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, 1998
[ ] 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: (780) 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: 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. (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. [N/A]
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 (17,241,220 shares) computed by using the
closing sale price on April 7, 1999, was $4,310,305.
State the number of shares outstanding of each of the Issuer's classes of
common equity as of the latest practicable date: At April 7, 1999, there were
19,647,560 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.
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
the inability of the Company to raise the additional capital necessary to
commence its principal operations or the failure to consummate a definitive
agreement with Voyager Airways Limited.
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.
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.
Commencing June 1998, the Company attempted to offer and sell up to
8,000,000 common shares. This offering terminated August 31, 1998. No shares
were sold.
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 1,900,000 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 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 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. 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.
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 commence a marketing program and hire market
personnel as soon as sufficient funds are available. Advertising and
promotion would focus both on the Whistler area as the destination, and on
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.
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
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
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 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 two employees as of December 31,
1998, 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 predecesso
r to the Company by the same name. 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
No matters were submitted to a vote of the shareholders during the
quarter ended December 31, 1998.
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. 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. Effective
May 15, 1998, the outstanding shares of common stock of the Company were
forward split on a two shares for each one share basis. The following table
reflects the post-split prices:
Quarter High Low
FISCAL YEAR ENDED First $0.125 $0.125
DECEMBER 31, 1997 Second $0.5625 $0.125
Third $0.406 $0.125
Fourth $0.3438 $0.1406
FISCAL YEAR ENDED First $0.3438 $0.1612
DECEMBER 31, 1998 Second $0.28125 $0.1875
Third $0.28125 $0.07
Fourth $0.26 $0.12
FISCAL YEAR ENDING
DECEMBER 31, 1999 First $0.37 $0.25
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 March 31, 1999, the Company had 5,073,025 shares of its Common
Stock, or approximately 25.8% 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 is being, nor have any shares proposed to be, publicly offered
by the Company.
As of March 31, 1999, there were approximately 320 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. Operations are expected to commence in late
1999.
During the last four years, the operations 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
of debt into common stock of the Company. During 1998, the Company converted
$76,000 in debt into shares of common stock of the Company.
The Company has realized a cumulative loss of $980,187 since March 1992,
and anticipates similar losses until operations begin.
The Company presently has no cash on hand to allow operations to
commence. The Company expects to pay approximately $70,000 to cover legal,
insurance, and other essential expenses during the next 12 months whether
operations commence or not.
Prime Air (BC)'s sole fixed obligation is the payment of $100 CAD per
annum to the Village of Pemberton under the terms of its Airport Lease and
Operating Agreement.
The Company proposes to raise $6,000,000 during the next year through
equity funding. This funding will provide sufficient cash to start
operations, make capital improvements to the Pemberton Airport and terminal
building, and sustain flight operations for some time.
An agreement dated October 30, 1998, was signed between the Company and
Chanen Painter & Company Limited, Investment Bankers to attempt to raise
capital on behalf of the Company, but no funds have yet been raised. [THE COPY
OF THE AGREEMENT YOU FURNISHED TO ME IS NOT SIGNED. CAN YOU FAX ME A SIGNED
COPY?]
Should operations commence during 1999, the Company anticipates hiring
approximately six full-time employees during the next 12 months.
While Prime Air has no current operations and hence very little internal
Year 2000 risks, there is no way of knowing the effect the potential problem
may have on the Company from external sources. The Company has no funds to
complete its initial evaluation of the problem, but intends to do so if funds
are raised prior to the year-end.
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, 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 51 Chairman 1994
Royle Smith 49 President --
John Eberhard 54 Secretary and Director 1995
Gregory Duffy 40 Treasurer and Director 1998
The officers and directors of the subsidiary, Prime Air (BC), are as
follows:
NAME AGE POSITIONS DIRECTOR SINCE
Blaine Haug 51 President and Director 1989
Richard T. Shrieves 44 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 been a lawyer in 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.
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 directors by the Company during 1998,
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 1998.
