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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 10-Q

______________


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2011

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to____________

Commission File No. 000-27011

ALPINE AIR EXPRESS, INC.

(Exact name of registrant as specified in its charter)



Delaware

33-0619518

(State or Other Jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 


1177 Alpine Air Way

Provo, Utah 84601

(Address of Principal Executive Offices)


(801) 373-1508

(Registrant’s telephone number, including area code)


N/A

(Former name, former address and former fiscal year,

if changed since last report)


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 [X] 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 and post such files).  Yes [X]   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.


Large accelerated filer ___

Accelerated filer ___


Non-accelerated filer ___

Smaller reporting company _X__


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]







APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS


Not applicable.


Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes   No.


APPLICABLE ONLY TO CORPORATE ISSUERS


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: September 14, 2011 - 34,370,857 shares of common stock.


PART I - FINANCIAL INFORMATION


Item 1. Financial Statements.


The condensed consolidated financial statements of Alpine Air Express, Inc., a Delaware corporation, and its subsidiary Alpine Aviation, Inc., a Utah corporation, as required to be filed with this 10-Q Quarterly Report were prepared by management, and commence on the following page, together with related notes.  In the opinion of management, the financial statements present fairly the consolidated financial condition, results of operations and cash flows of Alpine Air for the periods presented.







































2




















ALPINE AIR EXPRESS, INC.


  UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


July 31, 2011




3







ALPINE AIR EXPRESS, INC.

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




CONTENTS




 

PAGE

Consolidated Balance Sheets at July 31, 2011 (Unaudited) and

October 31, 2010 (Audited)

5

 

 

Unaudited Condensed Consolidated Statements of Income for the three and nine

                                         months ended July 31, 2011 and 2010

6


Unaudited Condensed Consolidated Statements of Cash Flows for the nine

                                          months ended July 31, 2011 and 2010


7-8

 

 

                             Notes to Unaudited Condensed Consolidated Financial Statements

9-12

 

 

 

 








































4







ALPINE AIR EXPRESS, INC.

CONSOLIDATED BALANCE SHEETS



 

July 31, 2011

 

October 31, 2010

 

 

 

(Unaudited)

 

(Audited)

 

   ASSETS

 

 

 

 

 

     CURRENT ASSETS:

 

 

 

 

 

        Cash and cash equivalents

$

705,998

$

1,129,890

 

        Trade accounts receivable, net

 

1,789,193

 

1,601,287

 

        Note receivable

 

157,949

 

0

 

        Inventories

 

2,186,703

 

1,899,293

 

        Prepaid expenses

 

523,595

 

423,001

 

        Deposits

 

39,528

 

38,575

 

        Cash value life insurance

 

90,332

 

85,572

 

        Income taxes receivable

 

0

 

16,100

 

        Deferred tax asset, current

 

192,000

 

138,000

 

          Total current assets

 

5,685,298

 

5,331,718

 

     PROPERTY AND EQUIPMENT, NET

 

22,458,260

 

22,125,782

 

     RESTRICTED CASH

 

0

 

206,433

 

     OTHER ASSETS, NET

 

111,078

 

119,491

 

             Total assets

$

28,254,636

$

27,783,424

 

 

 

 

 

 

 

   LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

     CURRENT LIABILITIES:

 

 

 

 

 

        Trade accounts payable

$

554,698

$

506,673

 

        Income taxes payable

 

52,000

 

0

 

        Accrued liabilities

 

1,014,976

 

1,143,751

 

        Dividends payable

 

34,987

 

41,212

 

        Deferred revenue

 

197,970

 

98,457

 

        Current portion of long-term debt

 

1,506,000

 

1,286,000

 

          Total current liabilities

 

3,360,631

 

3,076,093

 

 

 

 

 

 

 

     DEFERRED TAX LIABILITY

 

2,837,000

 

1,947,000

 

     LONG-TERM DEBT, net of current portion

 

6,829,636

 

7,283,335

 

          Total liabilities

 

13,027,267

 

12,306,428

 

 

 

 

 

 

 

     PREFERRED STOCK

 

6,190,720

[1]

7,465,280

[2]

 

 

 

 

 

 

     STOCKHOLDERS' EQUITY:

 

 

 

 

 

        Common stock

 

34,371

[3]

36,130

[4]

        Additional paid-in capital

 

2,275,954

 

2,446,080

 

        Retained earnings

 

6,726,324

 

5,535,239

 

        Treasury stock

 

0

[5]

(5,733)

[6]

          Total stockholders’ equity

 

9,036,649

 

8,011,716

 

               Total liabilities and stockholders' equity

$

28,254,636

$

27,783,424

 


[1] $0.001 par value, $9.104 stated value, 1,000,000 shares authorized, 680,000 shares issued and outstanding.

