U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934
AVIATION UPGRADE TECHNOLOGIES, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 33-0881303
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification No.)
34040 Camino Del Avion #A303
Monarch Beach, California 92629
(address of principal executive offices) (Zip Code)
Issuer's Telephone Number (949) 499 6665
Securities to be registered under Section 12(b) of the Act
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE NONE
Securities to be registered under Section 12(b) of the Act:
NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
<PAGE>
SPECIAL NOTE - FORWARD LOOKING STATEMENTS
Certain statements contained in this Registration Statement, including,
without limitation, statements containing the words "believes," "anticipates,"
"expects" and words of similar import constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward- looking statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
international, national and local general economic and market conditions;
demographic changes; the regulatory framework of the health care industry; the
ability of the Company to sustain, manage or forecast its growth; the success
and then the acceptance of new research development; adverse publicity;
competition; changes in business strategy or development plans; business
disruptions; the ability to attract and retain talented personnel; the ability
to protect technology; and other factors referenced in this Registration
Statement. Given these uncertainties, readers of this Registration Statement and
investors are cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments. In
evaluating such statements and in making any investment decisions, prospective
investors should specifically consider the various factors identified in this
Prospectus, which could cause actual results to differ materially from those
indicated by such forward-looking statements. In addition, when used in this
Prospectus, the words "intends to," "believes," "anticipates," "expects" and
similar expressions are intended to identify forward-looking statements.
EXHIBITS
The following is a list of Exhibits filed as part of the Registration
Statement:
EX-3.1(I) The Certificate of Incorporation
EX-3.1(II) Bylaws of the Company
EX-4.1 Specimen stock certificate for Registrant's Common Stock.
EX-10.1 Private Placement Memorandum dated August, 1999
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INDUSTRY OVERVIEW
The airline industry is currently experiencing revenue growth along with
increased profitability. Industry analysts predict that commercial transport
aircraft production will continue to be strong, with Boeing and Airbus
deliveries forecasted to increase by about 30% over 1997 deliveries. Several new
airlines have commenced operation in this expanding market. These airlines
constitute potential customers for the Company's services. Aviation activity is
expected to increase significantly over the next ten years. According to the
1997 Boeing Current Market Outlook, global commercial air travel is expected to
increase 75% through the year 2006, while the number of passenger and cargo
aircraft deliveries is expected to increase by 48%. According to the FAA, U.S.
turbine powered general and business aviation will increase 28% by the year
2006. The Company believes that the growth in aviation activity will increase
the demand for extended life from existing aircraft such as the Boeing 727 and
other services provided by the Company.
Longer term, projected worldwide airline traffic growth and enforcement of
federal noise regulations should continue to exert favorable pressure on the
original-equipment production cycle. In addition to the positive commercial
original-equipment sales outlook, aftermarket spares demand is also anticipated
to increase in 1998 as the average age of commercial fleets continues to rise.
Military procurement of new aircraft is expected to remain relatively flat
in 1998 and beyond. As a consequence, there is likely to be an aggressive
pursuit of aircraft retrofit and life- extension programs for military customers
to improve longer-term sales of aftermarket products. Military spares sales are
expected to improve.
The regional aircraft market is expected to continue its strong growth
with revenue passenger miles forecasted to increase by 7 percent. The turbo-jet
market should lead regional aircraft growth, while turbo-prop production is
expected to decline. In addition, analyst expect continued strong aftermarket
sales from components and systems for older aircraft in service. The business
jet market is also forecasted to grow by a modest three percent.
Because of the high internal overheads and unionization of airline labor
forces, many airlines have found that it is more cost efficient to engage
independent contractors to perform maintenance services. According to U.S.
Department of Transportation statistics, the nine major U.S. airlines expended
20% of their maintenance budget with outsourcing vendors in 1994. This trend
toward outsourcing of services is likely to continue in the airline industry.
BUSINESS DEVELOPMENT
Aviation Upgrade Technologies, Inc. (the "Company" or "Aviation Upgrade
Technologies") is a start-up business founded in 1999 in Monarch Beach,
California. The Company has had no revenue from operations since inception, and
has no current customers. There has not been any bankruptcy filing, receivership
or any similar proceeding since the Company's inception. There has been no
reclassification, merger or consolidation since the Company's inception. There
has been no purchase or sale of a significant amount of assets that were not in
the ordinary course of the Company's business.
BUSINESS OF ISSUER
Aviation Upgrade Technologies, Inc. is a Nevada corporation, organized on
January 8, 1999. The primary purpose for our company is to develop, market and
install modifications to aircraft, such as the Boeing 727, which are designed to
improve and extend the economic life of these aircraft by bringing them into
compliance with strict noise and emission control levels as they become
mandatory in the years ahead. The Company's executive offices are located at
34040 Camino Del Avion #A303, Monarch Beach, California 92629. The Company's
telephone number is (949) 499 6665. Although its primary market is the United
States, the Company ultimately aspires to compete in the global marketplace.
The Company believes that $12.3 million dollars in cash, another $45.8
million consisting of two aircraft and another $26 million which will be
provided by independent contractors, hereafter referred to as 3rd Party
Suppliers, will be required to launch its re-engining program. The Company plans
to raise this $84.1 million in the following manner.
The $12.3 million will be raised in the equity markets through sale of the
Company's stock.
The Company has been fortunate to find a Mexican passenger carrier that is
willing to let the Company use two of their 727 Boeing aircraft as prototypes.
For this customer, the Company will install its two person cockpit as well as
its Rolls Royce engines. A letter of intent has been exchanged with this party.
In addition to lending the Company the use of these two airplanes, this airline
is also willing to pay for the engines and other parts in return for a two
million discount, as compared to the Company's estimated selling price, on the
final product. This airline has also agreed to pay for all hardware as the job
progresses. Relieving the Company of the burden of buying these two aircraft,
plus the engines and the hardware constitutes a financial contribution roughly
equivalent to $45.8 million.
The Company has been in negotiations with between 10 and 15 3rd Party
Suppliers, who have agreed to perform their development and design work on parts
that they will supply. A value of $26 million has been collectively applied to
products produced by these 3rd Party Suppliers.
With proceeds of $12.3 million from the sale of stock, contributions by
3rd Party Suppliers and the use of two initial aircraft by one airline, the
Company will have sufficient capital resources to cover establishment of its
management and operational infrastructure and the launching of its business
plan.
In addition to re-engining the Boeing 727, the Company plans to perform the
following peripheral and ancillary work on this aircraft.
* Heavy Maintenance - In the airline industry, checks are grouped into
four categories. "A" consists of a walk around the aircraft and performing a
visual inspection. "B" consists of a check performed in between flights where
oil levels and other gauges are monitored, normally at an airport. A category
"C" check consists of an extensive check performed in a maintenance facility,
normally in compliance with an FAA approved maintenance program and, on average,
requires as much as 5,000 to 7,500 man hours. "D" maintenance consists of the
heaviest check of all. This requires taking the aircraft apart to inspect and
replace a lot of components. A typical "D" check for the Boeing 727 can take 1
to 2 months, require between 20,000 and 30,000 manhours, and it will cost
between $1.3 and $1.5 million. This is typically done every tenth year. The
Company will be equipped to do "C" and "D" checks, which is also called heavy
maintenance.
* Conducting Airworthiness Directives - This is a legal requirement by the
FAA to inspect and/or repair and/or modify a potential or newly discovered
problem. In effect, this constitutes a directive to make the aircraft airworthy.
Typically, these directives could be issued with the next major "C" or "D"
check. However, when crucial findings are discovered, the Airworthiness
Directive may be required before the next flight.
Modification design, testing and aircraft re-certification, fabrication of
prototype modification hardware, acquisition of equipment, materials and
tooling, preliminary marketing, and other engineering and corporate support
functions.
The Company anticipates that this capitalization will support its operations for
21 months from start-up and advance the program to the point that its modified
aircraft will be cleared by the FAA. In this regard, it is important to note
that the FAA has previously taken the position that a modification to the Boeing
727, such as the one proposed by Aviation Upgrade Technologies, can be
considered as a supplement, termed a Supplemental Type Certificate, to the
existing Type Certificate already issued for this aircraft. The difference
between a Type Certificate and a Supplemental Type Certificate is substantial.
For a Type Certificate, you must prove the airworthiness of the entire aircraft,
a process that typically costs several billion dollars for a plane like the 727.
In the case of a Supplemental Type Certificate, you only need to prove the
safety and airworthiness of the specific change that you are making from the
basic aircraft. The cost of securing a Supplemental Type Certificate can vary
depending upon the complexity of the change. Because the change made by
re-engining the aircraft is substantial, the Company believes that this will
cost several millions. Permitting this to be processed as a Supplemental Type
Certificate makes this financially feasible.
Once issued, a Supplemental Type Certificate serves as a license and, for
the airline industry, a form of patent to do the changes which are described in
the Supplemental Type Certificate. Consequently, after the Supplemental Type
Certificate is issued for the first aircraft, the Company will not have to
submit each future aircraft to the FAA for a similarly rigorous inspection. So
long as the work is being done in strict compliance with the FAA rules and
regulations, future aircraft may be put into service as they are completed.
History of the Boeing 727
The destiny of the company is being linked to the Boeing 727 aircraft, an
aircraft introduced by the Boeing Company in February 1963. Two versions of the
727 were made by Boeing. The 727-100 was the first configuration, and in 1968,
Boeing came out with its 727-200 configuration, a stretched version. Between the
years of 1963 and 1984, Boeing ultimately made 1,834 of these 727 aircraft, and
1,480 of these airplanes are still in service. Boeing manufactured 938 versions
of its 727-200 advanced and, today, there are 900 of the these 727-200 advanced
aircraft still in commercial service working for airlines, charters, freight
haulers and with executive business services. This large percentage of aircraft
still in regular service attests to the integrity of the aircraft's basic design
and to its popularity within the airline industry.
The Company's strategic plan is based upon this tenet. Aircraft operators,
faced with limited capital and strong growth opportunities will be interested in
continuing the useful life of the Boeing 727 series beyond December 31, 1999.
The end of 1999 marks the time when the Stage 3 noise compliance cut-off date
occurs. Under its original configuration, the 727 aircraft will no longer be in
compliance with mandated noise emission levels. The Company believes that there
is a market to covert about 700 of the 900 remaining 727-200 advanced aircraft
still in service. The Company's plans and its projections are based upon a five
year plan in which 286 of these airplanes are converted and, from these 286
aircraft, the Company believes that it can achieve profits of $811 million using
very conservative numbers.
The Company plans to bring the Boeing 727 aircraft into compliance with
year 2000 noise and emission standards by re- engining these aircraft with two
Rolls Royce RB211-535E4 powerplants. These Rolls Royce RB211-535E4 powerplants
will replace the original three Pratt & Whitney JT8D engines installed by
Boeing. These Pratt & Whitney JT8D engines will not meet the year 2000 FAA and
European noise or emission standards. In addition, these Pratt & Whitney JT8D
engines are not as efficient or as economical to operate as the advanced engines
that are now being used. Two Rolls Royce RB211-535E4 powerplants will provide
greater thrust than three Pratt & Whitney JT8D engines and there will improved
safety, flying range gains and access to more airfields. Rolls Royce RB211-535E4
powerplants are currently being used on the 727's successor, the Boeing 757
aircraft. These engines have the best safety record and maintenance record of
any aircraft engine ever built. The Rolls Royce RB211-535E4 powerplants are also
the most quiet aircraft engine in this power range, on the market today, with
emissions will below U.S. and European standards. In addition to bringing the
B-727 into compliance with noise and emission controls, this installations of
these Rolls Royce engines will almost bring these aircraft up to the standards
of present generation aircraft, as well as significantly improving its
performance, range, fuel economy and the operational capability of the 727
Boeing aircraft. The charge for re-engining these airplanes and getting them
recertified will be $16 million dollars per aircraft, and the Company believes
that it can realize a profit of approximately $3.5 million on each aircraft
sold.