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, 1996, 1997, and 1998:
Name and Principal Position Year Restricted Stock Awards
Blaine Haug 1996 $62,500(1)
Chairman 1997 $50,000(2)
1998 $99,980(3)
Royle Smith 1996 $173,438(4)
President 1997 $62,500(5)
1998 $137,480(6)
(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
pre-forward split 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
pre-forward split 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, 400,000 post-forward split shares were issued to Mr.
Haug effective March 31, 1998, as remuneration for management fees for 1998;
and 200,000 post-forward split shares were issued to him on April 27, 1998,
for consulting fees. The valuation of 400,000 and the 200,000 shares of the
restricted shares is based upon the market value of the stock which was
approximately $0.1562 on March 31, 1998, the date of the award; and the
valuation of 200,000 shares of the restricted shares is based upon the market
value of the stock which was approximately $0.187 on April 27, 1998, 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 per-forward split shares were issued to Mr.
Smith on January 9, 1996, for accepting the office of Executive
Vice-President; 300,000 pre-forward split shares were issued to him on January
9, 1996, for consulting fees regarding the completion of the Pemberton Airport
terminal facility; 200,000 pre-forward split shares were issued to him on
March 18, 1996, as remuneration for management fees for 1996; and 25,000
pre-forward split shares 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.
(5) Of these shares, 100,000 pre-forward split shares were issued to Mr.
Smith on April 3, 1997, and another 100,000 pre-forward split shares 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.
(6) Of these shares, 400,000 post-forward split shares were issued to Mr.
Smith effective March 31, 1998, as remuneration for management fees for 1998;
and 400,000 post-forward split shares were issued to him on April 27, 1998,
for consulting fees. The valuation of the restricted shares is based upon the
market value of the stock which was approximately $0.1562 on March 31, 1998,
the date of the award; and the valuation of 200,000 shares of the restricted
shares is based upon the market value of the stock which was approximately
$0.187 on April 27, 1998, 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.
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 pre-forward split 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
pre-forward split 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 pre-forward split 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
pre-forward split 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.
It is anticipated that if the proposed equity funding is successful, the
employment agreements with Mr. Haug and Mr. Smith would be terminated and that
such parties would receive compensation through the end of 1998 only.
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 1,310,625(2) 6.67%
PMB7 Hibiscus Square Pond St.
Grand Turk
Turks and Caicos Island, BWI
Patricia Jarvis 1,037,410 5.28%
P.O. Box 1056
Renton, WA 98057
Blaine Haug 650,000 3.31%
Royle Smith 966,000 4.92%
John Eberhard 415,340(3) 2.1%
Gregory Duffy 375,000 1.9%
Officers and Directors
as a Group (4 persons) 2,406,340 12.25%
___________
(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, 140,000 are held directly of record by
Confederation Capital Corporation Ltd., and 1,170,625 are held directly of
record by Dolphin Trading Ltd.
(3) Of theses shares, 10,000 are beneficially owned directly and of
record by Mr. Eberhard's wife, and 205,340 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 pre-forward split shares of common stock of the Company to Mr. Haug
for services rendered during the year ended December 31, 1996; 200,000
pre-forward split shares for services rendered during the year ended December
31, 1997; and 400,000 post-forward split shares for services rendered during
the year ended December 31, 1998.
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 pre-forward split shares of common stock of the company to Mr. Smith
for services rendered during the year ended December 31, 1996; 200,000
pre-forward split shares for services rendered during the year ended December
31, 1997. In addition, Mr. Smith was issued 100,000 pre-forward split shares
on January 9, 1996, for accepting the office of Executive Vice-President, and
300,000 pre-forward split shares were issued to him on January 9, 1996, for
consulting services. Also, 25,000 pre-forward split shares were issued to
Welcome Ford Sales Ltd., a company controlled by Mr. Smith for administration
fees. In addition, during 1998, the Company issued 400,000 post-forward split
stock to Mr. Smith pursuant to his employment agreement and 200,000
post-forward split shares for consulting services.
