UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number: 333-28249
PRIME AIR, INC.
(Exact name of Registrant as specified in charter)
Nevada Not Applicable
------ -----------------------
State or other jurisdiction of I.R.S. Employer I.D. No.
incorporation or organization
Suite 601 - 938 Howe Street, Vancouver, British Columbia, V6Z 1N9
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(Address of principal executive offices) (Zip Code)
(604) 684-5700
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Issuer's telephone number,
including area code:
Check whether the Issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such fling requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the Issuer's classes of common
equity as of the latest practicable date: At September 30, 2004, there were
31,774,200 shares of the Registrant's Common Stock outstanding.
PART 1
ITEM 1. FINANCIAL STATEMENTS
Prime Air, Inc.
(A Development Stage Company)
September 30, 2004
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
2
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in US dollars)
September 30, December 31,
2004 2003
(unaudited) (audited)
ASSETS
Current Assets
Cash $ 9,185 $ 2,691
Prepaid expenses and deposits 3,901 5,382
Other receivables 2,743 1,292
--------------- --------------
Total Current Assets 15,829 9,365
Property and Equipment (Note 3) 501,469 508,158
--------------- --------------
Total Assets $ 517,298 $ 517,523
=============== ==============
LIABILITIES
Current Liabilities
Accounts payable $ 51,610 $ 78,436
Accrued liabilities 7,075 10,500
Due to related parties (Note 5) 40,860 39,248
Notes and advances payable (Note 4) 1,500 22,408
--------------- --------------
Total Liabilities 101,045 150,592
--------------- --------------
Contingencies and Commitments (Notes 1 and 8)
STOCKHOLDERS' EQUITY
Preferred Stock, 5,000,000 cumulative and convertible preferred shares authorized with a
par value of $0.001, none issued - -
Common Stock, 150,000,000 common shares authorized with a par value of $0.001,
31,774,200 and 27,084,000 issued and outstanding, respectively 31,774 27,084
Additional Paid In Capital 4,648,040 4,412,694
Stock Subscriptions Receivable (Note 6 (a)) (5,000) -
Accumulated other comprehensive income 68,169 58,586
Deficit accumulated during the development stage (4,326,730) (4,131,433)
--------------- --------------
Total Stockholders' Equity 416,253 366,931
--------------- --------------
Total Liabilities and Stockholders' Equity $ 517,298 $ 517,523
=============== ==============
(The accompanying notes are an integral part of these consolidated financial
statements)
3
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in US dollars)
(unaudited)
Three months Three months Nine months Nine months From inception
ended ended ended ended March 10, 1989
September 30, September 30, September 30, September 30, to September 30,
2004 2003 2004 2003 2004
--------------- --------------- --------------- --------------- ------------------
Revenue
Rental income $ 1,154 $ - $ 4,376 $ - $ 6,740
--------------- --------------- --------------- --------------- ------------------
Expenses
Flight operations - - - - 114,720
Advertising and promotion 846 - 2,327 - 42,788
Amortization 5,854 5,504 17,140 15,793 181,673
Consulting 15,075 - 17,789 14,000 57,523
Consulting to related parties
(Note 5(c)) 17,500 15,000 70,000 45,000 2,869,696
General and administrative 21,847 10,658 53,607 20,475 930,410
Professional fees 15,890 1,106 67,560 3,174 372,220
--------------- --------------- --------------- --------------- ------------------
77,012 32,268 228,423 98,442 4,569,030
--------------- --------------- --------------- --------------- ------------------
Loss from Operations (75,858) (32,268) (224,047) (98,442) (4,562,290)
Gain on Settlement of Debt 17,500 106,996 28,750 106,996 235,560
--------------- --------------- --------------- --------------- ------------------
Net Income (Loss) for the Period (58,358) 74,728 (195,297) 8,554 (4,326,730)
Other Comprehensive Income
Foreign currency translation
adjustments 25,391 160 9,583 51,229 68,169
--------------- --------------- --------------- --------------- ------------------
Comprehensive Income (Loss) $ (32,967) $ 74,888 $ (185,714) $ 59,783 $ (4,258,561)
=============== =============== =============== =============== ==================
Net Loss Per Common Share -
Basic and diluted - - (0.01) -
=============== =============== =============== ===============
Weighted Average Common
Shares Outstanding 31,555,000 23,483,000 29,120,000 22,983,000
=============== =============== =============== ===============
(The accompanying notes are an integral part of these consolidated financial