PRINCIPAL PRODUCTS AND THEIR MARKETS
Aviation Upgrade Technology is to be launched as a single program company,
namely the re-engining and re-certification of the Boeing 727. The Company's
only product shall consist of installing two Rolls Royce RB211-535E4 powerplants
into the Boeing 727 aircraft, with primary emphasis upon the Boeing 727- 200
advanced version of this aircraft, since this would be the most conducive for
these modifications. The re-engining of these aircraft will consist of removing
the original JT8D engines and replacing them with two Rolls Royce RB211-535E4
powerplants. In effect, two high bypass RB211-535E4 Rolls Royce powerplants will
work in place of the original installation of three low bypass ratio JT8D
engines. The modification offered by the Company will include:
(1) Removal of three installed JT8D engines and their associated systems;
(2) Removal of "S" duct and all systems associated with the #2 center
engine;
(3) Structural modifications to the rear fuselage;
(4) Installation of two Rolls Royce RB211-535E4 powerplants, plus engine
support structures, nacelles, and thrust reversers on new side-mounted
struts;
(5) Integration of the RB211-535E4 powerplants with existing and
compatible systems and the airframe;
(6) Removal of existing wheel-well mounted Auxiliary Power Unit and its
associated systems;
(7) Installation of new (larger) Auxiliary Power Unit in space vacated by
baseline #2 engine; and
(8) Revision of engine control, hydraulic, pneumatic and fire control
systems. In addition to its power plant modification, which
constitutes the Company's core product, it will also offer the
following options.
(a) Modern technology winglets to further improve performance;
(b) a two person cockpit modification;
(c) certain aerodynamic "clean up" modifications; and
(d) heavy maintenance and AD termination as required by individual
aircraft.
The Company believes that a turn-around time of 45 to 60 days is feasible,
but for planning purposes, we have adopted a conservative 90 days for performing
this work. Payment terms will consist of 30% when the order is placed and the
remaining 70% upon delivery. In addition to a down payment, there is also a
weekly or by-weekly progress pay. The airline industry has a strict policy on
the delivery of an aircraft after extensive maintenance or modifications, and
this policy has been enforced by Boeing and Airbus throughout the industry to
all customers, regardless of size. Owners of the aircraft must settle all
outstanding bills relating to the aircraft before taking delivery. There are no
receivables or payment terms, other than cash payment in full, for the airline
business.
Most technical elements associated with the airframe related engineering
will be undertaken in the Seattle area, where there is talent available in the
form of retired Boeing engineers that are thoroughly familiar with the Boeing
727 and its many variants. Many subcontractors performing work for Boeing have
chosen to locate in this area. For nacelles, cowlings and thrust reversers,
which are the parts of the engines that you can see, have been produced in San
Diego, because this is where Rohr, Inc. is located, the world leader for these
assemblies. The presence of Rohr has attracted a lot airplane engine related
businesses to the San Diego area. The Company does not plan to operate an office
in either Seattle or San Diego. Rather, the Company will rely upon the existing
expertise of engineers located in these two cities. Initially, engineering
aspects of the process will have to be contracted out to qualified third party
contractors. When cash flow and capital permit, the Company will eventually
establish its own modification and installation facility, thereby increasing its
direct control over the program.
Three potential markets have been identified for the Rolls Royce
RB211-535E4 powered 727 aircraft. Freight and small package carriers, such as
Federal Express, UPS, Emery, DHL and Kitty Hawk, constitute the most the logical
focus of the Company's marketing efforts. Collectively, these companies are
still operating 324 Boeing 727 aircraft. The second biggest potential market for
the Company consists of corporate and executive jet operators. This is a rapidly
growing segment. Third, there is a market in developing countries and among
start-up passenger and small package freight carriers overseas. The prospects of
selling a re-engined Boeing 727 in South America look to be very good. The
economy in these areas is struggling and a new aircraft may be too expensive.
South American also has a lot of airports located at high altitudes, and this
translates into restrictions upon the number of passengers and the fuel that can
be carried. The Boeing 727 can perform extremely well under these difficult
circumstances, because it is almost overpowered by the Rolls Royce engines
chosen by the Company. Another huge overseas market consists of the former
Soviet Union countries. This fleet of airplanes is getting over aged and they
will no longer be allowed to land on western airports. The Company has
tentatively agreed to establish a sales organization in Estonia, which will
cover the former Soviet countries. The Company has been in discussion with the
former Prime Minister of Estonia, with the goal of making this individual the
head of this operation.
The largest number of Boeing 727's are being operated by passenger
carriers, but these are not the most likely market for the Company's re-engined
Boeing 727. Some of these airlines, such as Delta, have decided to sell their
Boeing 727's. Still, the largest carriers, such as Delta, American Airlines,
United Airlines, Northwest Airlines, TWA, Iberia and Continental Airlines
account for 423 of the B727's that are still active.
The Company plans to perform two different kinds of retrofits for the
Boeing 727 aircraft, and each retrofit will carry a different price tag. For a
cargo hauler like UPS or Federal Express, which together operate about 200
Boeing 727 aircraft, the job will require a cockpit conversion from 3 person to
2 person plus installation of the new engines. This retrofit will cost about $16
million. The second type of retrofit will apply to passenger carriers in South
America and the former Soviet Union. To accommodate these markets, the Company
will have to acquire an aircraft, install new engines, convert the cockpit,
refurbish the interior, put on winglets and do a heavy maintenance check. The
aircraft will also require a paint job. This type of retrofit will cost $20.5
million, but the aircraft should command a price of $24 million on the market.
To place these figures into some perspective, the 727's successor is the
Boeing 757. Today the price of a Boeing 757 is between $62 million and $68
million, depending upon the options selected. With an order of multiple
airplanes, you can realize a 10% discount. Still, the base price of a Boeing 757
is at least $56 million or higher. The Boeing 757 has the same diameter fuselage
as the 727, but it is a little longer and carries about 10% more load than a
Boeing 727. Because of the striking cost difference between re-engining a 727
aircraft and purchasing a new Boeing 757, the Company conservatively estimates
that the market for conversions of the 727 could approach 700 aircraft. Using
just the selling price of its cheaper retrofit, the $16 million pricetag, and
assuming present day fuel cost, the economics supporting a fifteen year
projection show that a Rolls Royce RB211-535E4 powered 727 can be equal or
better than those of equivalent new aircraft. In addition, because of the
currently depressed value of all Boeing 727 variants, re-certification to bring
these aircraft into compliance with Chapter 36 of the Federal Aviation
Regulations [containing the current rules and regulations for aircraft engines,
sometimes referred to as FAR 36] and Stage 3 noise regulations [governing nose
rules and limits, set by the International Civil Aviation Organization back in
the early 90's and taking effect on January 1, 2000], compliance will create
interesting purchase and re-sale opportunities for the Company.
The Company believes that its re-engined Boeing 727 will be one of the
quietest commercial aircraft ever built and, within its weight class, it will be
the quietest. In Europe, there are discussions about enforcing even stricter
noise regulations than the levels mandated by Stage 3. A re-engined Boeing 727
with these two Rolls Royce engines will comply with every noise rule suggestion
that has been published or which have come to the Company's attention. Further,
an even stricter nose regulation would boost the re-sale value of re-engineered
Boeing 727 tremendously.
In sync with the Company's two-fold retrofit policy, there are plans to
work on aircraft that are owned by customers and there are plans to purchase
aircraft and perform a more extensive retrofit. The market for Boeing 727's is
presently titled in favor of buyers. There is a good supply of desirable 727's
and this is expected to continue. Delta, for example, has chosen to sell their
fleet of 727s' over the next four to five years.
START-UP STRATEGY
The Company plans to launch its business with a special arrangement
offered to its initial customer, the Mexican passenger carrier reference
earlier. The letter of intent with this initial customer outlines the following
arrangement. This airline will provide two aircraft and contract for this work
to be performed for a fee. The Company will provide an incentive discount of $2
million dollars on the work to be performed and this customer will be given the
right to sell all salvaged parts, which could have a value of up to $5 million,
depending upon the condition of these parts. This initial customer will also
receive preferential treatment on scheduling in the future on repeat orders.
As one of its conditions for doing business with the Company, a 3rd Party
Supplier will have to participate in the development cost of the particular part
or parts that it is interested in providing. The Company will reimburse these
3rd Party Suppliers by awarding them orders at prices which return approximately
double their development cost investment over the first 60 airplanes
re-certified and re-engined. All of the design and development work performed
with these 3rd Party Suppliers will be shared with the Company and it will be
clearly stipulated that this work product may be submitted to the FAA for the
purpose of securing a Supplemental Type Certificate on this change. All 3rd
Party Suppliers have also agreed that the Supplemental Type Certificate will be
the property of Aviation Upgrade Technologies. With the incorporation of this
work product into the Supplemental Type Certificate, these designs will
effectively become the property of the Company. This is critical to the program,
because the Company wants to be able to do all of this work in house after all
commitments have been honored with its 3rd Party Suppliers. There may also be
instances in which a customer, such as Federal Express, will want to make these
installations themselves. By virtue of the Company's control over this
technology, via the patent like properties possessed by its Supplemental Type
Certificate, a flat fee can be charged to these customers that choose to do this
work themselves.
The Company plans to work on its initial two aircraft simultaneously, so
that the first aircraft can be cleared for FAA Certification within 21 months of
start-up and the second aircraft can be cleared in the 23rd month from start-up.
Once FAA certification has been achieved, the Company expects to be able to get
Purchase Order financing for another $6 million, which will be used for cash
flow purposes as the Company ramps up its production. Purchase Order Financing
will carry the business through months 21 to 24. After the 24 months, there
should be sufficient cash flow from the 30% (and sometimes higher) downpayment
for future orders. The Company has not negotiated with any banks, because it
does not foresee any problem in getting $6 million through Purchase Order
financing. The sum of $6 million is considered a low dollar amount compared to
the Purchase Order itself, which will be for several hundred million dollars.
Although the Company is aware of the high interest rate typically charged on a
Purchase Order Financing, the Company's profit margin is such that this sum can
be comfortably absorbed.
After the first two aircraft prototypes are completed, the Company plans
to have three aircraft coming to completion in month 25, then add two aircraft
per month to the production line until the goal nine aircraft per month is
reach, which should occur in month 28. This schedule predicated upon a ninety
day, start to finish schedule. With everything working smoothly, the Company
believes that a start to finish schedule of between 45 to 60 is possible. The
figure of ninety days is considered safe.