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, 1998 and 1997
Consolidated Statements of Operations for the fiscal years ended
December 31, 1998 and 1997, and from inception to December 31, 1998
Consolidated Statements of Cash Flows for the years ended December
31, 1998 and 1997, and from inception to December 31, 1998
Consolidated Statements of Stockholders' Equity and Deficit from
inception to December 31, 1998
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 **
3.4 Bylaws of the Company *
4.1 Stock Option Plan ***
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 *
10.8 Investment Banking Agreement dated November 19, 1998 37
23 Consent of auditor 44
*Incorporated by reference from the Company's registration statement
on Form S-4 filed with the Securities and Exchange Commission, file no.
333-28249.
**Incorporated by reference from Amendment No. 1 to the Company's
annual report on Form 10-KSB for the year ended December 31, 1997, filed with
the Securities and Exchange Commission, file no. 333-28249.
***Incorporated by reference from the Company's quarterly report on
Form 10-QSB for the quarter ended March 31, 1998, filed with the Securities
and Exchange Commission, file no. 333-28249.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the
Company during the quarter ended December 31, 1998.
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, 1999 /s/ By 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 14, 1999 /s/ John Eberhard, Director
Date: April 14, 1999 /s/ Blaine Haug, Director and Chairman
Date: April 14, 1999 /s/ Gregory Duffy, Director and Chief
Financial Officer
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
(A Nevada Corporation)
Consolidated Financial Statements
December 31, 1998 and 1997
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
<PAGE>
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, 1998 and 1997 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, 1998 and
1997 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,
1998 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.
<PAGE>
"Rutherford & Company"
Richmond, Canada
April 15, 1999
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 2 to the financial statements. Our report to
the shareholders dated April 15, 1999 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.
"Rutherford & Company"
Richmond, Canada
April 15, 1999
Chartered Accountants
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(all figures in US dollars)
December 31 December 31
1998 1997
ASSETS
Current Assets
Cash and short-term deposits $ 7,433 $ 11,388
Prepaid expenses 3,091 -
GST recoverable 5,116 1,587
15,640 12,975
Capital Assets (Note 4) 592,843 613,516
$ 608,483 $ 626,491
LIABILITIES
Current Liabilities
Accounts payable and accruals $ 79,405 $ 83,655
Notes and advances payable
(Note 5) 109,754 3,495
Advances from related parties
(Note 6) - 5,400
189,159 92,550
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:
18,013,110 common shares
(1997: 7,140,213) 18,013 7,140
Share subscription receivable - (20)
Capital in excess of par value 1,381,498 1,355,740
1,399,511 1,362,860
Accumulated Deficit During
Development Stage (980,187) (828,919)
419,324 533,941
$ 608,483 $ 626,491
Approved on Behalf of the Board:
Director
Director
See Accompanying Notes To Financial Statements
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(all figures in US dollars)
Year Ended Year Ended
December 31 December 31
1998 1997
Administrative And General Expenses
Audit and accounting $ 27,685 $ 23,826
Advertising 3,949 -
Amortization 20,673 21,603
Bad debts 1,933 -
Consulting 9,862 24,583
Insurance 5,043 9,240
Interest and service charges 1,041 1,769
Legal costs 9,840 34,192
Office and general 8,737 10,176
Repairs and maintenance 5,047 -
Rent - airport facility (Note 8) 67 279
Telephone and utilities 15,280 18,039
Transfer agent, listing and
filing fees 13,825 13,636
Travel, promotion and
entertainment 29,823 26,175
152,805 183,518
Other Income (Expense)
Gain (loss) on foreign exchange
conversion 286 (10,199)
Interest income 1,251 4,020
1,537 (6,179)
Net Loss For Year $ (151,268) $ (189,697)
Net Loss Per Common Share $ (0.0089) $ (0.0138)
Weighted Average Common Shares
Outstanding 16,943,937 13,792,450
(Giving effect to 2:1 share split)
See Accompanying Notes To Financial Statements
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all figures in US dollars)
Year ended Year ended
December 31 December 31
1998 1997
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES:
OPERATING
Net loss $ (151,268) $ (189,697)
Non-cash charge - amortization 20,673 21,603
(130,595) (168,094)
Change in non-cash working capital
balances relating to operations (10,870) (12,306)
(141,465) (180,400)
FINANCING
