) (329,540)
Issue of
common
shares for
cash
and/or
services at
an average
of
$.234/share 562,550 563 131,192 - -
Net loss
for the
period
ended
December 31,
1995 - - - - (71,266)
Balance,
December 31,
1995 3,562,550 3,563 471,475 (20) (400,806)
Issue of
common
shares for
cash
at
$.500/share 1,510,558 1,511 753,769 - -
Issue of
common
shares for
services
at nominal
value 1,483,673 1,483 - - -
Net loss
for the
period
ended
December 31,
1996 - - - - (238,416)
Balance,
December 31,
1996 6,556,781 6,557 1,225,244 (20) (639,222)
Issue of
common
shares for
services
at nominal
value 328,000 328 - - -
Issue of
common
shares for
debt
settlements:
at
$.500/share 124,252 124 62,001 - -
at
$.504/share 36,380 36 18,303 - -
at
$.530/share 94,800 95 50,192 - -
Net loss
for the
year
ended
December 31,
1997 - - - - (189,697)
Balance,
December 31,
1997 7,140,213 $ 7,140 $ 1,355,740 $ (20) $ (828,919)
See Accompanying Notes
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. Incorporation, Principles of Consolidation and Accounting
Presentation
The Company was incorporated under the laws of the State of Nevada, USA on
November 10, 1996, the purpose of which was to change 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 date became
the effective date of the merger.
The Delaware corporation was incorporated on April 4, 1996 and acquired all of
the assets, liabilities and shareholders of a previous Utah corporation of the
same name. The Utah corporation had been reincorporated on August 30, 1993 as
Astro Enterprises, Inc.and on June 28, 1994, pursuant to appropriate
shareholder agreements, acquired all outstanding shares of Prime Air Inc. (a
Canadian corporation) in exchange for shares of its capital stock on a .787796
to 1 basis, thereby providing the shareholders of Prime Air Inc. with 90% of
the outstanding capital stock of Astro Enterprises, Inc. Astro Enterprises,
Inc. then changed its name to Prime Air, Inc. Following incorporation of the
Delaware company, the Utah corporation was dissolved on May 15, 1996.
These consolidated financial statements include the accounts of the Company
and its wholly-owned operating subsidiary, Prime Air Inc. (the Canadian
corporation) and have been prepared in accordance with U.S. GAAP standards.
The results of operations and cash flows for the period from the date of
inception of this organization as a development stage company on March 10,
1989 to December 31, 1997 are presented herein for information purposes only.
These amounts are unaudited and accordingly no audit opinion has been
expressed thereon.
1. Nature of Operations / Going Concern Considerations
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 and operationalize the
terminal facility and to commence operation thereof on an economically viable
basis.
These consolidated financial statements have been prepared on a "going
concern" basis which assumes the Company will be able to realize its assets,
obtain financing as required and discharge its liabilities and commitments in
the normal course of business.
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. Significant Accounting Policies
Reporting Currency
All amounts in these consolidated financial statements are reported in U.S.
funds. Monetary assets and liabilities have been converted from Canadian
funds where applicable utilizing the year-end closing exchange rate of $
1.4305 CDN/$1.00 U.S. Transactions recorded throughout the year in the
accounts of the Canadian subsidiary have been converted to their U.S.
equivalent utilizing the average annual rate as posted by the Internal Revenue
Service of the United States as follows:
$ 1.3844 CDN / $1.00 U.S. (1996: $1.3636 CDN / $1.00 U.S.).
Fair Value of Financial Instruments
In accordance with the requirements of Statement of Financial Accounting
Standards No. 107, "Disclosure About Fair Value Of Financial Instruments", the
carrying amounts reported on the balance sheets for cash and cash equivalents,
namely, "cash and short-term deposits", approximate their fair market value.
Receivables and Prepaid Expenses
All amounts reported as receivables or prepaid expenses and deposits have been
recorded at their original values. There have been no amounts written off as
bad debts or provided for as an allowance against the recovery of these
assets.
