UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 10-Q

 

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x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended: March 31, 2010

¨	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 000-51115

 

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Avantair, Inc.

(Exact Name of registrant as specified in its charter)

 

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Delaware		20-1635240
(State of Incorporation)		(I.R.S. Employer I.D. Number)

 

4311 General Howard Drive

Clearwater, Florida 33762

(Address of principal executive offices) (Zip code)

(727) 539- 0071

(Registrant’s Telephone Number, Including Area Code)

 

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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ      No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ¨      No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨     Accelerated Filer  ¨     

Non-Accelerated Filer ¨   Smaller Reporting Company  þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨      No þ

 

As of May 12, 2010, there were 26,333,613 shares of the Company’s common stock, $.0001 par value per share, outstanding.

 

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CERTAIN DEFINITIONS

Unless the context indicates otherwise, the terms “Avantair”, “the Company”, “we”, “our”, and “us” refer to Avantair, Inc. and, where appropriate, its subsidiaries, or its predecessor, Ardent Acquisition Corporation.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements relating to future events and the future performance of the Company, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions or future strategies that are signified by the words “expects,” anticipates,” “intends,” “believes,” or similar language. Our actual results could differ materially from the information contained in these forward-looking statements as a result of various factors, including, but not limited to, the factors outlined in our Annual Report on Form 10-K, particularly under the heading “Risk Factors,” and the factors outlined below:

 

(1)	our inability to generate sufficient net revenue in the future;

(2)	our inability to fund our operations and capital expenditures;

(3)	our inability to acquire additional inventory of aircraft from our single manufacturer;

(4)	the loss of key personnel;

(5)	our inability to effectively manage our growth;

(6)	our inability to generate sufficient cash flows to meet our debt service obligations;

(7)	competitive conditions in the fractional aircraft industry;

(8)	extensive government regulation;

(9)	the failure or disruption of our computer, communications or other technology systems;

(10)	increases in fuel costs;

(11)	changing economic conditions; and

(12)	our failure to attract and retain qualified pilots and other operations personnel.

 

The risks described above and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. We do not undertake, and expressly disclaim, any obligation to update this forward-looking information, except as required by applicable law.

 

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Table of Contents

NOTE 6 – RELATED PARTY TRANSACTIONS

The following is a summary of a transaction entered into since July 1, 2009, to which the Company has been a party in and in which any of the Company’s executive officers, directors or beneficial holders of more than 5% of its capital stock had or will have a direct or indirect material interest.

In March 2010, Avantair granted 3,000 shares of restricted stock to each of its six non-employee directors of the Company’s Board of Directors. The restricted shares granted to the director’s vest one third upon each of the next three successive annual meetings, subject to the grantee’s continued service on the Board of Directors.

NOTE 7 – SUBSEQUENT EVENTS

In April 2010, upon approval from the Board of Directors, the Company issued a total of 626,100 stock options to each Company employee (other than its Executive Officers) with each receiving a specified number of stock options. The fair value of each stock option granted to employees will be estimated as of the date of grant. A Black-Scholes option-pricing model will be applied following certain weighted average assumptions, to estimate the fair value for employee stock options issued. Future stock-based compensation expense will be included in general and administrative expenses on the accompanying consolidated statement of operations. All options granted under the Plan are accounted for in accordance with ASC 718.

 

The stock options were issued under the Company’s 2006 Long Term Incentive Plan (the “Plan”). The term of stock options granted are determined by the Compensation Committee not to exceed 10 years. Additionally, the term of the stock grants is limited to five years if the grantee owns in excess of 10% of the stock of the Company at the time of the grant. The vesting provisions of individual options may vary but in each case will generally provide for vesting of at least 33% per year of the total number of shares subject to the option. The exercise price and other terms and conditions of stock options will be determined by the Compensation Committee at the time of grant. The exercise price per share may not be less than 100 percent of the fair market value of a share of the Company’s common stock on the date of the grant.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

 

Avantair is engaged in the sale of fractional ownership interests and flight hour card usage of professionally piloted aircraft for personal and business use and the management of its aircraft fleet. According to AvData, Avantair is the fifth largest company in the North American fractional aircraft industry. As of May 12, 2010, Avantair operated 55 aircraft within its fleet, which is comprised of 46 aircraft for fractional ownership, 5 company owned core aircraft and 4 leased and company managed aircraft.