Notes and advances payable 106,259 (5,572)
Advances from related parties (5,400) (20,122)
Issue of capital stock 36,651 131,079
137,510 105,385
INVESTING
Acquisition of capital assets - (14,911)
NET CASH INFLOW (OUTFLOW) (3,955) (89,926)
CASH, BEGINNING OF YEAR 11,388 101,314
CASH, END OF YEAR $ 7,433 $ 11,388
See Accompanying Notes To Financial Statements
<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 To Financial Statements
<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)
See Accompanying Notes To Financial Statements
<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 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)
Issue of common
shares for debt
settlements:
at $ .3935/share 10,000 10 3,863 - -
at $ .4006/share 18,215 18 7,279 - -
Issue of common
shares for
services
at nominal value 1,663,727 1,664 - - -
8,832,155 8,832 1,366,882 (20) (828,919)
Two for one
stock split,
May 18, 1998 8,832,155 8,832 (8,832) - -
17,664,310 17,664 1,358,050 (20) (828,919)
Issue of common
shares for debt
settlement:
at $ .25/share 64,800 65 16,135 - -
Issue of common
shares for
services
at nominal value 290,000 290 - - -
Transfer Agent
adjustment (6,000) (6) - - -
Write off of
uncollectable
share
subscription
receivable - - 7,313 20 -
Net loss for the
year ended
December 31, 1998 - - - - (151,268)
Balance,
December 31,
1998 18,013,110 $ 18,013 $1,381,498 $ - $ (980,187)
See Accompanying Notes To Financial Statements
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
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 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, 1998 are presented herein for information purposes only.
These amounts are unaudited and accordingly no audit opinion has been
expressed thereon.
2. 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, 1998 and 1997
3. 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 $
1.5368 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 at actual amounts where available or by utilizing the average
annual rate as posted by the Internal Revenue Service of the United States as
follows: $ 1.4831 CDN / $1.00 U.S. (1997: $1.3844 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 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 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, 1998 and 1997
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, 1998 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, 1998 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
$980,000 at December 31, 1998 and $ 830,000 at December 31, 1997. 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 $ 230,000 at December 31, 1997 and $195,000 at December 31,
1997 (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, 1998 and 1997
4. Capital Assets
Capital assets consist of the following at December 31, 1998 and December 31,
1997:
December 31, 1998
Accumulated Net Book
Cost Amortization Value
Air terminal construction costs $ 652,083 $ 62,076 $ 590,007
Furniture and equipment 5,154 2,318 2,836
$ 657,237 $ 64,394 $ 592,843
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
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, 1998 and 1997, the Company paid no
remuneration to any director.
Directors had advanced funds to the Company in the amount of $ Nil as of
December 31, 1998 (1997: $5,400). These advances were unsecured, non-interest
bearing and without specific terms of repayment. During the year ended
December 31, 1998, the previously recorded advances of $5,400 were written off
upon instructions of management.
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
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
During the year ended December 31, 1998
- shares-for-debt settlements 93,015 27,370
- consulting and related
services 1,953,727 1,954
- Transfer Agent correction (6,000) (6)
2,040,742 29,318
9,180,955 1,399,511
- Two for One" share split 8,832,155 ______-___
Balance, December 31, 1998 18,013,110 $ 1,399,511
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
7. Capital Stock (continued)
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.
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:
$ 67 US ($100 CDN) per annum for the initial six (6) years (1993 through
1998) and thereafter;
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 2003 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.
EXHIBIT 10.8
CHANEN, PAINTER & COMPANY, LTD.
INVESTMENT BANKERS
INVESTMENT BANKING AGREEMENT
1.0 PARTIES AND RECITALS
1.01 Chanen, Painter & Company, Ltd. ("Advisor"), is a State of
Washington corporation engaged in the investment banking business. It will
have the option to conduct this agreement through its wholly owned and
National Association of Securities Dealers regulated subsidiary, CCCP
Securities, Ltd.