statements)
4
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in US dollars)
(unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2004 2003
--------------- ---------------
CASH FLOWS TO OPERATING ACTIVITIES
Net loss for the period $ (195,297) $ 8,554
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on settlement of debt (28,750) (106,996)
Shares issued for services 20,650 -
Amortization 17,140 15,793
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,364) 1,875
(Increase) decrease in deposits and prepaid expenses 1,515 (4,198)
Increase in due to related parties 39,302 45,000
Increase (decrease) in accounts payable and accrued liabilities 84,240 9,463
--------------- ---------------
Net Cash Used In Operating Activities (60,564) (30,509)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 435 -
Purchase of property and equipment (1,829) -
--------------- ---------------
Net Cash Used In Investing Activities (1,394) -
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes and advances payable 1,500 1,411
Proceeds from issuance of common stock 64,000 50,000
--------------- ---------------
Net Cash Provided by Financing Activities 65,500 51,411
--------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 4,952 (1,189)
--------------- ---------------
INCREASE IN CASH 6,494 19,713
CASH, BEGINNING OF PERIOD 2,691 512
--------------- ---------------
CASH, END OF PERIOD $ 9,185 $ 20,225
=============== ===============
NON-CASH FINANCING ACTIVITIES
Common stock issued for debt $ 150,386 $ 80,000
Common stock issued for services $ 20,650 $ -
SUPPLEMENTAL DISCLOSURES
Interest paid $ - $ -
Income taxes paid $ - $ -
(The accompanying notes are an integral part of the consolidated financial
statements)
5
PRIME AIR, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in US dollars)
(unaudited)
1. Development Stage Company
The Company was incorporated under the laws of the State of Nevada on November
10, 1996, for the purpose of changing the domicile of the Company from the State
of Delaware to the State of Nevada. This change was approved by the shareholders
of both corporations on November 26, 1997 and effected through a "Plan and
Agreement of Merger" with the surviving corporation being Prime Air, Inc.
(Nevada). The articles of merger were filed with the appropriate State
authorities on December 15, 1997, which became the effective date of the merger.
The Delaware Corporation was incorporated on April 4, 1995, for the purpose of
changing the domicile of the Company from the State of Utah to the State of
Delaware by acquiring all of the assets and liabilities of the Utah Corporation,
and issuing shares of the Delaware Corporation to the shareholders of the Utah
Corporation on a one for one basis. The Utah Corporation was voluntarily
dissolved by the State of Utah on May 18, 1995.
The Utah Corporation was incorporated on August 30, 1993 as Astro Enterprises,
Inc. ("Astro"). On June 28, 1994, pursuant to appropriate shareholder
agreements, the Utah Corporation acquired all outstanding shares of Prime Air
(BC) Inc., a private Canadian corporation ("the Canadian Corporation") in
exchange for shares of its capital stock on a .787796 to 1 basis, thereby
providing the shareholders of the Canadian Corporation with 90% of the
outstanding common shares of Astro. The acquisition was a capital transaction
in substance and therefore was accounted for as a recapitalization of Astro. The
Canadian Corporation was incorporated on March 10, 1989. Astro then changed its
name to Prime Air, Inc., which subsequently was acquired as a wholly owned
subsidiary by the Delaware Corporation, as described above. Prior to the
acquisition, Astro had no principal operations and had nominal net assets.
The Company is a development stage company as defined by Statement of Financial
Accounting Standards ("SFAS") No. 7 "Accounting and Reporting by Development
Stage Enterprises". In a development stage company, management devotes most of
its activities in developing a market for its products and/or services. The
Company is presently in its developmental stage and currently has minimal
sources of revenue to provide incoming cash flows to sustain future operations.
The Company's present activities relate to the construction and ultimate
exclusive operation of an international passenger and cargo air terminal
facility in the Village of Pemberton, British Columbia and the operation of
scheduled flight services between that facility and certain major centers in
Canada and the United States in conjunction with Voyageur Airways Limited.
Terminal building construction was substantially completed in May 1996.