 

Avantair also operates fixed flight based operations (FBO) in Camarillo, California and effective August 1, 2008, in Caldwell, New Jersey. Through these FBOs and its headquarters in Clearwater, Florida, Avantair provides aircraft maintenance, concierge and other services to its customers as well as to the Avantair fleet.

 

Avantair generates revenues primarily through the sale of fractional ownership shares of aircraft, by providing maintenance and management services related to these aircraft, and from the sale of flight hour cards providing either 15 or 25 hours of flight time per year of access to its aircraft fleet (either individually or through the Company’s Axis Club Membership program). The Company markets and sells fractional ownership interests to individuals and businesses with a minimum share size of a one-sixteenth ownership interest. Under maintenance and management agreements with fractional owners, Avantair provides pilots, maintenance, fuel and hangar space for the aircraft.

 

In response to the general economic downturn and the resulting growth of flight hour card sales over fractional share sales industry-wide, in January 2009, Avantair initiated the Axis Club Membership program. This program is designed to bridge the gap between the financial commitment of a fractional share and flight hour cards. This new product offers access to blocks of flight hours for a three year membership fee of $75,000. The program requires Axis Club members to purchase a minimum of three 25 hour flight hour cards for $80,000 or less, dependent upon the type of membership purchased, over a three year period. The program also allows for the conversion of club membership into fractional ownership. Members are not charged a management fee until they are fractional owners.

 

Avantair presently sources all of its aircraft from a single manufacturer, Piaggio America, Inc. (“Piaggio”). As of May 12, 2010, Avantair had contractual commitments to purchase 52 additional Piaggio Avanti II aircraft through 2013. The total commitment, including a recently proposed price escalation, is valued at approximately $330 million. The Company’s agreement with Piaggio permits it some flexibility to defer a portion of the aircraft deliveries and the Company has exercised this flexibility at certain times in order to take deliveries in line with the Company’s sales expectations. These aircraft are anticipated to be utilized to satisfy fleet demands of the growing flight hour card and Axis Club Membership Program product lines.

 

The Company’s primary sources of operating funds are the collection of management and maintenance fees from fractional share owners as well as the sale of fractional ownership shares, flight hour cards and, effective January 2009, Axis Club Memberships. Sales by product category follow:

 

		FY 2010 Unit Sales for the Three Months Ended																FY 2009 Unit Sales for the Nine Months Ended
		September 30, 2009				December 31, 2009				March 31, 2010				Total				March 31, 2009
New Fractional shares			2				5				-				7				36.5
Flight hour cards			86				100				82				268				109
Axis Club Memberships			3				21				9				33				2

 

Avantair’s primary growth strategy is to continue to increase the number of fractional share owners and aircraft under management as well as increase the number of flight hour cards and Axis Club Memberships sold. At May 12, 2010, the Company had 29 fractional aircraft shares available for sale. In addition to the cost of acquiring aircraft, Avantair’s primary expenses are related to fuel, aircraft repositioning (i.e., moving an aircraft to another location to accommodate a customer’s need and for demonstration flights for sales purposes), maintenance, charters and insurance. To finance its growth strategy, the Company may continue to actively pursue additional funds through equity financing, including the sale of additional shares of common and preferred stock, asset sales, accelerated payments of maintenance and management fees, debt financing, or a combination thereof.

 

At March 31, 2010 and June 30, 2009, Avantair had assets of approximately $137.8 million and $164.0 million, respectively. For the three and nine months ended March 31, 2010 and the fiscal year ended June 30, 2009, the Company had revenue of approximately $36.0 million, $107.0 million and $136.8 million, respectively, and net losses of approximately $0.8 million, $2.3 million and $4.5 million, respectively. Avantair has incurred losses since inception and may not be able to generate sufficient net revenue from its business in the future to achieve or sustain profitability. At March 31, 2010, the Company had approximately $7.3 million of unrestricted cash on hand and assuming there is no change in sales and expense trends experienced since the fourth quarter of fiscal 2009, the Company believes that its cash on hand is sufficient to continue operations for the foreseeable future.

 

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Critical Accounting Policies and Estimates

As discussed in our Form 10-K for the fiscal year ended June 30, 2009, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. The Company believes that of its significant accounting policies, the following may involve a higher degree of judgment and estimation. The judgments, or the methodology on which the judgments are made, are reviewed with the Audit Committee.