1.02 Prime Air Inc. ("Client") is a State of Nevada Corporation
formed to lock up and develop the airport rights on a lease basis with the
municipality of Pemberton B.C. and therefore pursue revenue opportunities
available with all air traffic and peripheral businesses.
2.0 DEFINITIONS
2.01 "Financing Desired" Client desires Advisor to provide assistance
and advice to it to obtain capital to finance its business activities.
2.02 "Advisor's Services" means the styles of Advisor to Client as
set forth in Article 3.0.
2.03 "Business Plan" means the plan adopted and promulgated by Client
as the plan for the conduct and growth of its business.
2.04 "Documentation" means all materials used and shall include
without limitation the Business Plan, Private Placement Memorandum,
subscription agreements, due diligence materials, legal documentation and
promotional materials.
2.05 "Investment Banking Transaction" means any transaction by which
equity capital, debt capital (a.k.a. phantom equity or structured debt, as
opposed to commercial debt), operating funds or services with a definable
value we acquired by or committed to Client, including, but not limited to:
equity, debt, joint ventures, partnerships, strategic corporate alliances,
research and development agreements, licensing agreements, royalty agreements,
mergers, acquisitions, warrants, options, non-cash stock, asset transfers or
any other form of equity investment or secured or unsecured finance
transaction. In addition, the following transaction(s) can also be included
in the definition if they are assigned by Client to Advisor in writing;
contact research; take or pay agreements; or set price manufacturing
contracts.
2.06 "Offering Materials" means materials prepared, collated or
collected by Advisor for presentation to a potential investor, or a licensee,
joint venture or long-term supply contractor in connection with an Investment
Banking Transaction.
2.07 "Product(s)" means all products and services marketed, or
intended to be marketed, by Client.
3.0 SERVICES OF ADVISOR
3.01 "Retention of Services" The Client hereby retains the services of
Advisor on an exclusive basis.
3.02 "Description of Services" Advisor will provide business advice
to client on various components of Client's business including the structuring
of Client's business to attract equity and/or debt financing and/or other
services regarding Client's business activities. Advisor will also help
Client raise such debt or equity financing or facilitate other services in
such amounts and kinds as may be mutually agreed upon.
3.03 " Conditions of Services" Advisor will provide the
aforementioned services solely on a BEST EFFORTS BASIS with no guarantee of
the success of some or all of the financing.
3.04 "Syndication" Advisor may syndicate its performance hereunder,
with other National Association of Securities Dealers member firms, with prior
written approval of Client.
3.05 "Representations As To Product(s)" Advisor shall make no
representations to potential investors or third parties modifying the terms
and conditions of Client's Product(s) warranty or warranties. Advisor shall
be entitled to rely on such Product(s) warranties as may be furnished to
Advisor by Client or as my be provided in the Uniform Commercial Code and to
inform potential investors and third parties of such warranties, if required
in the course of performing its services hereunder.
3.06 "Future Advisory Services" If an Investment Banking Transaction
is successfully consummated within the initial term of this agreement, Advisor
will have the right to be included as an investment banker in the next
transaction at an amount up to five times that accomplished in the previous
round of financing with terms that are competitive within the industry, and
will have the continual right for each subsequent transaction if the previous
transaction was successful, up to but not including, any initial public
offering.
3.07 "Board Representation" Advisor will have the right to designate
a representative to serve on Client's Board of Directors. Said designated
board member's services shall be compensated (or not compensated) in the same
manner as other members of Client's Board of Directors. Also, said designated
board member shall be entitled to receive regular financial reports and
statements as are provided to other members of Client's Board of Directors.
4.0 TERM, TERMINATION
4.01 "Initial Term; Extension" The initial term of this Agreement
shall be 9 months from the date at which time Client signs off on the Business
Plan that will be used as a sales tool in this offering. The term shall be
automatically renewed for successive six month terms thereafter, unless
written notice to the contrary is provided by one party to the other not less
than thirty days prior to such automatic renewal.
