18th Sep 2007 07:02
MAXjet Airways Inc.18 September 2007 THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF IRELAND OR SOUTH AFRICA. 18 September 2007 MAXJET AIRWAYS, INC. ("MAXjet" or the "Company") INTERIM RESULTS FOR THE 6 MONTHS TO JUNE 2007 MAXjet today announces its results for the half year to 30 June 2007. Allfinancial data is reported in US dollars unless otherwise stated. Highlights • Well-established operation flying more routes than any other all Business Class airline, with flights from London Stansted to four key business and leisure markets across the United States (New York, Washington, Las Vegas and Los Angeles) • Increased fleet size from three to five aircraft • Period culminated in a system-wide load factor of 83.1% (June 2007) • Scheduled passenger numbers increased 49% to 31,186 during the period, with MAXjet's 100,000th revenue passenger carried in August 2007 • Revenues for the six months ended 30 June 2007 improved 74% to $27.3 million • Unit revenues increased 30% from 10.8 US cents per available seat mile to 14.0 cents • Total operating expenses increased 30% to $59.2 million on a 34% growth in unit capacity reflecting substantial expenses related to fleet growth, pre-service aircraft expense and short-term leases to meet demand • Full-year guidance of revenues of not less that $80 million reflects continued fleet growth, continued unit revenue improvements, and network expansion • Elevated fuel costs expected to continue through 2007 Commenting on the results, William Stockbridge, MAXjet Chief Executive, said: "MAXjet pioneered the affordable transatlantic all-business class segment twoyears ago and in the last half year we have continued to consolidate our leadingposition. We are now diversified into four scheduled markets all of which aredisplaying encouraging demand. Load factors, yields and forward bookingscontinue to be strong. "During the period, we completed our AIM offering, invested in fleet expansionand eliminated all debt from our balance sheet. We have made significantinvestments in the first half of 2007 to accelerate our network expansion andthese have bolstered our segment-leading growth, leading to our full yearguidance of revenues of not less that $80 million." For further information, please contact: MAXjet Airways, Inc +1 703 574 6600Bill Stockbridge, CEOJohn Severson, CFOJosh Marks, EVP, Head of Strategy & Route Development Panmure Gordon, Nominated Adviser and Broker +44 207 459 3600Grant HarrisonAndrew PottsChris Bucknall FD +44 207 831 3113Ben FosterCharlie Watenphul Notes to Editors MAXjet Airways introduced the affordable all-business class segment, startingservice between London Stansted and New York (JFK) in November 2005. Sincelaunching the low-fare all-business class segment MAXjet has carried over100,000 passengers and introduced new services from London to Washington, LasVegas and Los Angeles. MAXjet offers the amenities of Business Class, including fast check-in securityclearance, departure lounges, padded leather seats with 170 degrees of reclineand 60" seat pitch, gourmet meals and an arrivals facility at Stansted, at farescomparable to flexible Economy Class. MAXjet offers convenient flight schedules with evening departures from citiesacross the United States and return flights from Stansted that appeal to bothbusiness and leisure passengers. MAXjet has attracted a customer base of small business, large business andaffluent leisure consumers with significant repeat business and high customersatisfaction. Group Product Offering We are an all-business class airline focused on providing low-cost, all-businessclass service in markets with business and affluent leisure demand. We offerour passengers a unique flying experience, with deep-recline seats (170degrees)spaced at a 60" pitch, portable on demand entertainment systems, ample stowagespace and gourmet meals. On the ground, we provide dedicated check-infacilities located in primary terminals, fast track security, business classdeparture lounges in most locations and an arrival facility in London. Our exclusive focus on all-business class creates a more spacious cabinenvironment and material cost efficiencies when compared to traditionalairlines' multi-cabin model. We operate Boeing 767-200 wide-body aircraftconfigured with between 92 and 102 forward facing seats. There are no EconomyClass seats on our aircraft. Seats are arranged in three columns of two seats,with no middle seats. This configuration maximizes profitable seating spacewhile maintaining a comfortable, spacious wide-body environment. By offeringonly a single cabin product, we achieve operating scale and cost savings inprocuring high-end amenities and catering, applying low-cost carrier principlesto an all-business class airline. Our low-density seating configuration alsoreduces fuel burn and expands the economic range of our aircraft. We commenced service on 1 November 2005 and currently provide scheduled servicebetween London Stansted Airport (STN) and four points in the United States: NewYork (JFK), Washington Dulles (IAD), Las Vegas McCarran (LAS) and Los Angeles(LAX). MAXjet operates six round-trip nonstop flights between Stansted and JFK,four round trip flights between Stansted and Washington Dulles, four round-tripflights between Stansted and Las Vegas McCarran, and four round-trip flightsbetween Stansted and Los Angeles. Service to New York JFK will increase todaily on 20 October 2007. We have also applied for a designation from the U.S.Department of Transportation to offer services from Seattle, Washington toShanghai, China beginning in March 2009 and intend to provide such service ifthis designation is granted. Since 1 November 2005 we have carried over 100,000 revenue passengers. In addition to scheduled passenger transportation, we provide cargo and charterservices. We offer cargo capacity through general sales agents on all of ourexisting routes, with available capacity of between five and twenty metric tonsper flight segment. We transport cargo using excess space on our flights, butwe do not operate any dedicated cargo aircraft. Competitive Strengths We believe that our low-cost business model gives us several competitivestrengths, including the following: • We target what we believe is the most profitable segment of airline activities - the niche business class market - and emphasize the attributes most important to this class of customers. • As an all-business class carrier, our product, including our fare structure, is focused, simple and easy for customers to understand. • We have a low-cost structure owing to low fit out, operating and capital costs associated with our all-B767 fleet, scalable airport services model utilizing main terminal facilities, low labor costs and lean corporate overhead. This low-cost structure makes our price point a difficult one for many of our competitors to match. • We have a growing network focused on London Stansted, with current nonstop service to four primary United States gateways (New York, Washington, Las Vegas and Los Angeles). By building a network of routes from London Stansted rather than introducing multiple daily departures on existing routes, we believe we are well-positioned to minimize direct competition with competing carriers. • We are focused on introducing new non-stop routes to destinations which other all-business class airlines cannot currently reach. • We have a proven track record and a growing repeat customer base. Our Business Strategy Our goal is to be the worldwide leader in long-haul all-business class service.To achieve this goal, we are pursuing the following business strategies: • We intend to pursue new market opportunities once the liberalized aviation agreement ("Open Skies") between the United States and the member states of the European Community takes effect in April 2008, by adding scheduled service from London to Open Skies points beyond London in the Middle East, Asia and Africa. The new points will complement our United States-bound service and build connecting traffic using Stansted. On July 17, 2007 we received approval from the U.S. Department of Transportation to operate from the United States to all Open Skies points, as well as beyond services from cities in Open Skies countries to other cities in Open Skies countries, subject to the relevant bilateral agreements. • We intend to grow passenger volumes on our existing routes by increasing our sales and marketing efforts and adding weekly frequencies. We are targeting new markets that have strong business and leisure demand, have high-quality airport facilities that do not require substantial capital investment, do not have a dominant carrier and can provide new connectivity options for our passengers. • We intend to maximize our revenue and fleet utilization by seeking additional opportunities to carry revenue-earning cargo and other ancillary revenues. • We intend to acquire additional aircraft and expand our fleet during 2008. Summary of Results Half Year Ended 30-Jun-07 30-Jun-06 % ChangeScheduled Passengers 31,186 20,862 49%Revenue ($000s) $27,295 $15,711 74%Operating Loss ($000s) ($31,900) ($29,985) -6%Loss per share ($2.05) ($3.51) 41% First Half Operational Performance During the first half of 2007 MAXjet delivered substantial growth in passengertraction, capacity, and unit revenue, culminating with an 83.1% system-wide loadfactor in June 2007. Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 1st HalfRevenue Passengers 3,621 2,928 4,342 5,692 6,636 7,967 31,186Available Seats (a) 7,962 6,338 7,032 7,632 8,580 9,656 47,200Rev. Passenger Miles (a) 14,487 11,952 17,788 23,466 26,609 32,103 126,404Available Seat Miles (a) 31,002 24,861 28,003 31,135 34,594 38,652 188,247System Load Factor (a) 46.7% 48.1% 63.5% 75.4% 76.9% 83.1% 67.1%Cumulative LF% (a) 46.7% 47.3% 52.7% 58.9% 63.0% 67.1%RASM (b) 10.5 9.8 15.4 14.9 15.0 16.7 12.9 (a) Includes all scheduled flights marketed by MAXjet Airways but excludes charter operations (b) Revenue per Available Seat Mile (i.e. Unit Revenue) in US Cents Since the end of the half-year, MAXjet has had continued strength in bothpassenger counts and systemwide load factors. MAXjet carried 7,612 revenuepassengers with a 75.5% system-wide load factor in July, and 7,580 passengersand 76.4% systemwide load factor in August. This continued strength duringtraditionally slower periods of the year reflects the following: - A consistent mix of business and leisure traffic - Complementary demand across routes to the eastern and western United States - Significant repeat business on specific routes and across the system - Developing strength in the Company's brand During the first half of 2007, MAXjet completed 472 of 482 scheduled departuresfor a 98% completion factor. Of the 472 completed flights in the period, 95departures were delayed more than 30 minutes due to mechanical, weather orair-traffic control factors, resulting in an 80.5% on-time performance rate. Route & Yield Development The Directors have pursued a route strategy based on diversification of ournetwork rather than increasing daily departures in existing markets. By June2007 MAXjet operated in three scheduled markets (between London and New York,Washington and Las Vegas) and had announced the launch of its fourth route toLos Angeles, which subsequently commenced service on 30 August. In addition,the Company announced the launch of a fourth weekly service to Las Vegascommencing 2 September 2007 and daily service to New York (increasing from sixweekly flights) commencing 20 October 2007. The Directors have pursued a fare strategy that avoids fuel surcharges and otherhidden fees in favor of transparent fares that are easily distributed throughoffline and online channels. In response to escalating fuel prices, MAXjet hasimplemented measured fare increases and has tightened low-end inventoryavailability. During the first quarter of 2007 the Company tested customer elasticity at boththe high and low ends of its pricing spectrum. By closing and opening low-endinventory in isolation the Company developed demand patterns across its NewYork, Washington and Las Vegas markets. This demand data has enabled theCompany to record consistent improvements in both load factor and unit revenuesthrough the balance of 2007. MAXjet has seen significant low-fare competition from other all Business Classentrants in the New York market. Even with new entrants increasing discountBusiness Class capacity, the Company continued to improve its unit revenuesduring the first half of 2007, reflecting the Company's first mover advantage inthe low-fare Business Class space. AIM Listing & Capital Structure MAXjet raised $93.7 million after expenses and was admitted successfully to AIMin June 2007. In connection with the AIM offering all preferred stock convertedto common and all debt was retired. Prior to admission the Company hadoutstanding $6.8 million of preferred stock, $9.7 million of convertible debt(Term A, including PIK interest), $30.5 million of non-convertible debt (Term B)and a $1.5 million credit facility. Non-cash preferred dividends of $4.6 million resulted from the conversion ofpreferred stock into five million shares of common stock at a discount to theoffering price, concurrent with the closing of the AIM offering. The outstanding Term A debt was converted into an aggregate of 4.9 millionshares. This conversion resulted in a non-cash charge of $3.8 million. The TermB debt was repaid and unamortized discounts of $2 million were written off. Thecredit facility was also repaid. After retiring debt, the Company had $50.3 million in unrestricted cash as of 30June 2007. As of June 30, 2007 the Company had outstanding 68.4 million shares of commonstock, 14.6 million warrants to acquire common stock at an average of $2.19 pershare and 2.2 million stock options to acquire common stock at an average of$2.23 per share. Financial Accounting Standards Board Interpretation No. 46, "Consolidation ofVariable Interest Entities," requires that if an enterprise is the primarybeneficiary of a variable interest in a Variable Interest Entity ("VIE"), thenthat enterprise should include the assets, liabilities and results of operationsof the VIE in its consolidated financial statements. Effective January 17,2007, as a result of the execution of leases for its fourth and fifth aircraft,the Company consolidated the financial statements of the lessor, KMW 767 LeasingSPV ("KMW Leasing"), an affiliate of the Company's Chairman, Kenneth Woolley.This determination was based on three factors: (i) KMW Leasing is a VIE, (ii)the Company holds a variable interest in KMW Leasing and (iii) MAXjet is theprimary beneficiary of KMW Leasing. All intercompany transactions and balances between MAXjet and KMW Leasing havebeen eliminated. The primary impact of this consolidation on the balance sheetis a net increase in property and equipment and other assets by $27.4 millionwith an offsetting $27.4 million in minority interest in Variable InterestEntity. The impact on the Statement of Operations is to decrease aircraft leaseexpense by $7.7 million, increase depreciation expense by $1.8 million andreflect the charge of $5.9 million for minority interest in Variable InterestEntity. Business Highlights from 1H 2007 The Company focused on investments that would drive growth in the second half ofthe year and in 2008. Passenger and Barter Revenue. Revenue increased to $24.4 million in the firsthalf of 2007, up 75% from the same period of 2006. Primary drivers ofimprovement were: • An improvement in unit revenue (Revenue per Available Seat Mile, or RASM) to 14.01 cents for the first half of 2007 versus 10.79 cents for the same period in 2006. RASM improved to 16.7 cents in June 2007 from 10.5 cents in January 2007. • System-wide load factor improved to 67.1% for the first half of 2007 from 51.1% in the first half of 2006. During the first half of 2007, load factor improved to 83.1% in June 2007 from 46.7% in January. • Passengers carried improved 49% to 31,186 passengers in the first half of 2007 from 20,862 in 2006. Cargo. MAXjet received approval to carry revenue cargo in October 2006. Duringthe first half of 2007, MAXjet qualified each of its stations to handle revenuecargo. During the first half of 2007 MAXjet carried $0.5 million in revenuecargo. Charter. MAXjet's charter business performed strongly in the first half of2007. Charter revenue grew 33% to $2.4 million. During the second half of2007, MAXjet has focused its resources on launching Los Angeles, new frequenciesto New York and Las Vegas and ensuring availability of a spare aircraft. Aircraft. During the first half of 2007, the Company increased its fleet sizefrom three to five aircraft with the lease of two long range B767 aircraft.These aircraft were placed in modification to MAXjet