The future successful operation of the Company is dependent upon its ability to
obtain the financing required to complete the terminal facility and commence
operations on an economically viable basis. The ability of the Company to emerge
from the development stage with respect to any planned principal business
activity is dependent upon its successful efforts to raise additional equity
financing and/or attain profitable operations. Management believes the Company
will be able to generate sufficient funds to meet its obligations for a period
of at least twelve months from the balance sheet date. There is no guarantee
that the Company will be able to raise any equity financing or sell any of its
services at a profit. There is substantial doubt regarding the Company's ability
to continue as a going concern.
2. Summary of Significant Accounting Policies
a) Basis of Presentation
These consolidated financial statements include the accounts of the Company and
its wholly-owned operating subsidiary, Prime Air Inc. (the Canadian
corporation). All intercompany transactions and balances have been eliminated.
The Company's fiscal year end is December 31.
b) Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the periods. Actual results could differ from those estimates.
c) Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three
months or less at the time of issuance to be cash equivalents.
6
PRIME AIR, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in US dollars)
(unaudited)
2. Summary of Significant Accounting Policies (Continued)
d) Other Comprehensive Income (Loss)
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display of
comprehensive loss and its components in the financial statements. As at
September 30, 2004 and 2003, the Company's only component of comprehensive
income (loss) were foreign currency translation adjustments.
e) Property and Equipment
Property and equipment is carried at cost less accumulated amortization.
Amortization is computed on the following methods over the estimated useful life
of the asset at the following annual rates:
Air terminal - Straight-line over 30-year term of land and airport facilities
lease
Furniture and equipment - 20% Declining-balance
Computer equipment - 30% Declining-balance
f) Long-Lived Assets
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long Lived Assets", the carrying value of long-lived assets is reviewed on a
regular basis for the existence of facts or circumstances that may suggest
impairment. The Company recognizes impairment when the sum of the expected
undiscounted future cash flows is less than the carrying amount of the asset.
Impairment losses, if any, are measured as the excess of the carrying amount of
the asset over its estimated fair value.
g) Foreign Currency Translation
The functional currency of the Company's Canadian subsidiary is the Canadian
dollar. The financial statements of this subsidiary are translated to United
States dollars in accordance with SFAS No. 52 "Foreign Currency Translation"
using period-end rates of exchange for assets and liabilities, and average rates
of exchange for the year for revenues and expenses. Translation gains (losses)
are recorded in accumulated other comprehensive income (loss) as a component of
stockholders' equity. Foreign currency transaction gains and losses are included
in current operations.
h) Revenue Recognition
The Company recognizes revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial
Statements". Revenue is recognized only when the price is fixed or determinable,
persuasive evidence of an arrangement exists, the service is performed, and
collectibility is reasonably assured. The Company receives income from the
rental of the air terminal located in Pemberton, BC, Canada.
i) Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with SFAS No.
128, "Earnings per Share" which requires presentation of both basic and diluted
earnings per share (EPS) on the face of the income statement. Basic EPS is
computed by dividing net income (loss) available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period including stock options, using the treasury
stock method, and convertible preferred stock, using the if-converted method. In
computing Diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options or warrants. Diluted EPS excludes all dilutive potential shares if
their effect is anti dilutive.
j) Stock-Based Compensation
The Company records stock-based compensation in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation". All transactions in which goods or
services are the consideration received for the issuance of equity instruments
are accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably
measurable. Equity instruments issued to employees and the cost of the services
received as consideration are measured and recognized based on the fair value of
the equity instruments issued. The Company does not currently have a stock
option plan.
7
PRIME AIR, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in US dollars)
(unaudited)
2. Summary of Significant Accounting Policies (Continued)
k) Financial Instruments
The fair values of cash, prepaid expenses, other receivables, notes payable,
advances payable, accounts payable and accrued liabilities were estimated to
approximate their carrying values due to the immediate or short-term maturity of
these financial instruments. The Company's operations are in Canada and
virtually all of its assets and liabilities are giving rise to significant
exposure to market risks from changes in foreign currency rates. The financial
risk is the risk to the Company's operations that arise from fluctuations in
foreign exchange rates and the degree of volatility of these rates. Currently,
the Company does not use derivative instruments to reduce its exposure to
foreign currency risk.
l) Income Taxes
The Company utilizes the liability method of accounting for income taxes as set
forth in SFAS No. 109, "Accounting for Income Taxes". Under the liability
method, deferred taxes are determined based on the temporary differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates. A valuation allowance is recorded when it is more likely than not
that some of the deferred tax assets will not be realized.