Revenue Recognition

 

Avantair is engaged in the sale and management of fractional ownerships of professionally piloted aircraft for personal and business use and access to its aircraft fleet through either 15 or 25 hour flight hour cards (either individually or through the Company’s Axis Club Membership program). In the case of fractional ownership sales, the aircraft are sold in one-sixteenth shares or multiples thereof. The management agreement grants the customer an undivided interest in a specified aircraft. When a customer purchases a fractional share, they are also required to enter into a five-year management and maintenance agreement which grants the customer the right to the use of the aircraft for a specified number of hours each year. Under the terms of the maintenance and management agreement, the Company agrees to manage, operate and maintain the aircraft on behalf of the customer in exchange for a fixed monthly fee which is recognized ratably over the term of the agreement, usually five years. If a customer prepays its management and maintenance fee for a period of one year or longer, the prepayment is recorded as unearned revenue and amortized into revenue on a monthly basis in accordance with the schedule provided for within each agreement. Flight hour cards provide customers with a fixed number of flight hours for a fixed fee. The Company defers the entire amount paid and recognizes revenue on an incremental basis as aircraft hours are flown. Axis Club Membership fees are paid in advance, deferred and recognized over the three year membership term. Similar to standard flight hour card sales, payment for flight hour cards sold through the Axis Club Membership program are collected in advance of access to the aircraft fleet, deferred and recognized as revenue on an incremental basis over the three year membership term.

 

Fractional Aircraft Shares Sales

 

The Company does not have objective evidence to determine the fair value and allocate fractional share revenue from that generated from the management and maintenance agreement, and, as a result, has adopted the provisions of ASC 605-25 “Multiple- Element Arrangements” to account for the sale of fractional shares of aircraft. Accordingly, as the sales of the fractional shares cannot be separated from the underlying maintenance and management agreement, fractional share sale revenue is recognized ratably over the five-year life of the maintenance and management agreement. The period in which revenue is recognized will be evaluated on a periodic basis. Factors that impact management’s assessment of the most appropriate period of revenue recognition will include, but not be limited to, customer turnover, terms and conditions of the related fractional share sale, maintenance arrangements as well as any other factor that could impact revenue.

 

Aircraft Costs Related To Fractional Sales

 

The Company reflects aircraft costs related to the sale of fractional aircraft shares. As a result of the adoption of ASC 605-25, the Company recognizes revenue from the sale of fractional shares as income over the five-year period. The aircraft costs related to sales of fractional shares consist of the cost of the aircraft and are recorded as an asset and recognized as the cost of aircraft shares sold over the five-year period.

 

Maintenance Expense Policy

 

The Company uses the direct expensing method of accounting for non-refurbishment aircraft maintenance. Engine maintenance is performed by third parties under contracts which transfer risk, and related costs are expensed as incurred. Airframe maintenance is performed in-house and related costs are expensed as incurred. Refurbishments of the interiors of the aircraft, which extend the life of the aircraft, are capitalized and amortized over the estimated life of three years.

 

Stock-Based Compensation

 

The Company accounts for share-based compensation to employees and directors in accordance with ASC 718 “Compensation- Stock Compensation,” which requires the recognition of compensation expense for employee stock options and other share-based payments. Under ASC 718, expense related to employee stock options and other share-based payments is recognized over the relevant service period based on the fair value of each stock option grant. In addition, the Company recognizes in its Condensed Consolidated Statements of Operations the grant-date fair value of stock options and other equity-based compensation issued to employees and directors. Compensation expense for equity-based awards is recognized over the requisite service period, usually the vesting period on a straight line basis, while compensation expense for liability-based awards (those usually settled in cash rather than stock) is measured to fair-value at each balance sheet date until the award is settled.

 

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Results of Operations

 

Three Months Ended March 31, 2010 Compared with Three Months Ended March 31, 2009

Revenues for the three months ended March 31, 2010 were $36.0 million, an increase of 3.9% from $34.7 million for the three months ended March 31, 2009. This increase was the result of an increase of 1.7% in management and maintenance fees to $18.3 million for the three months ended March 31, 2010 from $18.0 million for the comparable 2009 period, an increase of 95.7% in flight hour card and Axis Club Membership revenue to $5.7 million for the three months ended March 31, 2010 from $2.9 million for the comparable 2009 period, and an increase of 38.6% in other revenue to $1.5 million for the three months ended March 31, 2010 from $1.1 million for the comparable 2009 period, partially offset by a 17.1% decrease in the revenue generated from the sale of fractional aircraft shares to $10.5 million for the three months ended March 31, 2010 from $12.6 million for the comparable 2009 period.