[2] $0.001 par value, $9.104 stated value, 1,000,000 shares authorized, 820,000 shares issued and outstanding.

[3] $0.001 par value, 100,000,000 shares authorized, 34,370,857 shares issued and outstanding.

[4] $0.001 par value, 100,000,000 shares authorized, 36,130,141 shares issued and outstanding.

[5] Less treasury stock, 0 shares at cost.

[6] Less treasury stock, 70,660 shares at cost.



The accompanying notes are an integral part of these condensed consolidated financial statements.




5







 ALPINE AIR EXPRESS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME


 

 

 

May 1, 2011 to July 31, 2011

 

May 1, 2010 to July 31, 2010

 

Nov. 1, 2010 to July 31, 2011

 

Nov. 1, 2009 to July 31, 2010

 

 

 

 

 

 

 

 

 

 

OPERATING REVENUE:

 

 

 

 

 

 

 

 

 

     Operations

$

5,170,553

$

4,802,568

$

15,729,708

$

14,904,885

 

     Public services

 

92,869

 

20,519

 

121,774

 

41,563

 

          Total operating revenues

 

5,263,422

 

4,823,087

 

15,851,482

 

14,946,448

 

     Direct costs - Operations

 

3,776,294

 

3,356,789

 

11,415,347

 

10,554,802

 

     Direct costs - Public services

 

30,431

 

48,945

 

110,020

 

122,312

 

          Total direct costs

 

3,806,725

 

3,405,734

 

11,525,367

 

10,677,114

 

          Gross profit

 

1,456,697

 

1,417,353

 

4,326,115

 

4,269,334

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

     General and administrative

 

625,214

 

724,774

 

1,417,332

 

1,570,842

 

          Total operating expenses

 

625,214

 

724,774

 

1,417,332

 

1,570,842

 

Operating income

 

831,483

 

692,579

 

2,908,783

 

2,698,492

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

     Interest income

 

930

 

2,816

 

5,902

 

9,259

 

     Interest expense

 

(146,298)

 

(381,483)

 

(407,526)

 

(766,807)

 

     Gain (Loss) on disposal of assets

 

(872)

 

425,044

 

(872)

 

423,828

 

          Total other income (expense)

 

(146,240)

 

46,377

 

(402,496)

 

(333,720)

 

INCOME BEFORE TAXES AND PREFERRED STOCK DIVIDEND

 

685,243

 

738,956

 

2,506,287

 

2,364,772

 

Current income tax expense

 

31,000

 

122,850

 

146,000

 

123,000

 

Deferred income tax expense

 

246,000

 

297,000

 

836,000

 

909,000

 

NET INCOME

 

408,243

 

319,106

 

1,524,287

 

1,332,772

 

Preferred stock dividend declared

 

(105,218)

 

(122,308)

 

(333,201)

 

(362,935)

 

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS

$

303,025

$

196,798

$

1,191,086

$

969,837

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER COMMON SHARE

 

 

 

 

 

 

 

 

 

     Basic

$

0.01

$

0.00

$

0.03

$

0.03

 

     Diluted

$

0.00

$

0.00

$

0.01

$

0.01






















The accompanying notes are an integral part of these condensed consolidated financial statements.





6







ALPINE AIR EXPRESS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


 

 

Nov. 1, 2010 to July 31, 2011

 

Nov. 1, 2009 to July 31, 2010

 

 

 

 

 

   CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

     Net income

$

1,524,287

$

1,332,772

     Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

          (Gain) Loss on disposal of assets

 

872

 

(423,828)

          Deferred tax expense

 

836,000

 

909,000

          Depreciation and amortization

 

2,566,732

 

2,508,296

          Stock based compensation

 

0

 

34,318

          Provision for losses on accounts receivable

 

225,243

 

76,640

          Provision for inventory obsolescence

 

2,572

 

8,402

          (Increase) decrease in trade accounts receivable

 