m) Recent Accounting Pronouncements
In December 2003, the United States Securities and Exchange Commission issued
Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB 104"), which
supersedes SAB 101, "Revenue Recognition in Financial Statements." The primary
purpose of SAB 104 is to rescind accounting guidance contained in SAB 101
related to multiple element revenue arrangements, which was superseded as a
result of the issuance of EITF 00-21, "Accounting for Revenue Arrangements with
Multiple Deliverables." While the wording of SAB 104 has changed to reflect the
issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain
largely unchanged by the issuance of SAB 104. The adoption of SAB 104 did not
have a material impact on the Company's financial statements.
n) Reclassifications
Certain amounts and/or disclosures in the prior year consolidated financial
statements have been reclassified or disclosure revised to conform with the
current year presentation.
o) Interim Financial Statements
These interim unaudited financial statements have been prepared on the same
basis as the annual financial statements and in the opinion of management,
reflect all adjustments, which include only normal recurring adjustments,
necessary to present fairly the Company's financial position, results of
operations and cash flows for the periods shown. The results of operations for
such periods are not necessarily indicative of the results expected for a full
year or for any future period.
3. Property and Equipment
December 31,
September 30, 2004 2003
--------------------------------- ------------
Accumulated Net Book Net Book
Cost Amortization Value Value
-------- ------------- -------- ------------
Air terminal $700,799 $ 202,139 $498,660 $ 506,489
Computer equipment 1,680 620 1,060 747
Furniture and equipment 6,657 4,908 1,749 922
$709,136 $ 207,667 $501,469 $ 508,158
4. Notes and Advances Payable
The notes and advances payable are unsecured, non-interest bearing and are
without specific terms of repayment.
8
PRIME AIR, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in US dollars)
(unaudited)
5. Related Party Transactions
a) Included in due to related parties is an amount of $19,300, representing
cash advances made during the nine months ended September 30, 2004 (December 31,
2003 - $12,846) to the Company by a shareholders and/or a corporation controlled
by that shareholder. This shareholder controls 100% of the related corporation.
This amount is unsecured, non-interest bearing and has no specific terms of
repayment.
b) Included in due to related parties is an amount of $21,560 (December 31,
2003 - $26,402) which represents consulting fees and expenses incurred on behalf
of the Company by directors and officers. These amounts are unsecured,
non-interest bearing and have no specific terms of repayment.
c) During the three months ended September 30, 2004, the Company issued
350,000 common shares to various directors/officers of the Company at $0.05 per
share for consulting services provided to the Company.
6. Common Shares
a) During the three month period ended September 30, 2004, the Company
issued 413,000 shares of common stock at $0.05 per share for services of
$20,650, and 60,000 shares of common stock at $0.10 per share for cash proceeds
of $6,000, of which $5,000 is recorded as stock subscriptions receivable.
b) During the three month period ended September 30, 2004, the Company
issued 429,200 shares of common stock at $0.05 per share for debt settlement of
$36,460, which resulted in a debt settlement gain of $15,000.
c) During the three month period ended September 30, 2004 the Company issued
50,000 shares of common stock at $0.05 per share for debt settlement $5,000,
which resulted in a debt settlement gain of $2,500.
d) During the three month period ended June 30, 2004, the Company issued
1,220,000 shares of common stock at $0.05 per share for cash proceeds of
$61,000.
e) During the three month period ended June 30, 2004, the Company issued
20,000 shares of common stock at $0.10 per share for cash proceeds of $2,000.
f) During the three month period ended June 30, 2004, the Company issued
2,408,000 shares of common stock at $0.05 per share for debt settlement of
$131,179 which resulted in debt settlement gain of $11,250.
g) During the three month period ended March 30, 2004, the Company issued
50,000 shares of common stock at $0.05 per share for debt settlement of $2,497,
and issued 40,000 shares of common stock at $0.10 per share for debt settlement
of $4,000.