4.02 "Termination" Either party may terminate this Agreement by
written notice to the other party for material breach hereof.
5.0 COMPENSATION
For service hereunder, Advisor shall receive compensation from Client as
follow:
5.01 "Compensation during Term"
(a) Client agrees to a $35,000 retainer fee which is payable to Advisor
upon signing of this Agreement. This retainer is in consideration for due
diligence work, time spent in pre-selling process, advising Client upon
various parts of the business plan, and the Advisor's direct participation in
writing portions of the business plan, offering memorandum and subscription
agreements, along with other Advisory Services which includes representation
in securing capital or strategic agreements.
(b) For any equity Investment Banking Transaction that closes during the
term of this Agreement, or which closes within one 1 year thereafter by
registered (recorded in writing to Client within fifteen days following the
term) potential investors who actively pursue making an investment during the
term of this Agreement, Client shall pay Advisor a closing fee equal to nine
percent (9%) of the first $1 million in cash (and/or the agreed upon value of
non-cash consideration) received by Client, seven percent (7%) of the next $1
million dollars of value, and five percent (5%) thereafter. These percentages
shall be applied to the aggregate of all sums invested.
(c) For any debt Investment Banking Transaction that closed during the
term of this agreement, or which closed one year thereafter due to a source of
debt capital introduced by Advisor, Client shall pay Advisor a fee of one and
one-quarter percent (1 1/4%).
5.02 "Time of Compensation" The closing statements as to such
Investment Banking Transaction shall include the compensation due to Advisor
and Advisor shall be entitled to attend such closing at its expense. The
closing compensation due (transaction fee) identified in 5.01(b) above will be
paid to Advisor within two business days of closing (receipt of funds). If
periodic funds are received by Client, Advisor shall be paid by the first
Friday following Clients receipt of funds.
5.03 "Warrants" Advisor shall receive warrants to purchase shares
equal to four percent (4%) of equity securities of the issued and outstanding
stock of the Client if the full offering (to be mutually agreed upon later) is
raised, and a proportionate percentage of warrants for equity securities if a
lesser amount of the offering is raised, all as provided below. The exercise
price of the warrants shall be at the same price as determined by the last
investor of the round of financing subject to the terms of Client and
Advisor's mutually agreed upon investment instruments and documentation. The
warrants shall be exercisable for a period of seven (7) years from the date
granted, and shall be callable by the Company, after a reasonable opportunity
for exercise by Advisor, if Client is selling all or substantially all of its
assets of capital.
5.04 "Expenses" Client shall reimburse Advisor for documented,
reasonable out of pocket expenses incurred by Advisor in connection herewith,
including without limitation, reasonable expenses of outside professional and
technical persons commissioned per prior mutual agreement between Client and
Advisor, travel, entertainment, postage, express mail, long distance telephone
calls and other out of pocket expenses. All expenses in excess of $100 must
be previously approved by Client in writing. Expenses will be billed monthly
with net thirty day terms.
6.0 CONFIDENTIALITY
All information delivered by Client to Advisor shall be maintained as
confidential by
Advisor. Advisor shall use such information only in connection with the
performance of its duties hereunder, provided Advisor shall not disclose any
such confidential information to anyone without the express permission of
Client or as required by law or court order. All Offering Materials prepared
for Client by Advisor shall be subject to review by Client and shall not be
distributed if Client determines, in Client's sole discretion, that they would
disclose Client's confidential information or are otherwise inappropriate.
7.0 OFFERING MATERIALS APPROVAL
Advisor shall not distribute any Offering Materials to third parties
unless and until the terms and materials have been reviewed and approved for
such use by Client.
8.0 NO PARTNERSHIP OR JOINT VENTURE
Nothing herein shall be construed to render one party liable for any
present or future debts, obligations or liabilities of the other or to create
a partnership or joint venture, or to render
one party the employee of the other.