DISTRIBUTION METHODS
The Company will employ its own in house sales force. The market for the
Boeing 727 has already been studied in depth, and there are no mysteries
relating to the whereabouts of these airplanes and the identities of their
owners. Consequently, the Company believes that this market can be adequately
serviced with a small number of highly trained personnel working on telephones
until negotiations reach the point where travel becomes necessary. The
headquarters office will be located in the U.S. Its exact location will depend
upon the property chosen as the future site of the Company's manufacturing
facility. The Company also plans to establish a satellite office in Estonia. A
specific location has already been chosen. Finally, the Company is giving strong
consideration to the establishment of an office in South America.
COMPETITIVE BUSINESS CONDITIONS
THE COMPANY'S COMPETITIVE POSITION
The Company has one direct competitor, the Aerospace Division of B.F.
Goodrich Co. However, this existing competitor has substantially greater
financial resources, substantially greater market position and, upon acquiring
Rohr, Inc. in December of 1997, B. F. Goodrich can claim credit for previously
re-engining and recertifying the Boeing 727. The Aerospace Division of B.F.
Goodrich operates a Maintenance, Repair and Overhaul Group. As the term implies,
this Group provides maintenance, repair and overhaul of commercial airframes,
components, wheels and brakes, landing gear, instruments and avionics for
commercial, regional, business and general aviation customers. B. F. Goodrich is
among the largest suppliers of aircraft systems and components and aircraft
maintenance repair and overhaul service businesses in the world. B. F. Goodrich
competes with other aerospace industry manufacturers to supply parts and provide
service on specific fleets of aircraft, frequently on a program-by-program bid
basis. In this business, competition is primarily based on product performance,
service capability and price. Contracts to supply systems and components and
provide service are generally with aircraft manufacturers, airlines and
airfreight businesses worldwide. B. F. Goodrich also competes on U.S. government
contracts, generally as a subcontractor. The competition in this sector is
principally based on product performance and price.
Attempts to re-engine and recertify the Boeing 727 date back fifteen years.
Only one of these proposals ever came to fruition. This was done by a company
called Valsan, Inc. ["Valsan"]. Valsan performed its re-engine program by
changing the outboard engines, numbered one and three, with Pratt & Whitney
JT8D-217C powerplants. The Pratt & Whitney JT8D-217C powerplants were originally
designed for the McDonnell Douglas MD-80. By today's standards, the technology
in these powerplants is considered marginal, because they are not very
fuel-efficient and they barely comply with today's emission standards. In
addition to replacing outboard engines #1 and #3 with Pratt & Whitney JT8D- 217C
powerplants, Valsan placed a hush kit, basically a muffler, upon the original
engine in the center (#2 position). This bandage approach results in a center
engine that is in compliance with noise emissions, but still putting out fuel
emissions in excess of present standards. Furthermore, hush kits are not
permitted to be used over European skies after April of 2000. Valsan's re-engine
kit allows the Boeing 727 aircraft to meet noise emission standards in the U.S.,
but not in Europe. The cost of Valsan's re-engine was between $8 million and $9
million dollars.
The technology developed by Valsan became the basis for a settlement
between Valsan and another company called Rohr, Inc. Soon after this settlement,
Valsan went out of business. Rohr became a part of the B.F. Goodrich Aerospace
division in late 1997. Today, B.F. Goodrich Aerospace is actively promoting
Rohr's program as "The Super 27" product.
Although a competitor, the Company finds so many flaws in this design, it
considers its technology to be inferior and, even though it has the resources of
B.F. Goodrich Aerospace are behind it, "The Super 27" product is considered a
weak solution to the problem, when compared to the program which will be
performed by Aviation Upgrade Technologies.
INSURANCE
The Company has not yet acquired any of the necessary insurance
coverages typically stipulated within the aviation maintenance industry. Before
commencing full scale operations, the Company will have to secure insurance to
cover general aviation liability and, for clients are maintaining ownership over
their aircraft and simply paying for a retrofit, hangarkeeper insurance. These
types of policies are typically required by customers. Typical limits for such
coverages are $200,000,000 of insurance for general aviation liability and
$200,000,000 of hangarkeeper insurance, plus customary coverage for other
business insurance. Because of the nature of the aviation business, even with
these insurance limits in force, there can be no assurance that such coverage
will fully protect the Company against all losses which it might sustain.
Moreover, typical policies carry a deductible a high deductible, which might
require the payment of as much as $20,000 for any loss or damage, before this
insurance can be engaged.
SOURCES AND AVAILABILITY OF MATERIALS AND PRINCIPAL SUPPLIERS
After initial discussions with Rolls Royce, and after an internal review
of its capabilities, Rolls Royce has responded by confirming that they have the
capability to produce eighteen engines (nine shipsets) per month, predicated
upon a ten month forecast. The Company believes that it will be able to provide
this ten month forecast. Other critical suppliers for parts such as the nacelle
and thrust reversers have also indicated that eighteen per month, with a ten
month forecast, are not a problem. Based upon discussions with different
suppliers, the Company does not anticipate supplier shortage problems. The
present down cycle of the Asian economy and the some aircraft order
cancellations has been beneficial to the Company, because this has freed up some
of the supplier volumes and it has also provided competitive pricing. If demand
for the Rolls Royce aircraft engine and any of its related parts should
increase, such that Rolls Royce or another critical supplier will have to reduce
its commitment to some number under eighteen per month, this could have a direct
and negative impact upon the Company, its finances and results from its
operation, and the Company's ability to maintain a line speed of nine aircraft a
month will be diminished proportionately by the reduced flow of critical parts.
DEPENDENCE ON ONE OR A FEW CUSTOMERS
This does not apply. The Company has no revenues or current customers.
PATENTS, TRADEMARKS, LICENSES, CONCESSIONS AND ROYALTIES
The Company does not presently own any patents, trademarks, licenses,
concessions or royalties. When the Company has successfully secured its
Supplemental Type Certificate, this will be the equivalent to a patent for the
airline industry and its worth might conceivably range from $50 to $75 million.
NEED FOR GOVERNMENT PRODUCT APPROVAL OF PRODUCTS
The Company will be dependent upon the Federal Aviation Administration
("FAA") to re-certify all of its re-engined aircraft before they can be placed
into service. The FAA has already responded to requests for the modification of
the Boeing 727. The FAA has the authority, pursuant to Section 21.19(b)(1) of
the Federal Aviation Regulations, to allow replacement of the original Pratt &
Whitney JT8D engines with modern, high bypass powerplants. In one such FAA
statement, made as a result of one of these exemption requests, the FAA stated
that it would be in the public interest to grant such an exemption.
The Company believes that the FAA has already approved in principle its
plan for re-engining the Boeing 727, because the Rolls Royce RB211-535E4
powerplants are considered modern, high bypass powerplants. The FAA has further
stated that this can be the subject of a Supplemental Type Certificate as
opposed to a Type Certificate. The latter requires a much more rigorous approval
process.
EFFECT OF EXISTING OR PROBABLE REGULATIONS ON BUSINESS
On December 31, 1999, more stringent noise and emission standards will
become mandatory in the U.S. and Europe. These regulations will force existing
owners of Boeing 727 aircraft to make the hard decisions that have probably been
postponed for years. Owners of these aircraft will have to either replace these
airplanes with new airplanes or have these older aircraft brought into
compliance. The Company believes that this regulatory phenomenon has opened up
an untapped market with a value that can be as high as $12 billion dollars. The
scheduled change in these regulations constitutes the driving force behind the
Company's business.
LAST YEARS RESEARCH AND DEVELOPMENT SPENT
The Company has only been in business since January of 1999, and only one
year's history can be reported. The Company has spent nothing for the months
ending July 31, 1999 for research and development.
COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
Because the Company has not yet commenced business operations, it has not
yet experienced any costs or effects due to compliance with environmental laws.
However, when the Company resumes operations, its operations will be subject to
a substantial amount of government regulation. In particular, the Environmental
Protection Agency ("EPA") and state and local regulatory authorities regulate,
among other things, emissions to air, discharges to water and the generation,
use, storage, transportation, treatment and disposal of the substances employed
by the Company in its aircraft overhauling and retrofitting operations. The
Company's facilities, or the facilities of third party suppliers, may require
operating permits that are subject to revocation, modification and renewal.
Violations of these permits may provide for substantial fines and civil or
criminal sanctions. In addition, potentially significant expenditures could be
required in order to comply with environmental, health and safety laws and
regulations that may be adopted or imposed in the future.
Because of a focus toward greater environmental awareness and increasingly
stringent environmental regulations, the Company believes that expenditures for
compliance with environmental, health and safety regulations will continue to
have a significant impact on the conduct of its business. Although it cannot
predict accurately how these developments will affect future operations and
earnings, the Company does not believe its costs will vary significantly from
those of its competitors.
The Federal Aviation Administration (the "FAA") regulates most of the
Company's business operations. The Company's overhaul business is dependent upon
continued compliance with the requirements of the FAA and maintenance of the
FAA's certifications. Loss of any necessary FAA certifications could have a
material adverse effect on the Company's operations and financial condition.
NUMBER OF FULL TIME EMPLOYEES
The Company has no full-time employees and 3 part-time employees.
YEAR 2000 RISKS
The Year 2000 compliance issue results from the inability of systems
that utilize computer programs to differentiate between the year 1900 and the
year 2000. This issue arises because many such programs were developed using two
digits rather than four digits to identify the applicable year. As a result,
programs that use time-sensitive calculations may not function correctly in the
year 2000. Those programs developed using four-digit years are probably Year
2000 compliant. All other programs will likely require modification and/or
replacement to be compliant. The Year 2000 issue not only affects computer
hardware and software, but also can affect equipment used in operations, and
extends to the systems of outside suppliers and customers, upon which the
Company must rely.
The Company considers itself compliant with Year 2000 programs and does
not anticipate any system failures or miscalculations. This is because the
Company's core business, overhauling Boeing 727's, is mechanical in nature and
it is not software driven.
The company has not performed an initial assessment of Year 2000
compliance on our third party suppliers and business partners. We rely on, and
will continue to rely on, these third parties to provide the following:
- equipment, goods, and services;
- marketing and distributing support.
There can be no assurance that these third parties will adequately address Year
2000 compliance issues or that contingency plans in certain areas are possible
or practical. The Company believes that minor failures may occur in the year
2000 and will not materially affect the manufacture or shipping of medical
devices.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
RESULTS OF OPERATIONS:
The Company is a start-up company and to date has no revenue from operations.
The primary activities to date have been limited to interviewing and making
decisions on key personnel, looking at possible facilities and interviewing the
different cities where these facilities are located, regarding location
incentives. The Company has looked at the Southern California International
Airport in Victorville, at Palmdale Boeing facilities, at the San Bernadino
International Airport and in Holland, discussing the closed Fokker factory near
the Amsterdam Airport. A lot of time has also been spent discussing the project
with different engineering firms and groups to ascertain what specialties and
what mix of talent will be needed to be successful. Finally, the Company has
been in contact with several investment bankers and investor brokers for seek
capital and strategic partners.
Management does not consider the historical results of operations to be
representative of future results of operation of the Company. During the months
ended July 31, 1999 the Company sold 10,000,000 shares of common stock for
$20,000. The proceeds from the sales of these securities were used to further
the development of the Company's strategic plan and finance daily operations.
The following financial information shows results of operations for the months
running from the Company's inception on January 8, 1999 to July 31, 1999.