 

Revenue from the sale of fractional aircraft shares decreased due to the full amortization of revenue from shares sold in prior periods, partially offset by an increase of 0.7% in the average number of total fractional shares through March 31, 2010 from the comparable 2009 period.

The increase in revenue from maintenance and management fees is primarily due to a 0.7% increase in the average number of fractional shares through March 31, 2010 from the comparable 2009 period, coupled with an increase in the average monthly management fee per shareowner.

Flight hour card revenue and Axis Club Membership revenue increased $2.8 million primarily due to an increase in flight hour card sales as a result of the greater acceptance of time card travel in the existing economy compared to fractional ownership and the timing of flight hour card utilization by owners during the three months ended March 31, 2010 from the comparable 2009 period.

Other revenue was relatively consistent between the two periods due to increased fuel and remarketing revenue offset by a decrease in demonstration revenue. Demonstration flights that generate demonstration revenue are in anticipation of a fractional share sale, but not for flight hour time card sales. Demonstration revenue therefore decreased because of the decrease in fractional share sales, despite the increases in flight hour time card sales.

Operating expenses for the three months ended March 31, 2010 were 13.1% higher than the three months ended March 31, 2009, with total operating expenses of $35.5 million compared to $31.4 million, respectively. The cost of fractional aircraft shares sold decreased to $9.0 million for the three months ended March 31, 2010 from $10.7 million for the three months ended March 31, 2009, due to the full amortization of costs that had been deferred from shares sold in prior periods, partially offset by a 0.7% increase in the average number of fractional shares sold through March 31, 2010 from fractional shares sold through March 31, 2009. The vendor service reimbursement related to a $2.95 million non-recurring credit recognized as a result of the replacement of the Company’s former engine service vendor with another nationally recognized, FAA certified engine maintenance vendor in the 2009 period. The cost of flight operations, together with the cost of fuel, increased 10.8% to $17.4 million for the three months ended March 31, 2010 from $15.8 million for the three months ended March 31, 2009, primarily due to:

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an increase in maintenance expense as a result of an increase in fleet size, an increase in aircraft lease expense as a result of the addition of leased aircraft, an increase in charter expense due to the increased volume of flight hours during the period, partially offset by decreases in pilot expenses and insurance expense; and

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a $0.6 million increase in cost of fuel due to an increase in flight hours and an increase in the per gallon cost of fuel.

General and administrative expenses increased 8.1% to $6.4 million for the three months ended March 31, 2010 from $6.0 million for the three months ended March 31, 2009, primarily due to increases in employee benefit, training and related costs and FBO fuel costs.

Selling expenses increased 89.2% to $1.3 million for the three months ended March 31, 2010 from $0.7 million for the three months ended March 31, 2009 due to an increase in commission expenses as a result of increased flight hour card sales.

Income from operations was $0.5 million for the three months ended March 31, 2010, a decrease from $3.2 million income from operations for the three months ended March 31, 2009 for the reasons set forth above.

Interest expense decreased 11.0% to $1.3 million for the three months ended March 31, 2010 from $1.4 million for the three months ended March 31, 2009, due to an increase in the weighted average interest rate on debt outstanding for the three months ended March 31, 2010 from the comparable 2009 period.

 

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Net loss increased to $0.8 million for the three months ended March 31, 2010 compared to $1.8 million net income for the three months ended March 31, 2009 due to the decrease in loss from operations partially offset by the increase in total other expense discussed above.

Nine Months Ended March 31, 2010 Compared with Nine Months Ended March 31, 2009

 

Revenues for the nine months ended March 31, 2010 were $107.0 million, an increase of 4.1% from $102.7 million for the nine months ended March 31, 2009. This increase was the result of an increase of 3.4% in maintenance and management fees to $54.6 million for the nine months ended March 31, 2010 from $52.8 million for the comparable 2009 period, an increase of 123.3% in flight hour card and Axis Club Membership revenue to $14.5 million for the nine months ended March 31, 2010  from $6.5 million for the comparable 2009 period, and an increase of 6.2% in other revenue to $4.2 million for the nine months ended March 31, 2010 from $4.0 million for the comparable 2009 period, partially offset by a 14.7% decrease in the revenue generated from the sale of fractional aircraft shares to $33.7 million for the nine months ended March 31, 2010 from $39.5 million for the comparable 2009 period.