specifications with onecommencing revenue service on 20 August 2007 and the second within the next 30days. Lease expense for these two aircraft amounted to $7.7 million during thefirst half of 2007 which was recorded as depreciation and minority interest dueto the consolidation of KMW Leasing. MAXjet leases a fleet of five B767-200 aircraft. Four aircraft are currently inrevenue service and one aircraft is completing modification and will enterservice within the next 30 days. MAXjet's flight schedule can be operated withfour aircraft, and the fifth aircraft will be an operating spare. A spareaircraft is part of the Directors' strategy to continue improving on-timeperformance and minimize cancellations. During the first half of 2007, the average operating fleet size was 3.0aircraft, up from 1.5 aircraft for the same period in 2006. Wages and Benefits. Crew training investments to service new routes began inearly 2007, driving an increase in overall wages and benefits to $11.4 millionfrom $8.7 million for the same period in 2006, in proportion to capacityincreases. Aircraft Fuel. During the first half of 2007, MAXjet consumed 6.5 milliongallons of fuel. Total cost per gallon decreased from $2.13 in the first halfof 2006 to $2.03 in the same period of 2007. Fuel prices have approximated$2.25 per gallon since June 30. MAXjet expects its fuel cost in the second halfof 2007 to remain in this range, with an average cost per gallon during 2007 ofapproximately $2.17, assuming no further increases in the market. Aircraft Maintenance. Overall aircraft maintenance costs increased to $3.6million in the first half of 2007 from $2.3 million in the same period of 2006,an increase of 56% reflecting increased operations and a larger fleet. MAXjet reserves for heavy checks on its aircraft on a monthly basis. While cashreserves are paid on a monthly basis, the costs associated with heavy checks arerecognized only when incurred. No heavy checks occurred during the first halfof 2006. MAXjet completed a heavy check in August 2007 and is scheduled toconduct two heavy checks during the first half of 2008. Marketing and Distribution. Total marketing and distribution expendituresdropped to $2.8 million from $6.3 million in 2006. On a passenger basis,marketing expenditure per revenue passenger flown dropped to $89 from $303. Thisreflects significant repeat business and growing strength in the Company'sbrand, along with marketing strategies discussed below. Passenger Service Expenses. These expenses increased from $3.3 million in thefirst half of 2006 to $7.8 million in the first half of 2007. During late Mayand June 2007 one of the Company's three active B767s was out of service for anextended period. MAXjet continued to operate all scheduled markets through thisperiod. MAXjet contracted with two charter airlines to operate VIP-configuredaircraft on a wet-lease basis on the Washington route. Both vendors offeredaircraft with 65 seats or fewer. As a result, in addition to wet-lease costs,on peak days MAXjet also re-accommodated passengers on other airlines. Totalcosts related to interrupted trip expenditures and sub-service were $4.1 millionin the first half of 2007, compared to $1.1 million for the same period in 2006. Interest Expense & Other. Interest Expense and Other for the period was $11.8million, compared to $0.4 million in 2006. Expense was primarily related tohigh-coupon short-term financing that bridged the Company to its successful AIMlisting in June 2007. All debt was retired after the listing. Equity issued inexchange for convertible notes also drove a $3.8 million non-cash expense duringthe period. Key Activities in H2 2007 Fleet Growth. The Company's fourth aircraft, a B767-200ER with auxiliary fuelcapacity and crew rest facilities, entered revenue service on 20 August 2007.MAXjet expects the Company's fifth aircraft, a sister ship to the fourth, toenter revenue service within the next 30 days. The fourth aircraft enteredrevenue service later than anticipated, and a similar delay occurred with theCompany's fifth. Delays were driven by parts and component availability. Continuing its strategy of planned growth, the Company is negotiating a Letterof Intent to lease a sixth Boeing 767 aircraft. The Company has madeimprovements to its aircraft acquisition processes to reduce potentialengineering- and parts-related delays for this sixth aircraft. Product enhancements and positive trends in New York and Washington. MAXjetsignificantly improved its product offering at New York JFK by changing fromTerminal One to Terminal Four. MAXjet's new Terminal Four facilities include asecluded check-in area adjacent to the terminal entrance and a new loungefacility with full hot meal service and ample seating. With significantly lessramp congestion than at Terminal One, MAXjet has already seen improved taxitimes. On 20 October 2007 MAXjet expects to increase London-New York frequency to dailyservice. A new Saturday morning departure from London Stansted convenient forbusiness travelers will leave at 10:45am while flights on other days of the weekwill depart Stansted at 2:30pm. Return flights will depart daily from JFK at 8:15pm. Both revenue load factor and unit revenue performance in the New York market for2007 continue to outperform the same periods in 2006 by a significant margin. On the Washington route, load factors and unit revenues during each month ofoperation in 2007 have significantly improved compared against the same monthsin 2006. The Directors are encouraged by this progress. Washington operations have been impacted by two factors. First, theunavailability of one of the Company's aircraft in May and June 2007, resultingin subleased capacity with smaller aircraft on the Washington route, resulted ina number of overbooked flights that reduced both passenger counts and routerevenue compared to expectations. Second, delays associated with the entry intoservice of the Company's fourth aircraft and a concurrent heavy check on anactive aircraft resulted in a schedule reduction during early August 2007. Eightof eleven round-trip flights that did not operate during this period were inWashington. Continued strength in Las Vegas and now Los Angeles. On 30 August 2007 MAXjetlaunched service to Los Angeles LAX from London Stansted. Early revenues fromthe Los Angeles market significantly exceeded start-up revenues experienced whenlaunching earlier markets. The Los Angeles service is projected to generate 20%more revenue per flight during each of its first two full months of operation ascompared to the first two months of operation for Las Vegas. Bookings for LosAngeles within 30 days of departure, generally the highest yielding and mostbusiness-oriented, are significantly exceeding those seen currently in Las Vegasand are comparable to those in New York, MAXjet's most mature andbusiness-oriented market. On 2 September 2007 MAXjet increased frequency to Las Vegas, with four weeklyround-trip flights on Mondays, Thursdays, Saturdays and Sundays. Load factorsin the mid-to-high eightieth percentile have continued even with strong yieldtrends. Increasing network diversity. New services from London Stansted to Los Angelesand Las Vegas continue to reduce MAXjet's economic risk in any one market,consistent with the Directors' strategy of network diversification. BySeptember 2007, only 34% of MAXjet's scheduled departures will be between Londonand New York, with 22% between London and each of Washington, Las Vegas and LosAngeles. On an available seat mile basis, 26% of MAXjet's scheduled capacity isplanned between London and New York, with 18%, 28% and 29% between London andWashington, Las Vegas and Los Angeles respectively. This trend is expected to continue through the rest of 2007, with additionalfrequencies planned on a systemwide basis to meet demand. September Weekly Departures(All figures weekly) Departures % Deps ASMs (000s) % ASMsNew York - London (a) 12 34% 3,915 26%Washington - London 8 22% 2,720 18%Las Vegas - London 8 22% 4,270 28%Los Angeles - London 8 22% 4,367 28%Total 36 100% 15,273 100% (a) Service to New York increases to daily on 20 October 2007 Strong passenger demographics. Recent surveys of MAXjet customers indicate thatthe airline continues to draw highly valued demographics. MAXjet's dominantcustomer segment averages between 45 and 54 years of age and is primarilycomposed of senior executives and entrepreneurs. MAXjet's passengers are aslikely to be traveling on business as on leisure (either vacation or visitingfamily). 