7 Months Ended
July 31, 1999
Summary Income Statement
Income from operations ............ $ - 0 -
Income from sale of stock ......... $ 20,000
Income from other sources ......... $ - 0 -
Net Income ................... $ 20,000
ASSETS
-----------
Cash .............................. $ 0
Other Assets ...................... $ 0
Organizational Assets ............. $ 530.00
Total Assets ...................... $ 530.00
LIABILITIES AND SHAREHOLDERS
EQUITY (DEFICIT)
Accounts Payable .................. $ 0
Note & Interest Payable ........... $ 0
Common Stock $.001 par value ...... $ 10,000
Additional Capital ................ $ 10,000
Deficit Accumulated during
development stage ............... ($ 19,470)
---------------
Total Shareholder's Equity ........ $ 530.00
Total Liabilities & Equity ........ $ 530.00
PLAN OF OPERATIONS
For the coming four months, the Company intends to finalize agreements for
seed capital, sign a lease for corporate offices, finalize agreements with the
engineering groups and hire key people. We also hope to hire our in house
engineering staff.
LIQUIDITY AND CAPITAL RESOURCES
During the period from January 8, 1999 through July 31, 1999 the Company sold
10,000,000 shares of Common Stock for $20,000. The proceeds from the sale of
this stock has already been exhausted. As of July 31, 1999, the Company has no
debt. However, to execute its business plan, the Company intends to sell
additional shares of common stock to raise up to $12,300,000. Should the Company
not raise additional capital, operations will be materially adversely affected.
If less than $12,300,000 is raised, the Company will have to scale down its
plans, reduce the size of its own offices, and stretch out its schedule for
producing its first prototype until funds are finally secured for launching the
Company's business plan. The Company believes that there are viable alternatives
to pursue, even if the entire $12.3 million is not raised.
ITEM 3. DESCRIPTION OF PROPERTY
The Company presently does not have any customized manufacturing
facility. Currently, the Company is using the 400 square feet offices of Minitec
Marketing, Inc., which is located in the home of the Company's founder, Torbjorn
B. Lundqvist at 34040 Camino Del Avion in Monarch Beach, California.
Depending upon financing, the Company plans to develop its own
manufacturing site. Several closed military air basis in Southern California are
being considered among its options. The Company is presently engaged in
exploratory discussions with several parties relating to these bases, discussing
such matters as tax credits, hiring credits for wages paid, infrastructure
improvements, discount on business license and building permits, fast track
handling for all permits and net operating loss carry-over. Of course, before
any of these opportunities can be pursued, the Company must first be successful
in raising additional capital through its public offering.
The Company plans to establish its headquarters and two manufacturing
facilities. One of these two manufacturing facilities, requiring an estimated
200,000 square feet, will have a production line that can accommodate ten
aircraft. The second facility will be approximately the same size and this
facility will be used to handle heavy maintenance and interior modifications.
The Company plans to make both of these state of the art manufacturing
facilities, complete with tooling, equipment, tugs, lifts and carts so that the
entire process can be automated to the extent that it is feasible to do so.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS &
MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
principal stockholders, defined as parties that own five percent or more of the
Common Stock as of October 31, 1999.
Name and address Amount & Nature Percent of Class
Of Beneficial Owner of Beneficial Owner
Torbjorn B. Lundqvist 10,000,000 100%
34040 Camino Del Avion
#A303
Monarch Beach, Ca. 92629
The following table sets forth the beneficial ownership of the Common
Stock by the Directors of the Company.
Name and address Amount & Nature Percent of Class
Of Beneficial Owner of Beneficial Owner
Torbjorn B. Lundqvist 10,000,000 100%
34040 Camino Del Avion
#A303
Monarch Beach, Ca. 92629
Darle K. Ford 0 0
34040 Camino Del Avion
#A303
Monarch Beach, Ca. 92629
Dick G. Lindholm 0 0
34040 Camino Del Avion
#A303
Monarch Beach, Ca. 92629
All directors, executive 10,000,000 100%
officers as a group
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The table below sets forth the names and ages of the executive officers
and directors of the Company, as well as the positions held by such persons.
Name Age Position
Torbjorn B. Lundqvist 47 C.E.O / Chairman
Darle K. Ford 59 President
Dick G. Lindholm 49 V. President
Board members are serving without compensation. The Company
has not secured Director's Insurance. The Company has not secured
insurance coverage for its officers.
A brief biographical sketch of each officer and director follows.
Torbjorn B. Lundqvist, Chairman and CEO / Mr. Lundqvist, the company's
founder, has been the person primarily responsible for the formation and
development to date of Aviation Upgrade Technologies, Inc. Mr. Lundqvist has had
vast experience in international business. His strength is managing and
developing new ventures and ideas. Mr. Lundqvist was born in Helsinki, Finland
in 1952. After serving as a transportation officer during his mandatory service
in the Finnish army, he owned and managed several companies in Finland,
including companies involved in remodeling and manufacturing. Since 1989 he has
been Owner/President of Minitec Motors, Inc., USA a car dealership specializing
in exporting cars to niche markets. During the same period, Mr. Lundqvist has
also been Owner/President of Minitec Marketing, Inc. which is an import/export
firm dedicated to finding buyers/sellers for a wide range of products. Among
other things, Minitec invented, patented and manufactured a Power Take Out for 4
wheel drive GM vehicles. The product was developed to suit a niche market in
Finland. Mr. Lundqvist married with two children and resides in Orange County,
California.
Darle K. Ford, President and Director / Mr. Ford has a diverse background
in program management and functional organization leadership. He has
demonstrated strong analytical, problem solving, team participation and
interpersonal skills. He has been employed, since 1978, with Boeing (McDonnell
Douglas) in Long Beach, California. He has been a program manager in, among
other things, the DC-10 Tri-Jet production program and the MD-11 Production
Program. He was also involved in converting MD-11 aircraft configuration for
addition to the Saudia Royal fleet (aircraft of caliber and similar to Air Force
One). Mr. Ford has a MBA from Pepperdine University and a Bachelor of Science in
Aerospace Engineering from Northrop University in Inglewood, California. He is
an instrument rated licensed pilot in commercial, multi-engine and single engine
airplanes. Mr. Ford was born in 1941 in Oklahoma.
Dick Lindholm, Vice President and Director / Mr. Lindholm is known in the
aircraft industry as a problem solver and skillful negotiator, including
experience dealing with clients, suppliers and labor unions. He has over thirty
years aviation experience, primarily in rotorcraft and rotary wing engines. He
has thirty years flying experience with over 8000 flying hours. From 1976 until
1985 he was president of Helikopteripalvelu, the leading helicopter company in
Finland. From 1985 until 1993 he held various duties as a pilot for Helikopter
Service A/S. From 1993 until 1997 he was either Director or Managing Director of
Helifyg AB, the leading helicopter operator in Sweden. From 1997 to march, 1999
he was area manager, nordic countries, of Helicopter Service A/S, the world
leading helicopter company. Since March 1999 Mr. Lindholm has been Vice
President of Business development for Copter Action Oy, Finland. Mr. Lindholm
was born in 1952 and resides in Hirbolebagen, Finland.
The Company's success is principally dependent upon its current management
personnel for the operation of its business. In particular, Torbjorn B.
Lundqvist, its founder and Chief Executive Officer, has played a crucial role in
the development and management of the Company. There is no assurance that
additional managerial assistance will not be required. If the Company lose the
services of an executive officer or one or more key employees or its ability to
attract and retain such personnel, the business, financial condition, results of
operations and cash flows will be materially and adversely affected. The Company
does not have employment agreements with its senior officers and does not have
"key person" life insurance policies covering any of its key officers.
ITEM 6. EXECUTIVE COMPENSATION
Summary Compensation Table, 1999
Name & Principal Salary to be Salary to be Other
Position Paid in Cash Paid in Stock Compensation
Torbjorn B. Lundqvist 0 0 0
C.E.O
Chairman of Board
Darle K. Ford 0 0 0
President
Dick Lindholm 0 0 0
Vice President
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's founder is also the owner of the space which is used as an
office by the Company. No compensation is being paid to Mr. Lundqvist for the
use of this space. Further, this arrangement is viewed as a temporary one.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 100 million shares
of Common authorized with a par value of $0.001 per share, and no Preferred
Stock authorized.
COMMON STOCK
10,000,000 shares of Common Stock were issued and outstanding as of July
31, 1999.
Holders of the Common Stock do not have preemptive rights to purchase
additional shares of Common Stock or other subscription rights. The Common Stock
carries no conversion rights and is not subject to redemption or to any sinking
fund provisions. All shares of Common Stock are entitled to share equally in
dividends from sources legally available therefor when, as and if declared by
the Board of Directors and, upon liquidation or dissolution of the Company,
whether voluntary or involuntary, to share equally in the assets of the Company
available for distribution to stockholders. The Board of Directors is authorized
to issue additional shares of Common Stock on such terms and conditions and for
such consideration as the Board may deem appropriate without further stockholder
action.
Each holder of Common Stock is entitled to one vote per share, either in
person or by proxy, on all matters that may be voted on by the owners thereof at
meetings of the stockholders. Since the shares of Common Stock do not have
cumulative voting rights, the holders of more than 50% of the shares voting for
the election of directors that can elect all the directors and, in such event,
the holders of the remaining shares will not be able to elect any person to the
Board of Directors.
RESTRICTED SECURITIES
All of the Company's Common Stock is held by insiders and persons who
acquired shares in private offerings. These are "restricted securities" as that
term is defined in Rule 144 promulgated under the Securities Act. In general,
Rule 144 provides that, during any three month period, each person holding
restricted securities can sell an amount of such securities equal to the greater
of (a) 1% of the number of outstanding shares or (b) the average weekly reported
trading volume of those securities during the preceding four calendar week
period, provided that certain conditions are met. One of these conditions is
that the stock must be purchased for investment purposes and held for a minimum
period of one year, and in some instances even longer. Although there is
presently no trading market in the Company's securities, if and when such a
market should develop, sales of these restricted securities under Rule 144 or
otherwise by current stockholders of the Company could have a depressive effect
on any trading market which may develop for the Company's Common Stock. No
predictions can be made of the effect, if any, that market sales of shares or
the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of significant amounts of the Common
Stock of the Company in the public market may adversely affect market prices and
may impair the Company's ability to raise capital at that time through
additional sale of its equity securities.
DIVIDENDS
The Company has not declared or paid any dividends on its Common Stock to
date and there is no assurance that the Company will ever be able to pay
dividends in the future. The Company currently intends to pay out a portion of
its future earnings to its stockholders in the form of dividends, but the
Company's first priority must be to fund the development and growth of its
business, to repay indebtedness and for the general corporate purposes.