7. Commitments and Contingencies
The Company's wholly owned Canadian subsidiary ("subsidiary") entered into an
Airport Lease and Operating Agreement ("the "Agreement") with The Corporation of
The Village of Pemberton ("Pemberton") in British Columbia in 1993 whereby it
was granted an exclusive and irrevocable lease over the lands and airport
facilities associated with the Pemberton Airport. The initial lease term
commenced on October 29, 1993 and ended on October 31, 1996. The subsidiary
exercised its option for extensions of the Agreement, which currently expires in
October 2004, however the Company has two ten-year options for extension
available, which require written notice within six months prior to the expiry of
the Extension Term. Pemberton may terminate the Agreement in the event of a
material default or bankruptcy by the Company. The terminal facilities together
with the land shall revert to Pemberton at the expiration of the Agreement.
8. Subsequent Event
In October 2004, the Agreement with Pemberton expired due to the Company failing
to timely file written notice with Pemberton in April 2004 to exercise the
ten-year option extension to October 2014. However, the Company and Pemberton
have recently concluded re-negotiating the lease and have verbally agreed to
terms of extension through October 2014. The parties are in the process of
formalizing the agreement.
As in the original lease, the terms of the re-negotiated agreement specify that
rent is payable based on 5% of gross receipts per annum derived from the
operation of the terminal facilities, excluding amounts received in connection
with the sale of airline tickets and other forms of transportation, subject to
minimum annual rent of CDN$2,500.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
Management's Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------------
Operation
---------
Some of the information presented in this report constitutes
"forward-looking statements." Although the Company believes that its
expectations are based upon reasonable assumptions within the bounds of its
knowledge of its proposed business and operations, it is possible that actual
results may differ materially from its expectations. Factors that could cause
actual results to differ from expectations include the inability of the Company
to raise the additional capital necessary to commence its principal operations
or the failure to consummate a definitive agreement with Voyageur Airways
Limited.
The Company is the parent of a wholly owned subsidiary, Prime Air, Inc.
("Prime Air (BC)"), a company originally incorporated under the laws of the
Province of British Columbia, Canada, on March 10, 1989, under the name "High
Mountain Airlines Inc." for the purpose of establishing air service to serve the
Whistler, British Columbia, Canada, area. Prime Air (BC) has entered into a
lease and operating agreement with the Village of Pemberton, British Columbia,
Canada, to plan, develop, construct, manage, and operate a terminal facility at
the Pemberton Airport.
To the present date, Prime Air (BC) has constructed the basic terminal
building and proposes to facilitate regular, scheduled air service to Pemberton
Airport to serve the nearby resort community of Whistler. However, sufficient
funding has not been secured to provide for costs for completion of certain
infrastructure items including landing lights, airside and groundside related
equipment, advance marketing and working capital requirements.
The results of the operations for the quarter ended September 30, 2004 show
substantially greater expenses incurred than the same period of the previous
year. Because the Company is in its "development stage," these figures will not
be representative of the Company's future operations.
Recent Events
--------------
The Company's primary asset consists of a Lease and Operating Agreement
with the Village of Pemberton, British Columbia, Canada in which Prime Air (BC)
agreed to undertake the planning, development, construction, management, and
operation of a terminal facility at the Pemberton Airport. In return, the
Village of Pemberton granted to Prime Air (BC) an exclusive lease involving
certain lands located at the Pemberton Airport (registered under the Land Title
Act, KN056037 under Parcel Identification Number 002-606-801, being that part of
District Lot 4769, Lillooet District, Except Plan KAP 44479) to enable Prime Air
(BC) to undertake the planning, development, construction, management, and
operation of a terminal facility.
The term of the lease commenced as of the Effective Date (June 1, 1995) and
is subject to certain renewals. Provided that the Company follows the procedure
for renewal and is not in default under the lease, it will have the right to use
the terminal facility until 2025.
Due to an administrative error, the Company inadvertently failed to renew
the lease within the specified time frame. Therefore, the lease terminated on
October 31, 2004. However, the Company has had discussion with the City of
Pemberton, and has effectively renewed the lease under substantially the same
terms and conditions.
10
Results of Operations
Nine months ended September 30, 2004 compared to September 30, 2003.
During the nine months ended September 30, 2004, the Company earned
revenues of $4,376 from the rental of retail space at its terminal facility. No
similar revenues were earned during the same period of the prior year.
Total expenses for the nine months ended September 30, 2004 were $228,423
compared to $98,442 for the nine months ended for September 30, 2003.