96% of MAXjet customers have already or plan to positively refer theairline to their friends and family. MAXjet's marketing activities through the second half of 2007 are focused onincreasing awareness in this target demographic. Through both online andoffline channels the Company is targeting this demographic through e-marketing,business to business initiatives and partnerships with high-profile brands.MAXjet plans to launch a new website in November 2007 with additionalself-service tools that will increase the airline's capacity to handlesignificant sales growth in 2008 and beyond. Current Trading & Prospects MAXjet continues to benefit from its early mover advantage and proven businessmodel. Passenger growth continues both in existing and new markets. Unitcapacity will increase 59% in September versus August 2007 and over 100%compared to September 2006. The Directors have pursued a strategy of network diversification, by spreadingcapacity from London across the United States, and they continue to evaluate thebest deployment of current and future assets. At the same time the availabilityof an operating spare aircraft will be maintained to ensure the highestreliability in the sector. We expect shortly to introduce additional weeklyfrequencies on existing routes to meet demand. We are seeing increased repeat business and addressing a larger market in Londonthan other all Business Class competitors. Revenue from UK-based passengers nowreflects a significant majority of our overall business. Even with a strongPound, traction with US-based customers continues to grow. We remain focused on building our network in preparation for Open Skies. We arestrongly supportive of the initiative and have received United States Departmentof Transportation approval to operate beyond London Stansted to Open Skiespoints in Asia, Africa and the Middle East. A strong base of US businesscombined with a schedule that optimizes connectivity and top-tier terminalfacilities at Stansted position us well to capitalize on these opportunities. The Directors have reviewed their expectations for the current year. TheDirectors are encouraged by systemwide progress in unit revenues especiallygiven increased competition from other all Business Class airlines in New York.MAXjet will launch daily service from New York in October, reflecting our corestrength in both business and leisure segments. The Directors' strategy ofnetwork diversification has provided unique opportunities in the western UnitedStates on which MAXjet is capitalizing. To maintain first-mover advantage theDirectors expect to make further investments in these routes, and are seekingnew opportunities that build on the trends seen to date. The Directors expectthat based on the current flight schedule, plus announced capacity increases,full-year 2007 revenues will be no less than $80 million. Expenses have been impacted by higher-than-expected fuel prices. The latedelivery of the spare aircraft necessitated wet-leasing of aircraft and otherexpenses to accommodate passengers; the Directors are confident that after theentry into service of the fifth aircraft, within the next 30 days, these costswill be significantly lower on an ongoing basis. MAXjet remains the segment leader with the largest fleet, broadest routenetwork, largest customer base, most operational experience, and first-moveradvantage in key markets from London. The Directors remain strongly optimisticabout future prospects. Financial Statements Statement of Operations Six Months Ended June 30, 2006 and 2007 Six Months Ended Six Months Ended June June 30, 2006 30, 2007 (unaudited) (unaudited)Operating revenues:Passenger $ 13,243 $ 22,125Barter 663 2,242Charter flights 1,806 2,404Other - 524 15,712 27,295Operating expenses:Wages and benefits 8,675 11,487Aircraft fuel 10,309 13,175Aircraft and engines leases 2,004 3,875Handling, landing and airport fees 3,379 3,955Aircraft maintenance 2,281 3,569Depreciation and amortization 928 4,007Marketing and distribution 6,314 2,785Passenger service expenses 3,330 7,783Other operating expenses 8,477 8,559 45,697 59,195Operating loss (29,985) (31,900) Other income (expense):Interest expense (314) (6,007)Interest income 7 229Loss on extinguishment of debt - (5,771)Loss on foreign currency transactions, net (91) (163) (398) (11,712)Net loss before minority interest in Variable - (43,612)Interest EntityMinority interest in Variable Interest Entity - (5,859)Net loss (30,383) (49,471)Preferred dividends - (4,551)Net loss applicable to common stockholders $ (30,383) $ (54,022) Loss per common share (basic and diluted) $ (3.51) $ (2.05) See Notes to Financial Statements Consolidated Condensed Balance Sheets December 31, 2006 June 30, 2007 (unaudited)AssetsCurrent assets:Cash and cash equivalents 588 50,301Restricted cash 1,728 4,362Accounts and other receivables 3,525 7,483Inventories of parts and supplies, at cost 523 799Prepaid barter advertising 172 18Maintenance reserves & Prepaid expenses 2,544 4,824Total current assets 9,080 67,786Property and equipment, at cost:Aircraft and engines 8,864 40,989Rotable parts 1,806 2,641Other equipment and vehicles 4,884 5,555 15,554 49,185Less accumulated depreciation and amortization (3,715) (7,722) 11,839 41,463Long term portion of maintenance reserves 613 610Deposits 4,626 1,677Other assets 677 -Total assets 26,835 111,535 Liabilities and Stockholder's (Deficit) EquityCurrent liabilities:Accounts payable 12,109 13,828Accrued and other liabilities 11,017 12,169Contingent payment obligations 3,761 -Barter liability 5,335 3,162Air traffic liability 6,317 18,877Current portion of debt due to stockholders 3,832 -Notes payable 24,088 -Total current liabilities 66,459 48,036 Debt due to stockholders 1,578 -Commitments and contingencies - -Minority interest in Variable Interest Entity - 27,429Stockholder's (deficit) equity:Common stock, $.05 par value; 180,000,000 shares 917 3,421authorized; 68,413,649 and 18,336,225 shares issuedand outstanding at June 30, 2007 and December 31,2006, respectivelyCapital in excess of par 75,795 204,585Equity in consolidated Variable Interest Entity - -Accumulated income (deficit) (117,914) (171,936)Total stockholder's (deficit) equity (41,202) 36,070Total liabilities and stockholder's (deficit) equity 26,835 111,535 See Notes to Financial Statements Condensed Consolidated Statement of Cash Flows Six Months Ended June 30, 2007 and June 30, 2006 Six Six Months Ended Months Ended June 30, 2006 June 30, 2007 (unaudited) (unaudited)Cash flows from operating activities Net loss $ (30,383) $ (49,471) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 928 4,007 Amortization of debt discount - 3,048 Amortization of deferred financing fees - 1,453 Stock compensation expense 358 500 Minority interest in Variable Interest Entity - 5,859 Loss on extinguishment of debt - 3,770 Other non-cash charges and credits 139 2,621 Changes in: Accounts and other receivables (2,946) (3,958) Inventories of parts and supplies, at cost (239) (276) Prepaid expenses and other current assets (1,220) (884) Accounts payable 664 1,719 Accrued and other liabilities 2,282 1,151 Air traffic liability 5,578 12,560 Prepaid barter advertising and barter liability 3,265 (2,017) Aircraft/ engine maintenance reserves (1,445) (1,393) Net cash used in operating activities (23,019) (21,311) Cash flows from investing activities Payments for deposits on aircraft leases and other (100) (51) Purchases of property and equipment, net (15,124) (3,630) Proceeds from sale of aircraft in sale/leaseback 10,121 - transaction Proceeds from sales of short-term investments 199 - Increase in restricted cash (1,795) (2,634) Net cash used in investing activities (6,699) (6,315) Condensed Consolidated Statement of Cash Flows (continued) Six Six Months Ended Months Ended June 30, 2006 June 30, 2007 (unaudited) (unaudited)Cash flows from financing activities Proceeds from issuance of notes payable 5,000 11,000 Repayment of notes payable - (32,425) Distributions to investors in Variable Interest - (5,430) Entity Proceeds from working capital loans and other 8,400 - financing Repayment of working capital loans and other (5,425) (4,047) financing Proceeds from loan for aircraft 10,121 - Payment of loan for aircraft (10,121) - Proceeds from issuance of common stock, net of offering 