Therefore, it may be awhile before the Company is in a position to pay out
dividends to its stockholders. Any future determination to declare and pay
dividends will be made by the Board of Directors of the Company in light of the
Company's earnings, financial position, capital requirements, credit agreements
and such other factors as the Board of Directors deems relevant. Any decision to
pay dividends is subject to Nevada Law, under which the Company is permitted to
pay cash dividends to shareholders only (i) out of the Company's capital surplus
(the excess of net assets over stated capital) or (ii) out of the net income of
the Company for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
SECONDARY TRADING RESTRICTIONS
Presently, there is no market in the Company's securities. If a market
should develop, the Companies securities will be sold at least initially Over
the Counter ("OTC") on the NASD's Bulletin Board ("BB"). Stocks sold over the
NASD's OTC/BB are governed by a Securities and Exchange Commission rule for
"penny stocks" (defined as stocks that cost $5.00 or less per share) that
imposes additional sales practice burdens and requirements upon broker-dealers
which sell such securities to persons other than established customers and
accredited investors (generally institutions with assets in excess of $5,000,000
or individuals with a net worth in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 jointly with their spouse). For transactions
covered by the Penny Stock rule, the broker-dealer must make a special
suitability determination for the unaccredited purchaser and receive the
purchaser's written agreement to the transaction prior to the sale.
Consequently, the penny stock rule may affect the ability of broker-dealers to
sell the Company's securities and also may affect the ability of persons now
owning or subsequently acquiring the Company's securities to resell such
securities in any trading market that may develop. Although the Company's goal
is to have its securities included in the National Association of Securities
Dealers Automated Quotation System ('NASDAQ'), which would exempt such
securities from the above rule, there is no assurance that the Company will meet
NASDAQ's financial listing requirements.
TRANSFER AGENT
The registrar and transfer agent for the Common Stock is Interwest Stock
Transfer, located in Salt Lake City, Utah.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
There is no trading market for the Company's Common Stock at present.
Management has not undertaken any discussions, preliminary or otherwise, with
any prospective market maker concerning the participation of such market maker
in the market of the Company's securities. Management does not intend to
initiate any discussion until such time as the Company has become a fully
reporting company, on a voluntary basis, with the Securities and Exchange
Commission and has filed all required financial statements and disclosure
documents. There is no assurance that a trading market will ever develop or, if
such market does in fact develop, that it will continue.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 3. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
The Company has no material disagreements with its accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
With the exception of the sale of 10 million shares to Mr. Lundqvist,
there have been no other sales of stock. The Company has filed a Form D and for
a Rule 504 offering, but to date, no stock has been sold pursuant to this
offering.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions in its Articles of Incorporation, 78 et
seq. of the Nevada Code, the Bylaws of Registrant or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
(the "Commission") such indemnification is against public policy as expressed in
the Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
AVIATION UPGRADE TECHNOLOGIES, INC.
By /s/ Torbjorn B. Lundqvist
Chief Executive Officer and President
<PAGE>
AVIATION UPGRADE TECHNOLOGIES
(A Development Stage Company)
BALANCE SHEET
AS OF JULY 31, 1999
<TABLE>
<CAPTION>
ASSETS July 31, 1999
- ---------------------------------------------------------------- -------------
<S> <C>
Research & Development .......................................... $ 0
Organization Cost (Net) ......................................... 530
TOTAL ASSETS ........................... 530
========
Liabilities: .................................................... 0
--------
Stockholders' Equity (Note #1)
Additional Paid In Capital ................................. 10,000
Common Stock (Par Value $0.001) 100,000,000 shares
Authorized, 10,000,000 shares issued and outstanding
10,000
Retained Earnings (Beginning) ................................... 0
Net Income (Loss) for Period .................................... (19,470)
Total Stockholders'
Equity ................................. 530
--------
TOTAL LIABILITIES & STOCKHOLDERS EQUITIY ................... 530
========
</TABLE>
The accompanying notes are an intergal part of these financial statements.
<PAGE>
AVIATION UPGRADE TECHNOLOGIES
(A Development Stage Company)
INCOME & EXPENSE STATEMENT
FROM JANUARY 9, 1999,THE DATE OF INCEPTION, TO JULY 31, 1999
<TABLE>
<CAPTION>
7 MOS ENDED
DESCRIPTION Jul. 31 1999
- --------------------------------------------------------------- ------------
<S> <C>
Income ....................................................... $ 0
------------
Expenses:
General and Administrative ......................... 19,400
Amortization ....................................... 70
------------
Total Expenses ...................... $ 19,470
------------
Net Income (Loss) for Period ........ $ (19,740)
============
Weighted average number of
Common shares outstanding
10,000,000
============
Net loss per share ........................................... $ (0.0019)
============
</TABLE>
The accompanying notes are an intergal part of these financial statements.
<PAGE>
AVIATION UPGRADE TECHNOLOGIES
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
July 31, 1999
<TABLE>
<CAPTION>
Deficit
Additional accumulated
COMMON STOCK paid-in during
DESCRIPTION Shares Amount capital development
- ---------------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
January 10, 1999
issued for cash ..... 10,000,000 $ 10,000 $ 10,000
Net Loss,
January 8, 1999
(inception) to
July 31, 1999 ........ ($ 19,470)
---------- ---------- ---------- -----------
Balance,
July 31, 1999 10,000,000 $ 10,000 $ 10,000 ($ 19,470)
========== ========== ========== ===========
</TABLE>
The accompanying notes are an intergal part of these financial statements.
<PAGE>
AVIATION UPGRADE TECHNOLOGIES
(A Development Stage Company)
STATEMENT of CASH FLOWS
FROM JANUARY 9, 1999,THE DATE OF INCEPTION, TO JULY 31, 1999
<TABLE>
<CAPTION>
DESCRIPTION
- -----------------------------------------------
<S> <C>
Cash Flows from Operating Activities:
Net Loss ............................................ $(19,470)
Amortization ........................................ 70
Changes in assets and liabilities ................... 0
Organization Cost ................................... $ (600)
Cash flows from financing activites -
Sale of common stock .............................. 20,000
Net increase in cash ..................... 0
Cash, beginning of period ........................... 0
Cash, end of period ...................... 0
</TABLE>
The accompanying notes are an intergal part of these financial statements.
<PAGE>
BARRY L. FRIEDMAN, P.C.
Certified Public Accountant
1582 TULITA DRIVEOFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO (702) 896-0278
INDEPENDENT AUDITORS' REPORT
Board Of Directors August 26, 1999
Aviation Upgrade Technologies, Inc.
Monarch Beach, California
I have audited the Balance Sheet of Aviation Upgrade Technologies, Inc., (A
Developmental Stage Company), as of July 31, 1999, and the related Statements of
Operations, Stockholders' Equity and Cash Flows for the period January 8, 1999,
inception, to July 31, 1999. These financial statements are the responsibility
of the Company's management. My responsibility is to express all opinion on
these financial statements based oil my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. -An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aviation Upgrade
Technologies, Inc., Inc.), (A Developmental Stage Company), as of July 31, 1999,
and the results of its operations and cash flows for the period January 8, 1999,
inception, to July 31, 1999, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note #3 to the
financial statements, the Company has had no operations and has yet to generate
any revenue. This raises substantial doubt about its ability to continue as a
going concern. Management's plan in regard to these matters are also described
in Note #3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Barry L. Friedman
Certified Public Accountant
<PAGE>
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized January 8, 1999, under the laws of the State of
Nevada, as Aviation Upgrade Technologies, Inc. The Company has yet to generate
any significantrevenues and in accordance with Statement of Financial Accounting
Standards No. 7 (SFAS #7) the Company is considered a development stage company.
On January 10,1999, the Company issued 10,000,000 shares of its $.001 par
value stock for cash of $ 20,000 to a director.
NOTE 2 -- ACCOUNTING POLICIES AND PROCEDURES
Accounting policies arid procedures have not been determined except as
follows:
1. The Company uses the accrual method of accounting.
2. Earnings per share is computed using the weighted average
number of shares of common stock outstanding.
3. The Company has not yet adopted any policy regarding
payment of dividends. No dividends have been paid since
inception.
4. Organization costs of $ 600 are being amortized over a 60 month period
commencing January 8, 1999, to January 7, 2004.
NOTE 3 -- GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. However, the Company has yet to generate any revenue. Additionally,
the Company does not have significant cash or other material assets, nor does it
an established source of revenue sufficient to cover its operating costs and to
allow it to continue as a going concern indefinitely.
It is the intent of the Company to seek to raise additional capital via a
state registered regulation "D", Rule 504 offering registered in Nevada. Without
realization of additional capital, it would be unlikely for the Company to
continue as a going concern. Until that time, the shareholders/officers and/or
directors have committed to advancing the operating costs of the Company
interest free.
NOTE 4 -- RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. A
director provides office services without charge. Such costs are immaterial to
the financial statements and, accordingly, have not been reflected therein. The
officers and directors of the Company are involved in other business activities
and may, in the future, become involved in other business opportunities. If a
specific business opportunity becomes available, such persons may face a
conflict in selecting between the Company and their other business interests.
The Company has not formulated a policy for the resolution of such
conflicts.
NOTE 5 -- WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional
shares of common stock.
NOTE 6 - OFFICERS ADVANCES
While the Company plans to seek additional capital through a state
registered offering, until that time, the stockholders/officers and/or directors
have committed to advancing the operating costs of the Company interest free. As
of July 31, 1999, the amount advanced is zero.
<PAGE>
SECRETARY OF STATE
[STATE SEAL]
STATE OF NEVADA
CORPORATE CHARTER
I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State, do
hereby certify that AVIATION UPGRADE TECHNOLOGIES, INC. did on JANUARY 8, 1999,
file In this office the original Articles of Incorporation; that said Articles
are now on file and of record in the office of the Secretary of State of the
State of Nevada, and further, that said Articles contain all the provisions
required by the law of said State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my hand
and affixed the Great Seal of State, at my
office, in Las Vegas, Nevada, on JANUARY 8, 1999.
/s/
Secretary of State
By /s/
[STATE SEAL]
Certification Clerk
BYLAWS
OF
AVIATION UPGRADE TECHNOLOGIES, INC.
SECTION I
Meetings of Shareholders
1.1 Annual Meeting. An annual meeting of the shareholders for the purpose
of electing directors and for the transaction of such other business as may come
before the meeting shall be held each year on the 30th day of November, provided
the board of directors may fix some other date before or after said above date.
If the day designated above or fixed by the board for the annual meeting shall
be a Sunday or other legal holiday in the state where held, such meeting shall
be held on the next succeeding business day. If the election of directors shall
not be held on the day designated above or fixed by the board for any annual
meeting of the shareholders, or at an adjournment thereof, the board of
directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as conveniently may be done.
1.2 Special Meetings. Special meetings of the shareholders, for any purpose
or purposes, unless otherwise prescribed by statute, may be called by the
president or the board of directors, and shall be called by the president or any
vice president at the request of the holders of not less than one-tenth of all
the outstanding shares of the corporation entitled to vote at the meeting.
1.3 Place of Meeting. Meetings of the shareholders shall be held at the
registered office of the corporation or at such other place as fixed by the
board and stated in the notice of the meeting.
1.4 Notice of Meeting. Written or printed notice stating the place, date,
and hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
days nor more than sixty days before the date of the meeting, either personally
or by mail or by telex or facsimile transmission, by or at the direction of the
president, the secretary, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the U.S. mail, addressed to
the shareholder at his address as it appears on the stock record books of the
corporation, with postage thereon prepaid.
1.5 Fixing of Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
<PAGE>
proper purpose, the board of directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than seventy days prior to the date on which the particular action,
requiring determination of shareholders, is to be taken. If no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the close of business on the date on which notice of the meeting is
mailed or on the date on which the resolution of the board of directors
declaring such dividend is adopted, as the case i-nay be, shall be the record
date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall be applied to any adjournment
thereof.