 

Revenue from the sale of fractional aircraft shares decreased due to the full amortization of revenue from shares sold in prior periods, partially offset by an increase of 0.7% in the average number of total fractional shares through March 31, 2010 from the comparable 2009 period.

The increase in revenue from maintenance and management fees is primarily due to a 0.7% increase in the average number of fractional shares through March 31, 2010 from the comparable 2009 period, coupled with an increase in the average monthly management fee per shareowner.

Flight hour card revenue and Axis Club Membership revenue increased $8.0 million primarily due to an increase in flight hour card sales as a result of the greater acceptance of time card travel in the existing economy compared to fractional ownership and the timing of flight hour card utilization by owners during the nine months ended March 31, 2010 from the comparable 2009 period.

Other revenue increased 6.2% to $4.2 million for the nine months ended March 31, 2010 from $4.0 million for the nine months ended March 31, 2009, due to increased fuel and remarketing revenue offset by a decrease in demonstration revenue. Demonstration flights that generate demonstration revenue are in anticipation of a fractional share sale, but not for flight hour time card sales. Demonstration revenue therefore decreased because of the decrease in fractional share sales, despite the increases in flight hour time card sales.

Operating expenses for the nine months ended March 31, 2010 were 2.8% higher than the nine months ended March 31, 2009, with total operating expenses of $104.8 million compared to $102.0 million, respectively. The cost of fractional aircraft shares sold decreased to $28.6 million for the nine months ended March 31, 2010 from $33.6 million for the nine months ended March 31, 2009, due to the full amortization of costs that had been deferred from shares sold in prior periods, partially offset by a 0.7% increase in the average number of fractional shares sold through March 31, 2010 from fractional shares sold through March 31, 2009. The gain on sale of assets related to a nonrecurring gain recognized on the sale of one of the Company’s core aircraft during the nine months ended March 31, 2010, with no gain realized in the comparable 2009 period. The vendor service reimbursement related to a $2.95 million non-recurring credit recognized as a result of the replacement of the Company’s former engine service vendor with another nationally recognized, FAA certified engine maintenance vendor in the 2009 period. The cost of flight operations, together with the cost of fuel, increased 5.7% to $50.2 million for the nine months ended March 31, 2010 from $47.5 million for the nine months ended March 31, 2009, primarily due to an increase in maintenance expense as a result of an increase in fleet size, an increase in aircraft lease expense as a result of the addition of leased aircraft, an increase in charter expense due to the increased volume of flight hours during the period, partially offset by decreases in pilot expenses and insurance expense.

General and administrative expenses increased 8.8% to $19.0 million for the nine months ended March 31, 2010 from $17.4 million for the nine months ended March 31, 2009, primarily due to increases in employee benefit, training and related costs and FBO fuel costs.

Selling expenses increased 36.1% to $3.7 million for the nine months ended March 31, 2010 from $2.7 million for the nine months ended March 31, 2009 due to an increase in commission expenses as a result of increased flight hour card sales.

Income from operations was $2.1 million for the nine months ended March 31, 2010, an increase from $0.7 million income from operations for the nine months ended March 31, 2009 for the reasons set forth above.

Interest expense increased 8.0% to $4.5 million for the nine months ended March 31, 2010 from $4.1 million for the nine months ended March 31, 2009, due to an increase in the weighted average interest rate on debt outstanding for the nine months ended March 31, 2010 from the comparable 2009 period.

 

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Net loss decreased to $2.3 million for the nine months ended March 31, 2010 compared to $3.4 million for the nine months ended March 31, 2009 due to the decrease in loss from operations partially offset by the increase in total other expense discussed above.