545 102,233 costs Proceeds from issuance of preferred stock, net of 20,532 6,784 offering costs Payment of deferred financing fees (300) (776) Net cash provided by financing activities 28,752 77,339Net increase (decrease) in cash and cash equivalents (966) 49,713Cash and cash equivalents at beginning of period 3,105 588Cash and cash equivalents at end of period $ 2,139 $ 50,301 Cash payments for interest $ 178 $ 5,310 See Notes to Financial Statements Notes to Financial Statements - unaudited 1. Basis of Presentation The accompanying condensed consolidated unaudited interim financial statementsof MAXjet Airways, Inc. ("the Company" or "MAXjet") reflect all normal recurringadjustments which management believes are necessary to present fairly thefinancial position, results of operations, and cash flows of the Company for therespective periods presented. Certain information and footnote disclosuresnormally included in annual financial statements prepared in accordance withaccounting principles general accepted in the United States of America ("GAAP")have been condensed or omitted. These condensed consolidated unaudited interimfinancial statements should be read in conjunction with the audited financialstatements of the Company and notes thereto. Financial Accounting Standards Board Interpretation No. 46 (revised December2003) ("FIN 46R"), "Consolidation of Variable Interest Entities," requires thatif an enterprise is the primary beneficiary of a variable interest in a variableinterest entity ("VIE"), the enterprise should include the assets, liabilitiesand results of operations of the VIE in its consolidated financial statements.Effective January 17, 2007, as a result of the execution of two leases foraircraft, the Company consolidated the financial statements of the lessor, KMW767 Leasing SPV ("KMW Leasing"), after determining that KMW Leasing is a VIE,the Company holds a variable interest in KMW Leasing and that MAXjet is theprimary beneficiary of KMW Leasing. All intercompany transactions and balanceshave been eliminated. The preparation of the financial statements in conformity with GAAP requiresmanagement to make estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from theseestimates. Certain prior period amounts in our condensed consolidated unaudited interimfinancial statements have been reclassified to be consistent with the currentperiod presentation. In May 2007, the Company's Board of Directors authorized a one-for-five reversesplit of the common stock. All references in the financial statements to thenumber of shares outstanding, per share amounts, and stock option data of theCompany's common stock have been restated to reflect the effect of the reversestock split for all periods presented. (See Note 6 - Stockholders' (Deficit)Equity). On June 14, 2007, the Company raised £50.5 million (approximately $100 million)in an initial public offering ("IPO") on the AIM Market of the London StockExchange ("AIM") following the placement of 36,601,088 shares at £1.38(approximately $2.73). In connection with this offering the Company incurred$6.8 million in expenses, resulting in total fundraising, net of expenses, of$93.7 million. 2. Long-Term Debt - Related Parties In June 2006, J&K Engine Leasing, LLC, an entity that is owned by twostockholders of the Company loaned $3 million to the Company to purchase twoaircraft engines. The loan was payable in 36 monthly payments of principal andinterest of approximately $93 thousand beginning in August 2006 with the finalpayment due in July 2009. Interest accrued at a rate of 7% based on a decliningprincipal balance, commencing with the first payment. The aircraft enginescollateralized the loan. Under the terms of this agreement, the Company wasrequired to pay a commitment fee of $300 thousand payable as part of the loan.This agreement called for a mandatory repayment of the entire amount of the loanin the event the Company closed an equity financing of $25 million after June30, 2006 but prior to July 1, 2009. Accordingly, the remaining loan balance waspaid in full upon completion of the AIM IPO on June 14, 2007. On December 31, 2006, the Company signed an Amended and Restated CreditAgreement (the "Agreement") with existing and new lenders that became effectiveon January 12, 2007 following a required equity financing of at least $7 millionas described below. Additionally, the Agreement was amended in April 2007 toextend the maturity date of the loans, as well as other modifications ("AprilAmendment"). The amended terms are listed below. The Agreement consisted of segmented terms as follows: • Term A Loans consisting of $9 million in new financing with an option to increase borrowings by an additional $2 million; and • Term B Loans consisting of; (i) senior unsecured notes in the amount of $27 million issued in September 2006; (ii) an additional note for $2 million with the same terms as the senior unsecured notes; and, (iii) $1.5 million of the $3 million loan received in July 2006 from two stockholders of the Company used as a deposit to secure the purchase of two aircraft (see Note 3 - Leases, Including Leases with Related Parties). Thus, the Agreement covered $11 million of new debt (with a provision toincrease this amount by $2 million) and $28.5 million of existing debt. The Loans were amended to bear interest at 18.5% as follows: "Until the earlierof (i) the date of the Qualified IPO and (ii) June 30, 2007, Interest on theTerm B Loans shall cease to bear cash interest on the unpaid principal amountthereof and such Loan shall instead bear payable-in-kind interest ("PIK Interest") on the unpaid principal amount thereof at a rate of 18.5% per annum, which PIK Interest shall accrue and be added and capitalized to the principaloutstanding balance of such Loan on a monthly basis." The April Amendment changed the maturity from September 1, 2007 to thefollowing: "The Maturity Date for the Loans shall be extended from September 1, 2007 to oneyear and one day following the date of a Qualified IPO; provided, that if theBorrower has not completed a Qualified IPO on or prior to December 31, 2007,then the Maturity Date shall be December 31, 2007." Both the Term A and Term B Loans could be repaid at any time without penalty.The loans required repayment under any of the following circumstances 1) a netasset sale exceeding $500 thousand (asset sales less than $500 thousand do nottrigger mandatory repayment if the funds of the asset sale are reinvested in theCompany); 2) receipt of net insurance/condemnation proceeds (proceeds less than$500 thousand do not trigger repayment if the proceeds are reinvested in theCompany); 3) upon change of control for Term B Loans; 4) upon new debt in excessof $2 million other than permitted debt. If the Company were to complete a qualified IPO that resulted in gross cashproceeds of at least $30 million, the Term A Loans including interest wouldautomatically convert into the securities offered at the IPO at 75% of theoffering price and then reducing by 1.5% per month if not consummated by May 1,2007. If the Company did not raise $30 million at IPO, then the Term A lenderscould elect to convert their loans into the security offering in the IPO onspecified terms. Term A lenders also had the option to convert their loans intocommon stock of the Company upon a substantial sale of the Company. The IPO event was defined as follows: "Qualified IPO" means an initial publicoffering of the Borrower's Securities (either in (i) connection with a listingon the AIM market of the London Stock Exchange, (ii) pursuant to an effectiveregistration statement filed with the Securities and Exchange Commission inaccordance with the Securities Act with a listing on any public equity market or(iii) a listing on any other public equity market) which provides minimum netproceeds (together the net proceeds of any Concurrent Private Offering in theUnited States) to the Borrower of at least $30 million. "Concurrent PrivateOffering" shall mean a private securities offering in the United States of thesame Securities offered by the Borrower in the IPO occurring within 3 months ofthe IPO." Upon such event, the Company had a mandatory obligation to prepay a portion ofthe loan to those electing such prepayment as follows: "Borrower shall use 30%of the net proceeds of the first $50 million of a Qualified IPO and 50% of thenet proceeds of a Qualified IPO over $50 million to