1.6 Voting Lists. The officer or agent having charge of the stock transfer
books for shares of the corporation shall make prior to each meeting of
shareholders a complete list of the shareholders entitled to vote at such
meeting, or any adjournment thereof, arranged, by alphabetical order, with the
address of and the number of shares held by each, which list, beginning two (2)
business days after the notice of meeting is first given for such meeting and
continuing through such meeting, shall be kept on file at the principal office
of the corporation or at a place identified in the meeting notice in the city
where the meeting will be held, and shall be subject to inspection by any
shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders. Failure to comply with the requirements of this section
shall not affect the validity of any action taken at such meeting.
1.7 Quorum. Except as otherwise provided by law, a majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. Though less than a quorum of the outstanding
shares is represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
1.8 Proxies. At all meetings of shareholders a shareholder is entitled to
vote either in person or by proxy executed in writing by the shareholder or by
his duly authorized attorney-in-fact. Such proxy shall be filed with the
secretary of the corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
1.9 Voting. Each outstanding share shall be entitled to one vote upon each
matter submitted to a vote at a meeting of shareholders. At each election for
directors each shareholder entitled to vote at such election shall have the
right to vote, in person or by proxy, only the number of shares owned by him for
as many persons as there are directors to be elected. No cumulative voting for
directors shall be permitted. If a quorum is present all elections shall be by
plurality vote and upon any question the affirmative vote of the shares
represented at the meeting
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and entitled to vote shall be the act of the shareholders unless upon some
matter the vote of a greater number of shares is specifically required by law,
the articles or these bylaws. the vote for directors and, upon the demand of
any shareholder, the vote upon any question before the meeting shall be by
ballot; provided that nothing herein or in the articles shall prevent the
shareholders, by unanimous approval of all stock represented at the meeting,
from voting for directors by suspending the foregoing provision of the bylaws
and instructing the secretary to cast the unanimous ballot of all stock
represented in favor of the persons nominated for directors where not more than
the number of persons to be elected as directors have been nominated.
1.10 Order of Business. At all meetings of the shareholders, so far as
practicable and unless otherwise determined by the shareholders, the following
order of business shall be observed:
(a) Meeting called to order.
(b) Ascertainment of quorum.
(c) Report of secretary as to notice of meeting.
(d) Reading and approval, or waiver of reading, of minutes
of last meeting of shareholders.
(e) Items of business as set forth in notice of meeting.
(f) Address or comments of president or other officers.
(g) Any additional business presented and by the presiding
officer deemed in order.
(h) Adjournment.
1.11 Shareholder Ratification. Any contract, transaction, or act of the
corporation or of the directors or officers or of any committee which shall be
ratified by the holders of a majority of the stock of the corporation voting at
any validly held meeting, annual or special, at which a quorum is present,
shall, unless a greater vote is specially required by law, be as valid and as
binding as though ratified by every shareholder of the corporation, but this
provision imposes no obligation to present any contract, transaction, or act to
any such shareholders' meeting for ratification; provided, however, that any
failure of the shareholders to approve or ratify such contract, transaction, or
act, when and if submitted, shall not be deemed in any way to invalidate the
same or to deprive the corporation, its directors, or officers of their rights
to proceed with such contract, transaction, or act.
SECTION 2
Board of Directors
2.1 General Powers. The business and affairs of the corporation shall be
managed by its board of directors (hereinafter "the board").
2.2 Number, Tenure, and Qualifications. The number of directors of the
corporation shall be not less than one nor more than thirteen, as determined by
the board. Directors need not be residents of the State of Nevada or
shareholders of the corporation. Each director shall
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<PAGE>
hold office until the next annual meeting of shareholders and until his
successor shall have been elected and shall qualify, or until his death or until
he or she shall resign or shall have been removed. A resignation by a director
shall be in writing and delivered to the secretary and shall take effect upon
delivery, unless the resignation indicates that a different time of
effectiveness is intended.
2.3 Regular Meetings. A regular meeting of the board (which shall be its
annual meeting) shall be held without other notice than this bylaw, immediately
after, and at the same place as, the annual meeting of shareholders, and each
adjourned session thereof. The board may provide, by resolution, the time and
place, either within or without the State of Nevada, for the holding of
additional regular meetings without other notice than such resolution.
2.4 Special Meetings. Special meetings of the board may be called by or at
the request of the chairman, president, secretary, or any director. The person
or persons authorized to call special meetings of the board may fix any place,
either within or without the State of Nevada, as the place for holding any
special meeting of the board called by them.
2.5 Notice. Notice of any special meeting shall be given at least two days
previously thereto by written notice delivered personally or mailed to each
director at his business address, or by facsimile transmission. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. Whenever any notice whatever is
required to be given to any director of the corporation under the articles of
incorporation or bylaws or any provision of law, a waiver thereof in writing
signed at any time, whether before or after the time of meeting by the director
entitled to such notice shall be deemed equivalent to the giving of such notice.
The attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting and objects thereat to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board need be specified in the notice or
waiver of notice of such meeting.
2.6 Quorum. Except as otherwise provided by law or these bylaws, 60% of the
elected directors shall constitute a quorum for the transaction of business at
any meeting of the Board, but a majority of the directors present (though less
than such quorum) may adjourn the meeting from time to time without further
notice.
2.7 Manner of Acting. The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the board, unless the
act of a greater number is required by law or by the articles or by these
bylaws.
2.8 Vacancies. Any vacancy occurring in the Board, including a vacancy
created by an increase in the number of directors, may be filled until the next
succeeding annual shareholders' election by the affirmative vote of a majority
of the directors then in office though less than a quorum of the Board.
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2.9 Compensation The Board, by the affirmative vote of a majority of
directors then in office, and irrespective of any personal interest of any of
its members, shall have authority to establish reasonable compensation of all
directors for services to the corporation as directors, officers, or otherwise.
By resolution of the board, the directors may be paid their expenses, if any, of
attendance at each meeting of the board.
2.10 Presumption of Assent. A director of the corporation who is present at
a meeting of the Board or a committee thereof at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he or she
shall deliver his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by certified mail to the secretary of the corporation immediately after
the adjournment of the meeting or unless he or she objects at the beginning of
the meeting or promptly upon his arrival to holding the meeting or transacting
business at the meeting. Such right to dissent shall not apply to a director who
voted in favor of such action.
2.11 Executive Committee. The board of directors may establish an executive
committee of the board of directors and may select the members of the board to
be members of the executive committee. The executive committee shall exercise
all of the authority of the board at such times as the board is not in session.
SECTION 3
Waivers and Informal Action
3.1 Waiver of Notice by Shareholder or Director. Whenever any notice is
required to be given to any shareholder or director a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice.
3.2 Informal Action by Shareholders or Directors. Any action required or
permitted to be taken at a meeting of the shareholders or directors may be taken
without a meeting if a consent in writing setting forth the action so taken
shall be signed by minimum number of shareholders required by the Nevada
Business Corporation Act entitled to vote with respect to the subject matter
thereof or by all the directors as the case may be. A committee of the board may
also take action by such a consent signed in writing by all the members of the
committee.
SECTION 4
Officers
4.1 Number. The officers of the corporation may consist of such officers as
elected by the board, which may include without limitation a chairman of the
board, a president, one or
5
<PAGE>
more vice presidents, a secretary, and a treasurer, and such assistants or other
officers as may be elected or appointed by the board.
4.2 Election and Term. The officers of the corporation shall be elected
annually by the board at the first meeting of the board held following each
annual meeting of shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Vacancies may be filled or new offices created mid filled at any meeting of
the board. Each officer shall hold office until his successor shall have been
duly elected and qualified or until his death or until he or she shall resign or
shall have been removed in the manner hereinafter provided. A resignation by an
officer shall take effect when delivered to the president or to the chairman of
the board unless the resignation indicates that a different time of
effectiveness is intended.
4.3 Removal. Any officer or agent elected or appointed by the board may be
removed by a majority of the whole board whenever in its judgment the best
interests of the corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment shall not of itself create contract rights. A removal of
an officer shall take effect upon action of the board or as otherwise determined
by the board at the time of removal.
4.4 Vacancies. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the
board for the unexpired portion of the term.
4.5 Chairman of Board. The chairman of the board shall preside at all
meetings of the board of directors at which he or she may be present. The
chairman of the board shall preside at meetings of the shareholders. Except
where by law the signature of the president or a vice president is specifically
required the chairman shall possess the same power as the president to sign
contracts and other instruments of the corporation which may be authorized by
the board of directors. The chairman shall consult with, advise, and aid the
other officers in determination of questions and in the handling of matters
relating to corporate finances and general corporate policies. The chairman
shall have such other powers and duties as the board may call upon him to
perform. The chairman shall be the chief executive officer of the corporation.
4.6 President. The president shall be an executive officer of the
corporation and, subject to the control of the board, shall in general supervise
and control all the business and affairs of the corporation. If no chairman of
the board is serving or in his absence or disability the president shall preside
at meetings of the board. He or she shall have authority, subject to such rules
as may be prescribed by the board, to appoint such agents and employees of the
corporation as he or she shall deem necessary, to prescribe their powers, duties
and compensation, and to delegate authority to them. Such agents and employees
shall hold office at the discretion of the president. He or she shall have
authority to sign, execute and acknowledge, on behalf of the corporation, all
deeds, mortgages, bonds, stock certificates, contracts, leases, reports, and all
other documents or
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<PAGE>
instruments necessary or proper to be executed in the course of the
corporation's regular business, or which shall be authorized by resolution of
the board; and, except as otherwise provided by law or the board, he or she may
authorize any vice president or other officer or agent of the corporation to
sign, execute, and acknowledge such documents or instruments in his place and
stead. In general he or she shall perform all duties incident to the office of
president and such other duties as may be prescribed by the board from time to
time.
4.7 Vice Presidents. At the request of the president or in the event of the
death, inability, or refusal to act when instructed by the board of directors,
the vice president (or, in the event there be more than one vice president, the
vice presidents in the order designated by the board at the time of election or
subsequently, or in the absence of any such designation by the chairman of the
board of directors if a chairman has been elected and is serving) shall perform
the duties of the president, and when so acting shall have the powers of the
president subject to all restrictions upon the president. Any vice president may
sign, with the secretary or assistant secretary, certificates for the shares of
the corporation; and each vice president shall perform such other duties and
have such authority as from time to time may be assigned to him by the board of
directors or in the absence of board action by the president.
4.8 Secretary. The secretary shall attend meetings of the shareholders and
of the board and shall keep minutes of all their proceedings and have custody of
the minute books. He or she shall give all notices of meetings as required
hereunder or by law. He or she shall direct the keeping of stock records showing
the name of the shareholder, the shareholder's address, amount of stock held,
time of acquisition of stock, time of transfer of stock. In general he or she
shall perform all duties usually incident to the office of secretary of a
corporation and as may be delegated to him by the board or the president.
4.9 Treasurer. The treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation. From time to time
he or she shall render a statement of the condition of the finances of the
corporation at the request of the board. If required by the board, he or she
shall give a bond for the faithful performance of his duties. In general, he or
she shall perform all duties usually incident to the office of treasurer of a
corporation as may be delegated to him by the board or the president.