(710,298)

 

(91,627)

          (Increase) decrease in other assets

 

(7,196)

 

22,500

          (Increase) decrease in inventories

 

(289,982)

 

(492,121)

          (Increase) decrease in income taxes receivable

 

16,100

 

324

          (Increase) decrease in prepaid expenses

 

342,342

 

27,273

          (Increase) decrease in deposits

 

(953)

 

50,262

          Increase (decrease) in trade accounts payable

 

48,025

 

(349,407)

          Increase (decrease) in accrued liabilities

 

(128,775)

 

205,064

          Increase (decrease) in deferred revenue

 

99,513

 

(20,642)

          Increase (decrease) in income taxes payable

 

52,000

 

37,900

                    Net cash provided by operating activities

 

4,576,482

 

3,835,126

 

 

 

 

 

   CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

     Purchases of property and equipment

 

(2,884,473)

 

(3,512,478)

     Payments on note receivable

 

139,200

 

0

     Proceeds from sale of equipment

 

0

 

1,128,800

     Cash surrender value of life insurance

 

(4,760)

 

(5,022)

                    Net cash used in investing activities

 

(2,750,033)

 

(2,388,700)

 

 

 

 

 

   CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

     Payment on long-term debt

 

(1,176,635)

 

(2,519,715)

     Payment on dividends payable

 

(339,427)

 

(566,339)

     Payment for redemption of preferred stock

 

(1,274,560)

 

0

     Proceeds from long-term debt

 

500,000

 

1,922,769

     Change in line of credit

 

0

 

(758,875)

     Common stock purchased and retired

 

(166,152)

 

(5,733)

                    Net cash used in financing activities

 

(2,456,774)

 

(1,927,893)

 

 

 

 

 

   Net change in cash and cash equivalents

 

(630,325)

 

(481,467)

 

 

 

 

 

   BEGINNING CASH AND CASH EQUIVALENTS

 

1,336,323

 

1,192,936

 

 

 

 

 

   ENDING CASH AND CASH EQUIVALENTS

$

705,998

$

711,469

 

 

 

 

 

   SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

   Cash paid during the period for:

 

 

 

 

     Interest

 

407,526

 

766,807

     Income taxes

 

76,993

 

85,000







The accompanying notes are an integral part of these condensed consolidated financial statements.




7







ALPINE AIR EXPRESS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


Non-cash investing and financing activities:


For the nine months ended July 31, 2011, the Company:


·

Applied prepaid expenses to notes payable of $32,283.

·

Increased prepaid expenses by $104,406 through the issuance of debt.

·

Retired 70,660 shares of treasury stock valued at $5,733.

·

Refinanced $2,524,583 of debt.

·

Exchanged accounts receivable for a note receivable of $297,149.

·

Increased prepaid aircraft insurance by issuing $370,813 of debt.


For the nine months ended July 31, 2010, the Company:


·

Capitalized debt issuance costs of $93,040.

·

Refinanced $4,267,962 of long-term debt.

·

Increased prepaid aircraft insurance by issuing $471,500 of debt.

·

Increased lease deposit by $24,288 through the issuance of debt.

·

Exchanged accounts receivable for a note receivable of $48,822.































The accompanying notes are an integral part of these condensed consolidated financial statements.




8







ALPINE AIR EXPRESS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Condensed Financial Statements – The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at July 31, 2011 and 2010 and for the periods then ended have been made.


Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s October 31, 2010 audited financial statements. The results of operations for the periods ended July 31, 2011 and 2010 are not necessarily indicative of the operating results for the full year.


Recently Enacted Accounting Standards – The Company’s management has evaluated the recently issued accounting pronouncements through the filing date of these financial statements and has determined that the application of these pronouncements will have no material impact on the Company’s financial position and results of operations.


NOTE 2 - TRADE ACCOUNTS RECEIVABLE


Trade accounts receivable consist of the following:

 

July 31,

2011

 

October 31,

2010          

 

 

 

 

 

 

Trade accounts receivable

Employee advances

$

2,047,896

116

 

$

1,634,205

658

Less allowance for doubtful accounts

 

(258,819)

 

 

(33,576)

 

$

1,789,193

 

$

1,601,287


NOTE 3 – NOTE RECEIVABLE


The Company has an unsecured note receivable from a current equipment lessee due in monthly installments of $45,000, bearing interest at 0%, and maturing on September 10, 2011. As of July 31, 2011 the outstanding balance is $157,949.