prepay the Lenders electingto be prepaid pursuant to such Section subject to compliance with any QualifiedIPO working capital requirements of the AIM market." Prior to closing the Agreement, the Company was required to meet severalconditions precedent including perfecting the Term A lenders security interestand a capital contribution of at least $7 million from the Company's equityholders. Additionally the April Amendment required that the Company raise a minimum of$500 thousand in preferred equity within 60 days of the signed amendment. The Agreement called for compliance with a series of affirmative covenants thatrequired regular financial reviews as well as financial covenants that requiredcertain minimum cash balances and limits on capital expenditures. Term A Loanswere secured by all of the Company's assets and, in the case of assets that werealready secured the Term A lenders had second priority security interest. On June 14, 2007, MAXjet completed the AIM IPO, thus triggering a mandatoryconversion at the applicable conversion rate per the Term A loan agreement. Theloan balance of $9.7 million, including PIK interest, was converted atapproximately $1.97 per share based upon the terms of the agreement.Accordingly, the note holders received 4,928,911 shares of common stock of theCompany upon completion of the AIM IPO. Upon conversion of the Term A Loans theCompany recorded loss on extinguishment of debt and additional paid in capitalof $3.8 million. Term B loans consisting of $28.5 million in financing issued in 2006 and $2million issued in January 2007 in connection with the Agreement were paid infull in the amount of $32.4 million, including PIK interest, with the proceedsfrom the offering. Additionally, the Company repaid $1.5 million of a $3 million loan received fromtwo stockholders of the Company in July 2006, plus accrued interest, uponcompletion of the AIM IPO (see Note 3 - Leases, Including Leases with RelatedParties). Unamortized discounts of $2 million resulting from the allocation of a portionof the proceeds from the Term B Loans to warrants issued in connection with suchloans were written off at the time of debt repayment and treated as a loss onthe extinguishment of debt. As of June 30, 2007, there were no outstanding loans and therefore there were noaggregate annual principal maturities for the subsequent five-year period. 3. Consolidation of Variable Interest Entity In July 2006, MAXjet paid a $3 million deposit to an affiliate of MarathonCapital (a third party) related to the planned purchase of two Boeing 767 200ERaircraft. In January 2007, KMW Leasing (an affiliate of Kenneth M. Woolley,MAXjet's Chairman) acquired the company that owned those aircraft forapproximately $27 million and entered into agreements to lease the two aircraftto MAXjet. As a lease inception fee, MAXjet issued 426,357 shares of commonstock valued at $1.65 million to the owners of KMW Leasing. The initial term ofthe lease agreements expired on March 31, 2007 and was subsequently amended toexpire on October 30, 2007. The Company has the right under the lease agreements to purchase the aircraftfor the greater of the lessor's costs or the appraised value of the aircraft(the "Call Option"). In addition, the lessor can require the Company topurchase the aircraft for $13.5 million, plus defined lessor costs, on or beforeSeptember 15, 2007, but not earlier than September 10, 2007 (the "Put Option").The Company can elect to reject the Put Option by paying a fee of $1 million peraircraft. The Company has determined KMW Leasing to be a variable interest entity asdefined by FIN 46R and that the assets, liabilities and results of operations ofKMW Leasing must be included in its consolidated financial statements. Thedetermination was made based on the following analysis: a. KMW Leasing is considered to be a variable interest entity with regard toMAXjet because the Put Option provision in the agreements between MAXjet and KMWLeasing may cause MAXjet to absorb a portion of the expected losses of KMWLeasing; b. MAXjet holds a variable interest in KMW Leasing because the put optionrepresents a variable interest in KMW Leasing's expected gains or losses; and, c. The Company is the primary beneficiary of KMW Leasing because of theprincipal-agency relationship between MAXjet and the related-party owners of KMWLeasing and KMW Leasing, through the wording and spirit of the lease agreements,is designed solely to provide the Company with the Aircraft it leases and wouldnot otherwise exist. The two aircraft constitute substantially all of KMW Leasing's assets. KMWLeasing has no outstanding obligations to third parties as of June 30, 2007. Inconnection with consolidation, the Company has reclassified the $3 milliondeposit as an additional cost of the aircraft. 4. Preferred Stock In April and May of 2007, the Company issued 4,392,580 shares of Series A-1Convertible Preferred Stock ("Series A-1"), par value $.01 per share, toaccredited investors pursuant to a Private Placement Memorandum ("PPM"), inexchange for $6.8 million net of financing costs of $74 thousand. Additionally,in connection with this PPM, the Company issued 31,612 Series A-1 shares to abroker as a commission. In accordance with EITF Topic D-98 "Classification and Measurement of RedeemableSecurities", since the Series A-1 has a conditional cash redemption provision,the preferred stock was recorded as temporary equity. In connection with the completion of the AIM IPO on June 14, 2007, all SeriesA-1 shares were converted into common shares under a mandatory conversionfeature. The shares of common stock issued were calculated using the mandatoryconversion formula for the Series A-1 shares that determines the conversionprice as the lower of (i) the original conversion price of $3.875 or (ii)Liquidation preference of $1.55 per share divided by 50% of the AIM IPO Price.The liquidation preference of $1.55 per share divided by 50% of the AIM IPOshare price ($1.135) was substantially less than the original conversion priceand thus became the conversion price yielding 5,019,905 shares of common stockin exchange for all outstanding Series A-1 shares. In accordance with EITF No. 98-5 "Accounting for Convertible Securities withBeneficial Conversion Features or Contingently Adjustable Conversion Ratios" andEITF No. 00-27 "Application of Issue No. 98-5 to Certain Convertible Instruments", the Company considered whether there was a beneficial conversionfeature embedded in the Series A-1 shares and whether the conversion featurerepresented an embedded derivative subject to bifurcation under SFAS 133"Accounting for Derivative Instruments and Hedging Activities". Based onanalysis performed by the Company, it was determined that the conversion featuredid not represent an embedded derivative but that there was a contingentbeneficial conversion feature. As a result, upon conversion of the Series A-1shares, the Company recognized additional paid in capital and a deemed preferredstock dividend of $4.6 million representing the value of the conversion featurecalculated pursuant to EITF No. 00-27 5. Commitments and Contingencies Various lawsuits and claims and contingent liabilities arise in the ordinarycourse of the Company's business. The ultimate disposition of certain of thesecontingencies is not determinable at this time. The Company's managementbelieves there are no current outstanding matters that will materially affectthe Company's financial position or results of operations. 