9.0 ADVISOR REPRESENTATION AND WARRANTIES
9.01 Advisor represents and warrants to Client that: (i) it is a
Washington corporation in good standing and authorized to conduct its business
and perform the services it has covenanted to perform for Client hereunder;
(ii) it is in all material respects in compliance with provisions of all
federal, state and local laws and regulations, and has all authorizations,
approvals, and consents, orders, registrations, licenses, or permits of any
court or governmental agencies or bodies which are required; (iii) its entry
into this Agreement bas been authorized by its Board of Directors and that the
officers of Advisor executing this Agreement have been duly authorized to do
so for and on its behalf; and (iv) this Agreement, when duly executed by all
parties, will constitute a valid and binding agreement, enforceable against it
in accordance with its terms, and its entry into and performance hereunder
does not violate any outstanding obligation, contractual or otherwise, which
Advisor may owe to any third party, nor any order, writ, injunction, decree,
judgement, statute, rule, law or ruling. Advisor will provide Client with
such documentation of the. foregoing as Client shall reasonably require and
request in writing.
9.02 Advisor hereby agrees to defend, indemnify and hold harmless
Client, its directors, officers, sub-contractors and employees, successors and
assigns from and against any and all claims, demands, suits at law or in
equity, loss, damage, attorney's fees and liability of any kind due to,
arising out of or resulting from a breach of any covenant, representation or
warranty made by Advisor in this Agreement.
10.0 CLIENT REPRESENTATION AND WARRANTIES
10.01 "Authority" Client represents and warrants to Advisor that:
(i) it is a legal corporation organized under the laws of the State of its
organization and is in good standing and duly authorized to conduct its
business and the transactions contemplated hereby; (ii) its entry hereunto has
been authorized by its President executing this Agreement and has been duly
authorized to do so for and on its behalf; and, (iii) this Agreement, when
duly executed by all parties, will constitute a valid and binding agreement,
enforceable against Client in accordance with its terms, and that its entry
into and performance hereunder does not violate any outstanding obligation,
contractual or otherwise, which Client way owe to any third party, nor any
order, writ, injunction, decree, judgment, statute, rule, law or ruling.
Client will provide Advisor with such documentation of the foregoing as
Advisor shall reasonably require and request in writing.
10.02 "Information" Client represents and warrants to Advisor that:
(i) all information and Documentation furnished by it to Advisor accurately
will depict Client and its business and proposed business and will not, to
Client's knowledge, contain material misstatements or omissions; that (ii)
Offering Materials which Client approves as provided in Section 7.0 will
accurately depict and represent Client and its business and proposed business,
and will not contain any material misstatements or omissions of material facts
which would tend to make the representations set forth therein materially
false or misleading.
10.03 "Public/Investor Communications" Advisor retains the right to
approve all written communications from Client to shareholders, prospective
shareholders, and the general public including various media groups.
10.04 "Hold Harmless" Client hereby agrees to defend, indemnify and
hold harmless Advisor, its directors, officers, sub-contractors and employees,
successors and assigns from and against any and all claims, demands, suits at
law or inequity, loss, damage, attorney's fees and liability of any kind due
to, arising out of or resulting from a breach of any covenant, representation
or warranty made by Client in this Agreement, or arising out of or resulting
from any claim for or actual damage incurred by an investor in an Investment
Banking Transaction, except to the extent such claim is based on Advisor's
negligence or fault. Client further acknowledges and agrees that Advisor
shall have no liability of any nature whatsoever due to or arising from a
breach of Client's warranties, express or implied, as to Client's Product(s)
and/or Service(s), and Client agrees to defend, save, and hold Advisor
harmless from any claim of whatever nature arising therefrom.
11.0 MISCELLANEOUS
11.01 "Legal Compliance" Both parties shall comply with all laws,
rules, relations, orders, decrees, judgments and other governmental acts of
the United States of America and any nations and their political subdivisions,
agencies and instrumentalities that may be applicable to the parties or their
activities hereunder, and each party shall require its affiliates and/or
licensees to do the same. Client shall take such steps as may be necessary
with respect to compliance with foreign exchange regulation or other similar
requirements to assure the right of Client to receive funds from foreign
countries and to remit compensation payable hereunder to foreign countries,
and shall keep Advisor informed of same. Each party shall cooperate with the
other in the preparation, execution, and delivery of documents and the
performance of acts necessary or desirable for each party to comply with this
Section.