Capital Assets
Air Terminal Construction Costs: Expenditures relating directly to the
construction of the air terminal facility and related engineering and design
have been recorded in the accounts of the Company at cost, net of amortization
which is provided on a straight-line basis over the 30-year term of the
property lease.
Furniture and Equipment: Furniture and equipment is stated at cost, net of
amortization which is provided for at the rate of 20% per annum on the
declining balance basis.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
In these financial statements, assets, liabilities and results of operations
involve significant reliance on management's estimates. Actual results could
differ from the use of those estimates.
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
3. Significant Accounting Policies (continued)
Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109,
"Accounting For Income Taxes", in the fiscal year ended December 31, 1997 and
has applied the provisions of that statement on a retroactive basis to the
previous fiscal year which resulted in no significant adjustment.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", requires an asset and liability approach for financial accounting and
reporting for income tax purposes. This statement recognizes (a) the amount
of taxes payable or refundable for the current year and (b) deferred tax
liabilities and assets for future tax consequences of events that have been
recognized in the financial statements or tax returns.
Deferred income taxes result from temporary differences in the recognition of
accounting transactions for income tax and financial reporting purposes.
There were no temporary differences at December 31, 1997 and earlier years and
accordingly, no deferred tax liabilities have been recognized for all years.
The Company has cumulative net operating loss carryforwards of approximately
$830,000 at December 31, 1997 and $ 640,000 at December 31, 1996. No effect
has been shown in the financial statements for these carryforwards as the
likelihood of future tax benefit from such is not presently determinable. The
potential income tax benefits of the net operating loss carryforwards of
approximately $195,000 at December 31, 1997 and $150,000 at December 31, 1996
(based upon current income tax rates) have been offset by valuation reserves
of the same amount. The net operating losses began to expire as of December
31, 1997.
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
4. Capital Assets
Capital assets consist of the following at December 31, 1997 and December 31,
1996:
December 31, 1997
Accumulated Net Book
Cost Amortization Value
Air terminal construction
costs $ 652,083 $ 42,058 $ 610,025
Furniture and equipment 5,154 1,663 3,491
$ 657,237 $ 43,721 $ 613,516
December 31, 1996
Accumulated Net Book
Cost Amortization Value
Air terminal construction
costs $ 639,490 $ 21,304 $ 618,186
Furniture and equipment 2,836 814 2,022
$ 642,326 $ 22,118 $ 620,208
5. Notes and Advances Payable
The notes and advances payable are unsecured, non-interest bearing and are
without specific terms of repayment.
6. Related Party Transactions
During the years ended December 31, 1997 and 1996, the Company paid no
remuneration to any director.
Directors have advanced funds to the Company in the amount of $ 5,400 as of
December 31, 1997 (1996: $25,522). These advances are unsecured, non-interest
bearing and are without specific terms of repayment.
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
7. Capital Stock
Authorized:
50,000,000 common shares with a
stated par value of $ .001/share
3,000,000 preferred cumulative convertible shares
with a stated par value of $ .001/share
Common Shares Issued:
Number of Shares Consideration
To August 31, 1993
- for cash 300,000 $ 300
Prime Air Inc. share exchange
- June 28, 1994 2,700,000 350,296
During year ended December 31, 1995
- for cash 562,550 131,756
Balance at December 31, 1995 3,562,550 482,352
During year ended December 31, 1996
- for cash 1,510,558 755,279
- consulting and related
services 1,483,673 1,483
2,994,231 756,762
Balance, December 31, 1996 6,556,781 1,239,114
During the year ended December 31, 1997
- shares-for-debt settlements 255,432 130,751
- consulting and related services 328,000 328
583,432 131,079
Balance, December 31, 1997 7,140,213 $ 1,370,193
The directors of the Company have authorized the issue of up to a further
500,000 common shares in the form of a director, officer and employee stock
options at a price to be determined. The granting of these options is subject
to the receipt of regulatory approval.