6. Stockholders' (Deficit) Equity In addition to the funds raised in the AIM IPO (See Note 1 - Basis ofPresentation), the following equity transactions were completed for the sixmonths ended June 30, 2007: One-for-five Split of the Common Stock On May 18, 2007, the Company's Board of Directors authorized a one-for-fivereverse split of the common stock, which has been given retroactive effect inthe accompanying financial statements. The par value per share was adjustedfrom $0.01 to $0.05. Common Stock In January 2007, as required by the Amended and Restated Credit Agreementdiscussed above (see Note 2 - Long-Term Debt - Related Parties), the Companyissued 1,737,859 shares of common stock at $3.87 per share for total proceeds of$6.7 million. The Company also provided an immediate second round of equityfinancing wherein participating holders could purchase their pro rata share ofany additional shares at $2.00 per share. In this second round, the Companyissued an additional 313,391 shares of common stock in exchange for $627thousand. Thus the total equity financing resulted in 2,051,250 shares issuedfor $7.4 million. As discussed in Note 2- Long-term Debt - Related Parties, upon completion of theAIM IPO, the Term A loans in the amount of $9.7 million were converted into4,928,911 shares of common stock based upon the terms of the loan agreement. As discussed in Note 4 - Preferred Stock, upon completion of the AIM IPO4,424,192 shares of Series A-1 preferred stock were converted into 5,019,905shares of common stock based upon the terms of the preferred stock agreement Contingent Securities Exchange In the conversion of notes payable into common stock in May 2005, certainstockholders (the "Contingent Holders") retain (i) contingent payment rights toreceive an aggregate of $6 million in cash upon the trigger event of the sale of$50 million of Series A Preferred Stock and (ii) contingent warrants to purchasecommon stock with an aggregate exercise price of $6 million (the "ContingentSecurities"). In January 2007, the Company offered Contingent Holders the right to exchangeeach Contingent Holder's Contingent Securities for such holder's pro rata shareof 1.05 million shares of common stock at $3.87 per share (the "ContingentSecurities Exchange"). Contingent Holders elected to participate in theContingent Securities Exchange and the transaction was completed in January2007. Warrants Warrants issued (i) in connection with Term B loans ($30.5 million) (see Note 2-Long-Term Debt - Related Parties), and (ii) to a stockholder in relation to acollateralized note issued in July 2006 ($1.5 million) are exercisable, eitherin whole or in part, until expiration dates ranging from July to December 2011,at an exercise price contingent upon a completed IPO. The contingent exerciseprice was equal to 80% of the IPO offering price. Effective June 14, 2007, upon the successful completion of the AIM IPO, thecontingency was resolved and the warrants became exercisable at 80% of the AIMIPO offering price, or £1.10 (approximately $2.18). Additionally, three individuals hold outstanding warrants issued in 2004 whichare exercisable, either in whole or in part, until June 16, 2014. The warrantholders are entitled to acquire a number of Preferred Shares upon exercise ofthe warrants up to a quantity equal to $230 thousand. These warrants becomeexercisable immediately prior to the closing of the Company's 'initial publicoffering' (for the purposes of these 2004 Warrants, 'initial public offering'does not include admission of the Company's shares to AIM) for the number ofCommon Shares into which the Preferred Shares issuable pursuant to the warrantswould then be converted. 7. Statements of Cash Flows - Supplemental Disclosures ofNon-Cash Investing and Financing Activities In January 2007, the Company issued 1,050,000 shares of common stock in exchangefor contingent payment rights and related warrants. In connection with the Company's consolidation of KMW Leasing, the Companyrecorded approximately $27 million in property and equipment and equity. In June 2007, the Company converted 4,424,192 shares of preferred stock to5,019,905 shares of common stock. In June 2007, the Company converted Term A Loans of $9.7 million to 4,928,911shares of common stock. In June 2007, the Company recorded a deemed dividend of approximately $4.6million in connection with a beneficial conversion feature related to the SeriesA Preferred Stock. During the six months ended June 30, 2007, the Company amortized approximately$1.5 million in deferred financing fees.. In April 2006, $500 thousand in working capital advances from a related partywas converted to 645,995 shares of Series A Convertible Preferred at $0.774 pershare. 8. Share-Based Compensation Stock Options The Company accounts for share-based employee compensation arrangements inaccordance with the provisions of SFAS No. 123(R), Shared-Based Payment(Revised) and Staff Accounting Bulletin No. 107, Share Based Payments. UnderSFAS 123(R), compensation cost is calculated on the date of the grant and thenamortized over the vesting period. The fair value of each stock option grantedis estimated on the grant date using the Black-Scholes option pricing modelusing the following assumptions: common stock value on the grant date, risk-freeinterest rate, expected term, expected volatility, and dividend yield. In April 2007 the Board of Directors adopted and the shareholders of the Companyapproved the MAXjet Airways, Inc. 2007 Stock Incentive Plan (the "2007"Plan).The Board resolved to set aside 10,000,000 shares for issuance under thePlan. Under the Plan, employees of the Company are eligible for the grant ofincentive stock options and employees, consultants and outside directors areeligible for the grant of non-qualified stock options or the award or sale ofshares of Common Stock. The exercise price of stock options granted under thePlan will be determined by the Board of Directors but will not be less than thefair value of the underlying common stock on the date of grant. The term of anoption will be set forth in each stock option agreement but will not exceed tenyears from the date of grant. For grants to individuals owning more than 10% oftotal outstanding voting power of the Company, such term will not exceed fiveyears from the date of grant. Upon termination of employment, the vestedportion of an employee's options will expire three months after termination. The Company issued 1,920,110 options to employees that vest 25% one year fromthe date of grant and ratably over the next three years, and 280,000 options toemployees and non-employees that vest immediately. Those options that vestimmediately are subject to a 14 month restriction period before they can beexercised. The Company has not granted any other stock options to date underthis plan. The valuation assumptions used are noted in the following table: Six Months EndedBlack Scholes Assumptions 30-Jun-07Risk-Free Rate Of Return (1) 4.57% - 4.59%Expected Dividend Yield 0Expected Volatility (2) 53.00%Expected Term (in years) (3) 4.1 - 7Weighted Average Expected Forfeitures 15%Fair Value Weighted Average 93% 1) The risk-free interest rate is based on the implied yield available onU.S. Treasury constant maturity interest rates whose term is consistent with theexpected life of the stock options. 2) The expected volatility is based upon an independent valuation report. 3) The expected life of the options represents the estimated period fromgrant until exercise and is based upon the average of the vesting term and theoriginal contractual term, which represents the Company's best estimate as thereis no historical evidence A summary of option activity as of June 30, 2007, and changes during the periodended is presented below: Six Months Ended June 30, 2007 Options Weighted-average Weighted-Average Exercise Price Remaining Contractual TermGranted 2,200,110 2.23 7Exercised 0 0 0Forfeited or expired 0 0 0Outstanding at June 30, 2007 2,200,110 2.23 4.71Vested 280,000 2.58 5.69Excercisable 0 0 0 The weighted-average grant-date fair value of options granted during the sixmonths ended June 30, 2007 was $0.93. The total fair value of options exercisedduring the six months ended June 30, 2007 was $0. As of June 30, 2007, there was $1,133 thousand of total unrecognizedcompensation cost related to nonvested share-based compensation arrangementsgranted under the Plan. That cost is expected to be recognized over aweighted-average period of 4.57 years. The total fair value of shares vestedduring the years ended June 30, 2007 was $305 thousand. Restricted Stock Under the Plan, the Board is also authorized to grant restricted stock at apurchase price to be determined by the Board but not less than the fair value ofthe stock. Awards of restricted stock will be subject to established forfeitureconditions, rights of repurchase, rights of first refusal and other transferrestrictions as determined by the Board. Pursuant to the terms of the Plan dated April 5, 2007, the Company issued1,250,000 shares of restricted stock that vest ratably over three years at eachanniversary date of the grant. The Company measured the fair value of the stockon the date of grant at $1.40 per share based on valuation provided by anindependent appraisal. As of June 30, 2007 there are no shares vested. 