11.02 "Waiver" The failure of either party at any time to require
performance by the other party of any provision hereof shall not affect in any
way nor derogate the full right to require such performance at my time
thereafter, nor shall the waiver by either party of a breach of any provision
hereof be held to be a waiver of the provision itself. No breach shall be
excused unless such waiver or excuse of breach is in writing and signed by the
waiving or excusing party. No written waiver or excuse shall constitute a
waiver or excuse of any other or subsequent breach.
11.03 "Notice" Notices given hereunder shall be in writing, although
preliminary notice may be given by facsimile transmission, and shall be deemed
received when personally delivered, (by overnight courier or otherwise) or
seven days after mailing by certified or registered mail, return receipt
requested, postage prepaid, to the following respective address:
Notice to Advisor: Chanen, Painter & Company, Ltd.
29th Floor, US Bank Centre Building
1420 Fifth Avenue, Suite 2975
Seattle, Washington 98101
Notice to Client: Prime Air, Inc.
7777 Perimeter Rd. M/S #7
Boeing Field
Seattle, Washington 98108
Blaine Haug, Chairman/CEO
Either party may change such notice address by giving notice of such change to
the other party.
11.04 "Arbitration" Except when arbitration would result in
non-joinder in the arbitration of another who could be joined in an
appropriate court, any dispute under this Agreement shall be settled by
arbitration in King County, State of Washington, pursuant to the Commercial
Rules, then obtaining, of the American Arbitration Association. The decision
of the arbitrator shall be final and binding on the parties as to issues of
fact, but either party may appeal all issues of law to m appropriate court of
law.
11.05 "Entire Agreement; Modification" This Agreement supersedes any
and all other agreements, either oral or written, between the parties and
contains all of the covenants and agreements between the parties pertaining to
its subject matter. Each party acknowledges that no representations,
inducements, promises or agreements, orally or otherwise, have been made by
any party or anyone acting on behalf of any party which are not embodied
herein. No modification hereof shall be effective unless in writing and
signed by both parties.
11.06 "Effect of Partial Invalidity" If any provision of this
Agreement not essential to its principal objectives is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way, and each party agrees to interpret and
apply the Agreement to implement its intent to the extent permitted by law.
11.07 "Survival" All indemnities, covenants, representations and
warranties contained in Sections 3.0, 4.0, 5.0, 6.0, 7.0, 8.0, 9.0, 10.0, and
11.0 and their subparagraphs shall survive the expiration or termination
hereof.
11.08 "Effective Date" The Effective Date of this Agreement shall be
November 19, 1998. IN WITNESS WHEREOF, the undersigned have executed this
Agreement
Chanen, Painter & Company, Ltd. Prime Air, Inc.
By: /s/ J. Scott Painter By: /s/ Blaine Haug
Principal Chairman/CEO
<PAGE>
EXHIBIT 23
Rutherford & Company
Chartered Accountants
________________________________________________
9511 Bates Road, Richmond, B.C.
CANADA V7A 1E3
Telephone (604)272-5454 Fax (604)272-5874
ACCOUNTANTS' CONSENT
We hereby consent to the use of our audit report of Prime Air, Inc. (Nevada),
dated April 15, 1999, for the years ended December 31, 1998 and 1997 in the
Form 10K SB Statement for Prime Air, Inc. (Nevada).
We also consent to the use of our auditing firm as experts in the 10K SB
Registration Statement for Prime Air, Inc. (Nevada).
April 15, 1999 "Rutherford and Company"
Richmond, Canada CHARTERED ACCOUNTANTS
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,433
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 608,483
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 189,159
<BONDS> 0
0
0
<COMMON> 18,013
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 608,483
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 152,805
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (151,268)
<EPS-PRIMARY> (.0089)
<EPS-DILUTED> 0
</TABLE>