In July, 1996, management of the Company voluntarily halted trading of its
common shares based upon the conclusion that information concerning the
history of the Company provided by former management may not have been
complete. Adequate information was subsequently provided to the public by
management and trading was recommenced on March 27, 1997. The Company
prepared and filed a registration statement in connection with the change of
domicile (referred to in Note 1) to register all of the outstanding common
shares of capital stock in the Company. This registration has been approved
by the Securities and Exchange Commission and the change of domicile became
effective on December 15, 1997.
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
8. Lease Commitment
The Canadian subsidiary corporation has entered into an Airport Lease and
Operating Agreement with The Corporation of The Village of Pemberton in
British Columbia whereby it has been granted an exclusive and irrevocable
lease over the lands and airport facilities associated with the Pemberton
Airport. The term of the Lease and Operating Agreement, including extension
options relating thereto, is for a total of 30 years with terminal rent
payable as follows:
n $100 per annum for the initial six (6) years (1993 through 1998); and
thereafter
n 5% of gross receipts per annum derived from the operation of the
terminal facilities, excluding amounts received in connection with the sale of
airline tickets and other forms of transportation. The lease commitment
amounts for 1999 through 2002 cannot be quantified as the amount of gross
receipts for those years cannot be determined.
<PAGE>
EXHIBIT 3.2
ARTICLES OF MERGER
of
PRIME AIR, INC.
(A Delaware Corporation)
into
PRIME AIR, INC.
(A Nevada Corporation)
The undersigned officers, the respective presidents and secretaries of
Prime Air, Inc., a Delaware corporation ("Prime Air (Del)"), and Prime Air,
Inc., a Nevada corporation ("Prime Air (NV)"), hereby certify that the Plan
and Agreement of Merger dated March 10, 1997, (hereinafter the "Plan") was
approved by the shareholders of Prime Air (Del) at a duly called meeting held
on November 26, 1997, after due notice was given, and was approved by the sole
shareholder of Prime Air (NV) by unanimous consent action of such sole
shareholder.
1. The number of shares outstanding of each class of each corporation
which were entitled to vote on the Plan, and the number of shares of each
class of each corporation consenting and not consenting to the Plan, is as
follows:
Number of
Shares Number of Shares
Class Outstanding Consenting Not Consenting
Prime Air (Del) Common Stock 7,140,213 4,028,417 120
($.001 par value)
Prime Air (NV) Common Stock 10 10 -0-
($.001 par)
2. The number of votes cast for the Plan by each constituent entity
was sufficient for approval of the Plan.
3. All of the presently outstanding shares of Prime Air (NV) are
owned and held by Prime Air (Del).
4. The effective date of the merger shall be at the time of the
latter of the completion of filing of the Articles of Merger in the State of
Delaware and the State of Nevada.
5. A copy of the complete executed Plan, including exhibits and
schedules, is on file at the principal offices of Prime Air (NV) at 8598 112
Street, Ft. Saskatchewan, Alberta, Canada T8L 3V8. A copy of the entire Plan
will be furnished by Prime Air (NV), on request and without cost, to any owner
of Prime Air (NV) or Prime Air (Del).
IN WITNESS WHEREOF, Prime Air, Inc., a Nevada corporation, and Prime Air,
a Delaware corporation, have caused these Articles of Merger to be executed in
their respective corporate names by their respective presidents and their
respective secretaries this 26th day of November 1997.
Attest: Prime Air, Inc.
A Delaware Corporation
/s/ John Eberhard, Secretary By /s/ Royle Smith, President
Attest: Prime Air, Inc.
A Nevada Corporation
/s/ John Eberhard, Secretary By /s/ Royle Smith, President
<PAGE>
Exhibit 23
Accountant's Consent
We hereby consent to the use of our audit report of Prime Air, Inc.
(Nevada), dated April 4, 1998 for the years ended December 31, 1997
and 1996 in the Form 10KSB Statement for Prime Air, Inc. (Nevada).
We also consent to the use of our auditing firm as experts in the
10KSB Registration Statement for Prime Air, Inc. (Nevada).
April 6, 1998
Richmond, Canada CHARTERED ACCOUNTANTS
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