Liquidity and Capital Resources

Avantair’s primary sources of liquidity have been cash provided by operations, cash raised from its equity offering as Ardent Acquisition Corp., cash provided from its debt facilities, cash raised in the preferred and common stock offerings, and other asset- based borrowing. The Company uses its cash primarily to fund losses from operations, deposits made on aircraft, leasehold improvements, and to fund the purchase of core aircraft and aircraft which are to be fractionalized. Cash generated from operations has not been sufficient to provide for all the working capital needed to meet Avantair’s requirements. At March 31, 2010 and June 30, 2009, Avantair had a working capital deficit of approximately $39.9 million and $49.2 million, respectively, and a stockholders’ deficit of approximately $30.2 million and $36.0 million, respectively. As of March 31, 2010, cash and cash equivalents amounted to approximately $7.3 million and total assets to $137.8 million. The cash and cash equivalent balance increased $3.5 million from June 30, 2009 and total assets decreased $26.2 million. The increase in cash and cash equivalents occurred primarily as a result of cash received from the sale of fractional shares, flight hour cards, Axis Club Memberships, fuel and rent, collection of maintenance and management fees and other receipts including proceeds from the sale of the Company’s common stock.

 

In January 2009, the Company introduced the Axis Club Membership Program designed to bridge the gap between the financial commitment of a fractional share and flight hour card. The current rate of flight hour card sales including those through the Axis Club Membership will require the Company to acquire aircraft to satisfy the increased flight hour demands on its core aircraft fleet if its core utility is strained.

 

Avantair’s primary growth strategy is to continue to increase the number of fractional share owners and aircraft under management as well as increase the number of flight hour cards and Axis Club Memberships sold. At May 12, 2010, the Company had 29 fractional aircraft shares available for sale. In addition to the cost of acquiring aircraft, Avantair’s primary expenses are related to fuel, aircraft repositioning (i.e., moving an aircraft to another location to accommodate a customer’s need and for demonstration flights for sales purposes), maintenance, charters and insurance. To finance its growth strategy, the Company may continue to actively pursue additional funds through equity financing, including the sale of additional shares of common and preferred stock, asset sales, accelerated payments of maintenance and management fees, debt financing, or a combination thereof.

At March 31, 2010 and June 30, 2009, Avantair had assets of approximately $137.8 million and $164.0 million, respectively. For the three and nine months ended March 31, 2010 and the fiscal year ended June 30, 2009, the Company had revenue of approximately $36.0 million, $107.0 million and $136.8 million, respectively, and net losses of approximately $0.7 million, $2.3 million and $4.5 million, respectively. Avantair has incurred losses since inception and may not be able to generate sufficient net revenue from its business in the future to achieve or sustain profitability. At March 31, 2010, the Company had approximately $7.3 million of unrestricted cash on hand and assuming there is no change in sales and expense trends experienced since the fourth quarter of fiscal 2009, the Company believes that its cash on hand is sufficient to continue operations for the foreseeable future.

Financing Arrangements

Avantair’s financing arrangements at March 31, 2010, are described below:

Wells Fargo Equipment Finance, Inc.		$	2,786,824
Jet Support Services, Inc.			2,271,925
Century Bank, F.S.B.			1,797,637
Wachovia Bank			2,220,935
Other long-term debt			39,951
Midsouth Services, Inc			11,683,491
		$	20,800,763

Wells Fargo Equipment Finance, Inc.: In February 2005, the Company entered into financing arrangements for the purchase of core aircraft under various notes payable with Wells Fargo Equipment Finance, Inc. The notes outstanding at March 31, 2010 totaled approximately $2.8 million and are payable in monthly installments ranging from $10,644 to $38,480 with interest ranging from 5.96% to 6.12% per annum, through 2012. The notes are collateralized by the aircraft.

 

Jet Support Services, Inc.: On April 24, 2006, Avantair financed an aircraft maintenance program contract with Jet Support Services, Inc. (“JSSI”) in the amount of $3.4 million. The promissory note provided for seven monthly installments of $145,867 and 53 monthly installments of $45,867, respectively, including interest at 7.0% per year. On April 15, 2008, the Company entered into a financing arrangement with JSSI by means of a $5.5 million promissory note. The new note matures on April 1, 2011 and bears interest at 10.0% per annum, with 35 monthly payments of principal and interest in an amount of $185,127 beginning on June 2, 2008. The new note covered the remaining balance of $0.4 million of the aforementioned promissory note, other costs and fees to be paid by the Company under service agreements with JSSI and related deferred financing costs of approximately $1.0 million which will be amortized over the life of the note using the effective interest method. Upon entering into this payment arrangement and the $5.5 million promissory note, the parties terminated the airframe maintenance contract and have agreed to apply the unamortized prepayment ($1,538,175 at June 30, 2009) under the airframe maintenance contract to the engine maintenance program and will amortize this amount over the remaining 37 month term of that program.  Borrowings outstanding under this arrangement at March 31, 2010 totaled approximately $2.3 million.