9. Income Taxes Deferred income taxes reflect the net tax effects of temporary differencesbetween the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. The components ofdeferred tax assets and liabilities at December 31, 2006 and June 30, 2007 areas follows: December 31, 2006 June 30, 2007Deferred tax assets (liabilities):Difference in financial reporting for - - Depreciation and amortization 857 (792) Bad debt expense 62 -Accrued payroll and vacation (36) (180) Prepaid expenses (1,012) (1,877)State tax accrual - -Accrued straight line rent - 1Start-up costs 34,978 34,978Net operating loss carryforward 12,228 34,574 Total deferred tax asset, net 47,077 66,704 Valuation allowance (47,077) (66,704)Net deferred tax asset - - There is no provision for income taxes for the periods December 31, 2006 andJune 30, 2007. For the six months ended June 30, 2007, the Company generated a tax netoperating loss of $56 million for federal income tax purposes. As of June 30,2007, the Company had federal tax net operating loss carry forwards ofapproximately $87 million that can be carried to future years, subject to normallimitations. The tax net operating losses begin to expire for federal and stateincome tax purposes in 2023. For financial statement purposes, a valuationallowance has been recognized to reduce the deferred tax asset associated withthe Company's federal and state income tax net operating loss carry forwards asrealization of such assets is presently not more likely than not. The Company'sability to utilize net operating loss carry forwards may be limited upon theoccurrence of certain events, including significant changes in ownershipinterests, as defined in Section 382 of the Internal Revenue Code. As a result,the Company may be limited as to the amount of net operating loss carry forwardthat may be utilized in subsequent years because of the potential Section 382limitations. It is Management's intention to review the potential applicationof Section 382 prior to the Company's utilization of any such losses to ensurethe integrity of such losses is reasonably assured. The effective tax rate on income before income taxes differed from the federalincome tax statutory rate for the following reasons: Six Months Ended June 30, 2006 2007 Tax at statutory U.S. tax rates (10,634) (17,315) Nondeductible items:Permanent items 10 70State income tax benefits, net of (1,445) (2,385)Federal benefitOther - Adjustment of state tax rate 31 -Valuation allowance 12,038 19,630Total income tax provision - - In July 2006, the FASB issued FASB Interpretation No. 48, Accounting forUncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (FIN48), which clarifies the accounting and disclosure associated with certainaspects of recognition and measurement related to accounting for income taxes.The Company adopted FIN 48 in January 2007. There is no impact to the Company'sfinancial statements as a result of the implementation of FIN 48. The Company files U.S. Federal, state and local income tax returns. With a fewexceptions, the Company is no longer a subject to U.S. Federal, state and localtax examinations by tax authorities for years ending on or before December 31,2003. The Company has not made any cash tax payments as of June 30, 2006 and2007. 10. Net Loss Per Share The following table shows how the Company computed basic and diluted loss percommon share for the six months ended June 30, 2006 and 2007 after the effectsof a one-for-five reverse stock split: 2006 2007 Numerator:Net loss $ (30,383) $ (49,471)Preferred dividends (107) (4,551)Net loss applicable to common $ (30,490) $ (54,022)stockholders Denominator:Weighted-average shares outstanding for 8,698 26,327basic loss per shareEffect of dilutive securities Stock options and restricted stock - -grants Warrants - -Debt & equity issues convertible into - -common stockAdjusted weighted-average shares 8,698 26,327outstanding and assumed conversions fordiluted loss Loss per share $ (3.51) $ (2.05) In accordance with the Statement of Financial Accounting Standards No. 128: "Earnings per Share", no potential common share is included in the diluted pershare earnings or loss computation if it is anti-dilutive. When a Companyreports a loss, the effect of including potential common shares isanti-dilutive. For the six months ended June 30, 2006, the Company did not include the pershare effect of 2.8 million of potential common shares related to ConvertibleNotes Payable, 2.8 million shares of potential common shares related toConvertible Preferred Stock and 1.3 million potential common shares associatedwith Warrants. For the six months ended June 30, 2007, the Company did not include the pershare effect of 1.2 million of potential common shares related to Warrants, 220thousand of potential common shares related to stock options, and 1.5 million ofpotential common shares related to the Series A-1 Preferred Stock beforeconversion on June 14, 2007. The effect of converting the Series A-1 PreferredStock in June 2007 has been included in the basic earnings per share above andis discussed further in Note 6 - Stockholders' (Deficit) Equity - Common Stock. 11. Segment Reporting Air transportation services accounted for all the Company's operations in thesix month periods ended June 30, 2006 and 2007. Accordingly, segmentinformation is not provided. 12. Recently Issued Accounting Pronouncements In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFASNo. 157"). SFAS No. 157 establishes a framework for measuring fair value, andexpands disclosure about fair value measurements. SFAS No. 157 does not requireany new fair value measurements; rather it specifies valuation methods to beapplied when fair value measurements are required under existing or futureaccounting pronouncements. SFAS No. 157 is effective for fiscal years beginningafter November 15, 2007, and interim periods within those financial years.Early application of statements is encouraged. The effect, if any, of adoptingSFAS No. 157 on the Company's financial position and results of operations hasnot been finalized. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option forFinancial Assets and Financial Liabilities - Including an amendment of FASBStatement No 115 ("SFAS No. 159"). SFAS No. 159 permits entities to choose tomeasure many financial instruments and certain other items at fair value thatare not currently required to be measured at fair value. The objective is toimprove financial reporting by providing entities with the opportunity tomitigate volatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. Additionally, SFAS No. 159 establishes presentation and disclosurerequirements designed to facilitate comparisons between entities that choosedifferent measurement attributes for similar types of assets and liabilities.This accounting standard is effective for financial statements issued for fiscalyears beginning after November 15, 2007, with early adoption permitted. TheCompany will adopt SFAS No. 159 in fiscal year 2008 and is currently evaluatingwhat impact, if any SFAS No. 159 will have on its financial position or resultsof operations. 13. Subsequent Events On July 24, 2007, the Company granted an additional 1,720,360 stock options toemployees at a strike price of $2.73 subject to a four-year vesting period fromthe date of grant. On August 1, 2007, the Company paid $900,000 to KMW Leasing II to purchase aPratt & Whitney JT9D-7R4E4 Aircraft Engine with EIN 716808. Forward Looking Statements This news release contains statements of a forward-looking nature relating tofuture events or financial results of MAXjet Airways, Inc. Readers are cautionedthat such statements are only predictions and actual events or results maydiffer materially. In evaluating such statements, investors should specificallyconsider the various factors that could cause actual events or results to differmaterially from those indicated from such forward-looking statements. Theseinclude: the ability to obtain additional financing or refinancing as may berequired; the ability to achieve and maintain profitable operations; the abilityto attract new customers; the ability to successfully implement our businessstrategy; the ability to commence service in new markets on a timely basis andto ramp usage by customers in accordance with our expectations; and significantcompetition. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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