During the nine months ended September 30, 2004, the Company incurred
consulting fees, consulting fees to related parties, general and administrative
expenses and professional fees of $17,789, $70,000, $53,607, and $67,560,
respectively, compared to consulting fees, consulting fees to related parties,
general and administrative expense and professional fees of $14,000, $45,000,
$20,475 and $3,174, respectively for the same period of the prior year. During
the nine months ended September 30, 2004, professional expenses increased
primarily in accounting and legal fees in an effort to bring the Company in
compliance with its SEC filings. Consulting fees to related parties increased
due to the increased activity of two directors who are providing consulting
services to the Company, and general and administrative expenses increased due
to the Company's anticipation of operations for chartered flights.
Liquidity and Capital Resources
As of September 30, 2004, the Company's negative working capital was
($85,216) compared to a negative working capital of ($141,227) as of December
31, 2003.
The Company currently has limited revenues and will not generate
substantial revenue until it begins its operation at Pemberton. Historically,
the Company has funded its operations through loans from related parties and
issuance of its common stock. No assurance can be given that the Company will
be able to continue to receive such loans for its operations.
ITEM 3. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the
participation of our management, including our Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined by Exchange Act Rule 13a-15(e))
as of the end of our second fiscal quarter pursuant to Exchange Act Rule
13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective in ensuring that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
There have been no changes in our internal control over financial reporting
identified in connection with our evaluation as of the end of the second fiscal
quarter that occurred during such quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
11
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor any of its properties is a party to any legal
proceedings.
ITEM 2. UNREGISTERED SALES OF EQITY SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2004, the Company sold the
following unregistered shares.
1. During the three month period ended September 30, 2004, the Company
issued 413,000 shares of common stock at $0.05 per share for services
of $20,650, and 60,000 shares of common stock at $0.10 per share for
cash proceeds of $6,000, of which $5,000 is recorded as stock
subscriptions receivable.
2. During the three month period ended September 30, 2004, the Company
issued 429,200 shares of common stock at $0.05 per share for debt
settlement of $36,460, which resulted in a debt settlement gain of
$15,000.
3. During the three month period ended September 30, 2004 the Company
issued 50,000 shares of common stock at $0.05 per share for debt
settlement $5,000, which resulted in a debt settlement gain of $2,500.
The above issuances of shares were not registered upon reliance of either
Regulation S or Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of the shareholders during the quarter
ended June 30, 2004.
ITEM 5. OTHER INFORMATION
At meeting held on September 15, 2004, the Board of Directors approved a
certain resolutions including the appointment of Douglas Lineberry as a
director, the granting to directors 25,000 shares of Prime Air stock per quarter
for services rendered, and the granting 6.5 million shares and five year options
to purchase 8 million at $0.05 per share to six executive officers. At the
same meeting, the Board of Directors also approved the issuance of 800,000
shares of common stock on a quarterly basis to these six executives in lieu of
salary since the Company did not have the cash to compensate such executives.
The resolution appointing Douglas Lineberry was passed by a majority vote of the
board. All of the remaining resolutions were unanimously approved by the five
incumbent directors who attended the meeting and Mr. Lineberry and the minutes
of the meeting were ratified. However, one director who did not attend the
meeting is challenging the validity of the meeting since he claimed that notice
of the meeting was not properly transmitted in the matter called for by the
Company's bylaws even though it had been the Board of Director's prior custom
and practice to transmit notice in this manner. This director challenges proper
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notice of the meeting on the grounds that he was not 'telegraphed' a notice of
the meeting, but received a notice by fax, email and voicemail. Therefore this
director is disputing the resolutions adopted at this meeting as well as the
issuance of shares and options. The shares and options have been issued by the
board, but no stock certificates have yet been issued by the transfer agent.
ITEM 6. EXHIBITS
(A) Exhibits
Exhibit No.
------------
31.1 Certification by the Principal Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act
31.2 Certification by the Principal Accounting Officer Pursuant to Section
302 of the Sarbanes-Oxley Act
32 Certification by the Principal Executive and Financial Officers Pursuant
to Section 906 of the Sarbanes-Oxley Act
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-QSB to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
Washington, on the 22nd day of November, 2004.
Prime Air, Inc.
By: /s/ Dr. Albert Bruno
--------------------
Dr. Albert Bruno
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Jan Gossing
--------------------------------------------
Jan Gossing
Chief Financial Officer
(Principal Accountant and Financial Officer)
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