4.10 Assistants. An assistant secretary and an assistant treasurer shall
have such duties as may be assigned by the secretary or treasurer, respectively,
or by the chairman or by the board. If any other officer is elected or appointed
by the board, he or she shall have such duties as assigned by the board or by
the chairman.
4.11 Other Officers; General. Other and additional duties as to the board or
chairman seem desirable may at any time be required from or placed upon any
officer. The same person may hold more than one office. The board may select
additional officers; and in case of the absence of any officer, or for any other
reason that the board may deem sufficient, the board may allocate and delegate
for the time being the powers or duties, or any of them, of such officer to any
other officer or to any other employee provided a majority of the whole board
concurs therein.
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Pending action by the board, the chairman shall have authority to allocate and
delegate duties.
4.12 Salaries. The salaries of the officers shall be fixed from time to
time by the board, and no officer shall be prevented from receiving such salary
by reason of the fact that he or she is also a director of the corporation.
4.13 Voting Upon Stocks. Unless otherwise ordered by the board of
directors, the chairman, or the president when duly authorized by the chairman,
shall have full power and authority on behalf of the corporation to attend, act,
and vote at any meeting of stockholders of any company in which the corporation
may hold stock or other security and at any such meeting may exercise on behalf
of the corporation all rights and powers incident to the ownership of such
security, and shall have power to execute and deliver on behalf of the
corporation proxies and consents in connection with the exercise by the
corporation of rights and powers incident to the ownership of any such security.
The board from time to time may confer like powers upon any other person or
persons.
4.14 Transfer of Stocks. If a stock certificate or other security,
registered in the name of the corporation, is sold or otherwise disposed of by
the corporation an endorsement thereof by the chairman or treasurer of the
corporation may be relied upon by anyone without need for a board resolution.
SECTION 5
Contracts, Loans, Checks and Deposits
5.1 Contracts. The board may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the corporation, and such authorization may be general
or confined to specific instances.
5.2 Loans. No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by or
under the authority of a resolution of the board. Such authorization may be
general or confined to specific instances.
5.3 Checks, Drafts, etc. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the corporation, shall be signed by such officer or officers, agent or agents
of the corporation and in such manner as shall from time to time be determined
by or under the authority of a resolution of the board.
5.4 Deposits. All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as may be selected by or under the
authority of the board.
SECTION 6
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Indemnification of Directors
6.1 Indemnification of Directors and Others. The corporation shall
indemnify tile directors, officers, employees and agents of the corporation to
tile maximum extent authorized by the Nevada Business Corporation Act as the
same (or any substitute provision therefor) from time to time may be in effect.
The board of directors may authorize the corporation to purchase and maintain
liability insurance as in such law provided.
6.2 Conduct of Directors.
(a) A director shall discharge that director's duties as a director,
including the director's duties as a member of a committee, in good faith, with
the care an ordinarily prudent person in a like position would exercise under
similar circumstances and in a manner the director reasonably believes to be in
the best interests of the corporation.
(b) In discharging the director's duties a director is entitled to rely on
information, opinions, reports, or statements, including financial statements
and other financial data, if prepared or presented by any of the following:
(i) One or more officers or employees of the corporation whom the director
reasonably believes to be reliable and competent in the matters presented;
(ii) Legal counsel, public accountants, or other persons as to matters the
director reasonably believes are within the person's professional or expert
competence; or
(iii)A committee of the board of directors of which the director is not a
member if the director reasonably believes the committee merits confidence.
(c) A director is not acting in good faith if the director has knowledge
concerning the matter in question that makes reliance otherwise permitted by
subsection (b) unwarranted.
(d) A director if not liable for any action taken as a director, or any
failure to take any action, if the director performed the duties of the
director's office in compliance with this section, or if, and to the extent
that, liability for any such action or failure to act has been limited by the
articles of incorporation.
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6.3 Conduct of Officers.
(a) An officer with discretionary authority shall discharge the officer's
duties under that authority in good faith, with the care an ordinarily prudent
person in a like position would exercise under similar circumstances and in a
manner the officer reasonably believes to be in the best interests of the
corporation.
(b) In discharging the person's duties, an officer is entitled to rely on
information, opinions, reports, or statements, including financial statements
and other financial data, if prepared or presented, by either:
(i) One or more officers or employees of the corporation whom the officer
reasonably believes to be reliable and competent in the matters presented; or
(ii) Legal counsel, public accountants, or other persons as to matters the
officer reasonably believes are within the person's professional or expert
competence.
(c) An officer is not acting in good faith if the officer has knowledge
concerning the matter in question that makes reliance otherwise permitted by
subsection (b) unwarranted.
(d) An officer is not liable for any action taken as an officer, or any
failure to take any action, if the officer performed the duties of the officer's
office in compliance with this section.
6.4 Director Conflict of Interest.
(a) A conflict of interest transaction is a transactions with the
corporation in which a director of the corporation has a direct or indirect
interest. A conflict of interest transaction is not voidable by the corporation
solely because of the director's interest in the transaction if any one of the
following is true:
(i) The material facts of the transaction and the director's interest were
disclosed or known to the board of directors or a committee of the board of
directors and the board of directors or committee authorized, approved, or
ratified the transaction;
(ii) The material facts of the transaction and the director's interest were
disclosed or known to the shareholders entitled to vote and they authorized,
approved, or ratified the transaction; or
(iii) The transaction was fair to the corporation.
(b) For purposes of this section, a director of the corporation has an
indirect interest in a transaction if either:
(i) Another entity in which the director has a material financial interest
or in which the director is a general partner is a party to the transaction; or
(ii)
Another entity of which the director is a director, officer, or trustee is a
party to the transaction and the transaction is or should be considered by the
board of directors of the corporation.
(c) ( c ) For purposes of subsection (a), paragraph (i), a conflict of
interest transaction is (d) authorized, approved, or ratified if it receives the
affirmative vote of a majority of the directors on the board of directors or on
the committee, who have no direct or indirect interest in the transaction, but a
transaction may not be authorized, approved, or ratified under this section by a
single director. If a majority of the directors who have no direct or indirect
interest in the transaction vote to authorize, approve, or ratify the
transaction, a quorum is present for the purpose of taking action under this
section. The presence of, or a vote cast by, a director with a direct or
indirect interest in the transaction does not affect the validity of any action
taken under subsection (a), paragraph (i), if the transaction is otherwise
authorized, approved, or ratified as provided in that subsection.
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(d) For purposes of subsection (a), paragraph (ii), a conflict of interest
transaction is authorized, approved, or ratified if it receives the vote of a
majority of the shares entitled to be counted under this subsection. Shares
owned by or voted under the control of a director who has a direct or indirect
interest in the transaction, and shares owned by or voted under the control of
an entity described in subsection (b), paragraph (i), shall not be counted in a
vote of shareholders to determine whether to authorize, approve, or ratify a
conflict of interest transaction under subsection (a), paragraph (ii). The vote
of those shares, however, is counted in determining whether the transaction is
approved under other sections of these bylaws. A majority of the shares, whether
or not present, that are entitled to be counted in a vote on the transaction
under this subsection constitutes a quorum for the purpose of taking action
under this section.
SECTION 7
Certificates for Shares and Their Transfer
7.1 Certificates for Shares. Certificates representing shares of the
corporation shall be in form approved by the board. Such certificates shall be
signed by the chairman or the president and by the secretary or an assistant
secretary. Any such signature may be by facsimile if a transfer agent and
registrar are also serving. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the person to whom the
shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the corporation as the board may prescribe.
7.2 Transfer of Shares. The transfer of shares of the corporation and the
registration thereof on the transfer books of the corporation shall be governed
in all respects by Chapter 554, Article VIII of the Uniform Commercial Code of
Nevada, as the same may be amended, dealing with investment securities. Except
as otherwise provided by law, the person in whose name shares stand on the books
of the corporation shall be deemed the owner thereof for all purposes as regards
the corporation.
7.3 Lost Certificate. The corporation shall issue a new certificate for
shares of stock in the place of any certificate theretofore issued where the
owner of the shares claims that the certificate has been lost, destroyed, or
wrongfully taken if the owner:
(a) so requests before the corporation has notice that the security has
been acquired by a bona fide purchaser; and
(b) files with the corporation a sufficient indemnity bond; and
(c) satisfies any other reasonable requirement imposed by the corporation.
11
<PAGE>
7.4 Transfer Agent and Registrar. The board of directors by resolution, may
(but shall not be required to) appoint a transfer agent and registrar of its
stock and make any provisions with respect thereto as the board in its
discretion deems appropriate.
SECTION 8
Miscellaneous
8.1 Seal. The corporation shall have no seal.
8.2 Fiscal Year. The fiscal year of the corporation shall begin on the
first day of January each year and end on the following December 31st.
8.3 Accounting Method. The corporation shall use the accrual method of
accounting.
8.4 Amendment. Subject only to limitations imposed by law these bylaws may
be altered or amended or repealed and new bylaws adopted by a majority vote of
the directors at the time serving at any annual meeting of the board, or at any
special meeting of the board provided amendment has been given to or waived by
all directors.
Secretary
12
AVIATION UPGRADE TECHNOLOGIES, INC.
CERTIFICATE NUMBER OF
NUMBER SHARES
1 10,000,000
This Corporation is authorized 100,000,000 Common Shares of at $.001 Par Value.
Non-Assessable
CUSIP NO. 053670 10 5
This Certifies that TORBJORN B. LUNDQVIST is the registered
holder of TEN MILLION shares of
AVIATION UPGRADE TECHNOLOGIES, INC.
(A NEVADA CORPORATION)
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed to an
officer of this Corporation. This certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers.
--------------------------------
DATED: January 10, 1999 TORBJORN B. LUNDQVIST, SECRETARY
<PAGE>
================================================================================
AVIATION UPGRADE TECHNOLOGIES, INC.
CONFIDENTIAL PLACEMENT MEMORANDUM
1,000,000 SHARES
$1,000,000
August, 1999
================================================================================
<PAGE>
CONFIDENTIAL PLACEMENT MEMORANDUM
================================================================================
AVIATION UPGRADE TECHNOLOGIES, INC.
================================================================================
$1,000,000
MINIMUM SUBSCRIPTION: 10,000 SHARES at $10,000
MAXIMUM OFFERING: 1,000,000 SHARES at $1,000,000
OFFERING EXPIRATION DATE: December 31, 1999
Aviation Upgrade Technologies, Inc., a Nevada corporation (the "Company") hereby
offers a maximum of one million Shares of Common Stock, par value of $.001
("Common Stock") for $1,000,000.
Prior to this offering, there has been no public market for these securities and
no public market will exist following this offering. These are speculative
securities and involve substantial risk. Purchasers may suffer the loss of their
entire investment. See "Risk Factors."
================================================================================
Offering Commissions Net Proceeds to
Price (1) the Company
- --------------------------------------------------------------------------------
Total Offering $1,000,000 $ 0 $1,000,000
- --------------------------------------------------------------------------------
(1) The offering price of the Units has been unilaterally determined by the
Company and is not based on its assets or earnings.
<PAGE>
SUMMARY OF THE OFFERING
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in the Memorandum.
THE COMPANY
The main business purpose of Aviation Upgrade Technologies, Inc. (the "Company"
or "AUT") is to develop, market and install modifications designed to improve
and extend the economic life of transport category aircraft such as the Boeing
727 series.