 

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Century Bank, F.S.B.: In August 2007, the Company and Century Bank F.S.B. executed a $2.2 million note agreement for the purchase of one aircraft. The note outstanding at March 31, 2010 totaled approximately $1.8 million and is payable in monthly installments of $27,175 with interest of 8.25% per annum, through August 3, 2012. The note is collateralized by the aircraft.

Wachovia Bank: On October 31, 2007, the Company entered into a financing arrangement for the purchase of one used aircraft at a total purchase price of approximately $4.5 million (inclusive of the value of a flight hour card of 100 hours). Financing was obtained from Wachovia through a note payable of $3.9 million. This debt will be repaid monthly over 7 years at an interest rate of the LIBOR rate plus 4.0%. Borrowings outstanding under this arrangement at March 31, 2010 totaled approximately $2.2 million. During September 2009, the Company received a waiver of compliance with a financial covenant in connection with the note.

Other long-term debt: In October 2009, the Company and Kevco Aviation Inc. executed a $56,614 note agreement for the purchase equipment. The note outstanding at March 31, 2010 totaled $39,951 and is payable in monthly installments of $2,912 with interest of 3.25% per annum, through May 2011.

Midsouth Services, Inc.: On October 10, 2007, Avantair acquired a core aircraft under a capital lease obligation with Midsouth.  Under the lease agreement, Midsouth provided funding for the $4.7 million purchase of a pre-owned Piaggio P-180 aircraft and holds title to the Aircraft.  Midsouth leases the Aircraft exclusively to Avantair on a five year lease at 15.0% interest per annum.  The monthly lease payments for the term of the lease are $89,000.  At the end of the five year lease, Avantair shall purchase the Aircraft from Midsouth at the guaranteed residual value in the amount of approximately $2.3 million.  Avantair also has the option to purchase the Aircraft anytime during the lease term at the then current guaranteed residual value as set forth on the amortization schedule without penalty.  The obligation outstanding at March 31, 2010 totaled approximately $3.8 million.

In April 2009, the Company amended the Lease Agreement previously accounted for as an operating lease under ASC Topic 840 “Leases,” dated as of July 31, 2006 between the Company and Midsouth. Pursuant to the amendment, the Company is required to pay $74,900 monthly until August 2011, the expiration of the Lease Agreement. In addition, the Company has agreed to purchase the leased aircraft for approximately $3.0 million from Midsouth within sixty days following the expiration of the term of the Lease Agreement. The lease, as amended, has been classified as a capital lease in the accompanying condensed consolidated balance sheet. The obligation outstanding at March 31, 2010 totaled approximately $3.0 million, net of deferred interest of $0.6 million.

In April 2009, the Company entered into a Lease Agreement, effective April 6, 2009, pursuant to which Midsouth leases a Piaggio P-180 aircraft to the Company for a ten year lease term at $75,000 per month, plus taxes if applicable. The Company is required to provide Midsouth with 100 hours of flight time per year during the lease term. Hours have been accounted for at their fair value and are liquidated as hours are flown.  Midsouth has the sole option to terminate the lease at the end of the fifth year of the term and to require the Company to purchase the leased aircraft for approximately $3.8 million within ninety days of that date.  If this option is not exercised by Midsouth, the lease will continue for the remaining five years of the term and, at the end of the ten year lease, the Company will be required to purchase the aircraft from Midsouth for $0.3 million. The obligation outstanding at March 31, 2010 totaled approximately $4.8 million.

For additional information regarding these financing arrangements, see Note 4 to the Company’s condensed consolidated financial statements.

Off-Balance Sheet Arrangements

Avantair has no off-balance sheet obligations nor guarantees and has not historically used special purpose entities for any transactions.

 

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Item 1. Legal Proceedings.

From time to time, the Company is party to various legal proceedings in the normal course of business. It is expected that these claims would be covered by insurance subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. As of March 31, 2010, there were no legal proceedings which the Company would anticipate having a material adverse effect on its financial position, results of operations or cash flows.

 

Item 1A. Risk Factors.

There have been no material changes from the risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009.