According to industry analysts, there are approximately 1,500 Boeing 727 Series
worldwide in airline, charter, freight and executive/business service.
Particularly, of the total number of 935 series 727-200 aircraft produced,
approximately 900 remain in active commercial service. This reflects both the
integrity of the design, and its popularity within the industry.
The Company believes that aircraft operators, faced with limited capital but
with growth opportunities, will seek to continue operation of the Boeing 727
beyond the Stage 3 noise compliance cut-off date which is December 31, 1999. The
Company plans to re-engine these B-727 aircraft with two CFM56-5C4 powerplants
in place of the original three JT8D engines which, in the opinion of the
Company, is the most cost effective and sensible solution to the Stage 3
compliance requirement.
In addition to bringing the B-727 practically to noise and emission par with
present generation aircraft, re-engining by the CFM56-5C4 will significantly
improve the performance, range, fuel economy and operational capability of the
aircraft.
The FAA has previously issued letters of exemption to others proposing similar
programs such that the certification of the modification could be established by
a Supplemental Type Certificate (STC) rather than new type certificate.
Management of the Company will be vested in experienced professionals in all
phases of administration, marketing, finance, quality control, engineering,
manufacturing and certification.
The Company intends to use the proceeds from this offering as seed capital to
raise additional funds to enable the Company to carry out its business plan.
THE OFFERING
Securities Offered
A maximum of one million shares of the Company's Common
Stock ("Common Stock").
Offering Price
$1.00 per Share. Minimum investment 10,000 Shares.
Private Offering
The Common Stock issuable hereof may not be sold or
transferred in the absence of an effective registration
under the Securities Act of 1933 or qualification under
applicable state securities laws or an opinion of counsel
satisfactory to the Company that such registration or
qualification is not required. These securities may be
subject to additional restrictions pursuant to exemptions in
the various states where they are being sold. There is no
assurance that a public market will develop for these
securities in the future. See "Risk Factors- No assurance of
a Public Market" and "Limited Transferability of
Securities."
RISK FACTORS
A purchase of Common Stock is speculative and involves a
high degree of risk. See "Risk Factors."
SUITABILITY STANDARS
An investment in the Company is suitable only for certain
investors capable of evaluating the merits and risks of an
investment in the Company and of protecting their interest
in the transaction. Certain other requirements must also be
met. See "Investor Suitability Standards."
PLAN OF DISTRIBUTION
Common Stock will be offered on a "best efforts" basis by
Broker Dealers that are members of the National Association
of Securities Dealers, Inc. Participating Broker Dealers may
receive selling commissions of 10% of Units sold.
ESCROW ARRANGEMENTS
All subscription funds will be deposited into an interest
bearing escrow account with Bank of America ("The Bank"),
Rancho Cordova, California and no subscription funds will be
released to the Company until the total of at least $100,000
is deposited into such escrow account.
USE OF PROCEEDS
The net proceeds from this offering will be used for seed
capital.
NO MARKET FOR PREFERRED
STOCK, WARRANTS OR
COMMON STOCK
There will be no public market for the Common Stock of the
Company. See "Risk Factors."
EXPIRATION DATE
The offering will terminate on December 31, 1999.
<PAGE>
RISK FACTORS
THE SHARES ARE HIGHLY SPECULATIVE IN NATURE AND INVOLVE A HIGH DEGREE OF RISK OF
LOSS AND IMMEDIATE SUBSTANTIAL DILUTION. THEREFORE, EACH PROSPECTIVE INVESTOR
SHOULD, PRIOR TO PURCHASE, CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS AS
WELL AS ALL THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS.
1. Lack of Profitability. The Company experienced a net loss of approximately
$20,000 for the period ended July 31, 1999. There can be no assurance that
the Company will be able to operate at a profit in the future. See
"Financial Statements".
2. Dependence on Future Financing. The Company expects to require additional
financing in the future for operation and working capital and other
purposes. There are no assurances that such additional financing will be
available or on terms acceptable to the Company.
3. Development Stage Company. The Company is a development stage company and
was incorporated in January 1999.
4. No Assurance of Public Market. Prior to this offering, there has been no
public market for securities of the Company, and there can be no assurance
that a regular trading market will develop for the Shares or, if any such
market develops, that it will be sustained. In the absence of a public
trading market, an investor may be unable to liquidate his investment in
the Company.
5. Broker-Dealer Sales of Company Securities. The Company's securities may be
covered by a Securities and Exchange Commission rule that imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited
investors (generally institutions) with assets in excess of $5,000,000 or
individuals with net worth in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 jointly with their spouse. For transactions
covered by the rule, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell the Company's securities and
also may affect the ability of purchasers in this offering to sell their
shares in the secondary market.
6. Arbitrary Determination of Public Offering Price. The offering price for
the Common Stock was determined arbitrarily, and such price should not be
considered an indication of the actual value of the Company as it bears no
relationship to the book value, assets or earnings to the company or to
other recognized criteria of value.
7. Dependence of Key Personnel. The success of the Company is largely
dependent on the services of Torbjorn B. Lundqvist, CEO, Darle K. Ford,
President and Dick Lindholm Vice President. The loss of the services of
Messrs. Lundqvist, Ford or Lindholm for any reason would adversely affect
the operations of the Company and there can be no assurance that an
appropriate replacement could be engaged on terms satisfactory to the
Company, in the event of such loss of services.
8. Attraction and Retention of Customers. The Company's success depends on its
ability to attract and retain customers. The Company's business plan is
based on re engining Boeing 727 series aircraft. This is a new concept that
is made possible by advances in suitable new jet aircraft engines. However,
the actual conversion to the new engines has never been accomplished
previously.
9. Control by Current Shareholders. After the completion of this offering, the
Principal Shareholders will own Common Stock giving them voting control
over the Company. Since the Common Stock does not have cumulative voting
rights, they will be able to determine and direct the affairs and policies
of the Company and the use of all funds available to it. Conversely, the
public investors will have no effective voice in the Management of the
Company.
10. Absence of Cash Dividends. It is unlikely the Company will declare or pay
dividends in the foreseeable future out of future earnings, if any, even it
permitted to do so under Nevada law. The Company currently intends to
retain earnings, if any, to fund its continued operations and proposed
expansion.
In addition to the above risks, businesses are often subject to risks not
foreseen or fully appreciated by management. In reviewing this offering document
potential investors should keep in mind other possible risks that could be
important.
<PAGE>
INVESTOR SUITABILITY STANDARDS
INVESTMENT IN COMMON STOCK INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE ONLY
FOR THOSE INVESTORS WHO HAVE SUBSTANTIAL FINANCIAL RESOURCES IN RELATION TO
THEIR INVESTMENT AND WHO UNDERSTAND THE PARTICULAR RISK FACTORS OF THIS
INVESTMENT. IN ADDITION, A PURCHASE OF COMMON STOCK IS SUITABLE ONLY FOR
INVESTORS WHO NEED NO LIQUIDITY IN THEIR INVESTMENTS AND ARE WILLING TO ACCEPT
SUBSTANTIAL RESTRICTIONS ON THE TRANSFER OF THESE SECURITIES.
Investor Suitability. Common Stock will be sold only to those investors who
submit an Offeree Questionnaire in the form set forth in the Subscription
Package. Each such investor must establish to the satisfaction of the Company
that:
1. The investor, either alone or with his duly appointed Purchaser
Representative (as defined in Regulation D), has such knowledge and
experience in financial and business matters that he is able to evaluate
the merits and risks of an investment in the Company.
2. The investor has the financial ability to bear the economic risk of an
investment in the Company, adequate means of providing for his current
needs and personal contingencies, and no need for liquidity in an
investment in the Company;
3. The investor is acquiring the Stock for his own account for investment, and
not with a view to resale or distribution; and
4. The investor is either an "Accredited Investor" as defined in Regulation D
promulgated by the Act ("Regulation D"), that is:
5. A bank as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended (the "act"), or any savings and loan association or other
institution as defined in Section 3(a)(5)(a) of the Act, whether acting in
its individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934; an insurance
company as defined in Section 2(13) of the Act; an investment company
registered the Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that act; a Small Business
investment company licensed by the U.S. Small Business Administration under
Section 301(c)or (d) of the Small Business Investment Act of 1958; an
employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, if the investment decision is made
by a plan fiduciary as defined in Section 3(21)of such act, which is either
a bank an insurance company or a registered investment advisor, or if the
employee benefit plan has total assets in excess of $5,000,000 or if a
self-directed plan, with investment decisions made solely by persons that
are Accredited Investors;
6. A Private Business Development Company as defined in Section 202(a)(22) of
the Investment Advisors Act of 1940;
7. An organization as described in section 501(c)(3) of the Internal Revenue
Code, a corporation, Massachusetts or similar business trust or
partnership, not formed for the specific purpose of acquiring the
Securities offered, with total assets in excess of $5,000,000;
8. A director or executive officer of the Company;
9. A natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of purchase exceeds $1,000,000;
10. A natural person who had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and who reasonably expects to
reach the same income level in the current year;
11. Any trust with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the securities offered hereby, whose purchase
is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of
Regulation D; or (1) An entity in which all the equity owners are
"Accredited Investors" as defined above.
OR
The investor meets the following suitability requirements:
(1) The Investor has a net worth of at least $225,000 (exclusive of home,
furnishings, automobiles and proposed investment); or
(2) The Investor has a net worth of at least $50,000 (exclusive of home,
furnishings, automobiles and proposed investment) and during the last
taxable year had and during the current taxable year expects to have a
minimum gross income of at least $30,000 (provided that investors with
a gross income of $50,000 or less will be limited to a maximum
purchase of $10,000).
a. Ability to Accept Limitations on Transferability. It is unlikely
that investors will be able to liquidate their investments in the
Company in the event of an emergency or for any other reason. A
public market for the Company does not exist and it is not
anticipated that one will ever develop. Moreover, the
transferability of the Common Stock is subject to certain
restrictions set forth in the Subscription Agreement and will be
affected by restrictions on resale imposed under federal and
state securities laws. See "Risk Factors."
EACH PROSPECTIVE INVESTOR SHOULD OBTAIN THE ADVICE OF HIS OR HER ATTORNEY, TAX
CONSULTANT AND BUSINESS ADVISOR WITH RESPECT TO THE LEGAL, TAX AND BUSINESS
ASPECTS OF THIS INVESTMENT PRIOR TO SUBSCRIBING FOR THESE SECURITIES.
THIS MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO SELL TO, OR A SOLICITATION OF
AN OFFER TO BUY FROM, ANY PERSON WHO DOES NOT MEET THE SUITABILITY STANDARDS SET
FORTH HEREIN AND IN THE SUBSCRIPTION AGREEMENT.
(REST OF PAGE LEFT INTENTIALLY BLANK)
<PAGE>
USE OF PROCEEDS
The following table sets forth the estimated application of proceeds from the
sale of the maximum number of Units being offered hereby. No assurances can be
given that actual proceeds will be applied as described below.
Maximum
Marketing 0
Offering Costs (1) 100,000
Working Capital (2) 900,000
Inventory 0
Research & Development 0
Broker/Dealer 0
TOTAL $1,000,000
(1) Includes legal, accounting, printing, and other expenses associated
with this offering.
(2) Represents reduction in Accounts Payable and General Corporate
purposes.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