NOTE 4 - PREPAID EXPENSES


Prepaid expenses consist of the following:

 

July 31,

2011

 

October 31,

2010

 

 

 

 

 

 

Prepaid expenses and credits

$

79,773

 

$

110,493

Prepaid other taxes

Prepaid insurance

Prepaid training

 

35,947

405,162

2,713

 

 

37,197

271,797

3,514

 

$

523,595

 

$

423,001


NOTE 5 - INVENTORIES


Inventories consist of the following:

 

July 31,

2011

 

October 31,

2010

 

 

 

 

 

 

Aircraft parts

$

1,774,394

 

$

1,660,923

 

 

 

 

 

 

9

 


ALPINE AIR EXPRESS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Work in process

Fuel


389,234

42,256

 


229,235

25,744

Allowance for obsolescence

 

(19,181)

 

 

(16,609)

 

$

2,186,703

 

$

1,899,293


NOTE 6 – PROPERTY AND EQUIPMENT


Property and equipment consists of the following:

 


Estimated life in years

 


July 31,    

 2011

 


October 31,    

2010

Building and improvements

10 - 40

 

$

1,369,559

$

1,369,559

Aircraft

15

 

 

21,044,880

 

20,318,537

Engines

7 - 10

 

 

14,979,549

 

13,017,789

Equipment

3 - 10

 

 

312,809

 

295,758

Furniture and fixtures

3 - 10

 

 

338,204

 

338,204

Vehicles

5 - 7

 

 

125,635

 

126,913

 

 

 

 

38,170,636

 

35,466,760

Less: accumulated depreciation and amortization

 

 

 


(15,712,376)

 


(13,340,978)

 

 

 

$

22,458,260

$

22,125,782

  

NOTE 7 – LONG TERM DEBT


Long term debt consists of the following:

 

 

July 31,

2011

 

 

October 31,

2010

 

 

 

 

 

 

Note payable originally issued on August 19, 2009 for $2,524,200 due August 19, 2012 and refinanced on August 12, 2011 increasing the principal by $192,673 and now due August 12, 2016. Original interest rate of 6.5% was refinanced to 5.745%. Originally secured by four aircraft Reg #N154GA, N99GH, N326CA, and N239AL and personally guaranteed by an officer/shareholder and now secured by three aircraft Reg # N95WA, N236AL, and N238AL.

 







1,807,327

 

 







2,097,256


Note payable originally issued on January 7, 2010 for $2,700,000 due January 7, 2016 and refinanced on March 11, 2011 increasing the principal by $500,000 and now due March 7, 2016. Original interest rate of 7.147% was refinanced to 6.641%. Secured by four aircraft Reg #N172GA, N125BA, N219VP, and N198GA.                                                                                                 

 





2,961,331

 

 





2,576,151

 

Unsecured note payable issued on May 4, 2010 for $400,775 due February 1, 2011. Interest rate of 7.78%.


Unsecured note payable issued May 10, 2011 for $370,813 due March 1, 2012. Interest rate of 7.65%  


Note payable issued on June 11, 2010 for $3,087,407 due June 11, 2015. Interest rate of 5.865%. Secured by four aircraft, Reg #N114AX, N127BA, N24BH, and N950AA.       

 


-



262,086





2,685,854

 

 


136,190



-





2,964,757

 

 

 

 

 

 

 

                                                                      

10

 


ALPINE AIR EXPRESS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Capital Lease Obligation

 

619,038

 

 

794,981

 

 

8,335,636

 

 

8,569,335

Less current portion

 

(1,506,000)

 

 

(1,286,000)

Long-term portion

$

6,829,636

 

$

7,283,335



NOTE 8 – PREFERRED STOCK


The Company is authorized to issue 1,000,000 shares of Series A $.001 par value preferred stock. The preferred

stock provides for monthly dividends at an annual rate of 6.5%. As of July 31, 2011 and October 31, 2010 there were 680,000 and 820,000 shares, respectively, issued and outstanding. This preferred stock is convertible at any time by the holder until December 1, 2011 based on the current market price of the Company’s stock. The Company can redeem the preferred stock any time and the Holder can call for redemption of the preferred stock any time after December 1, 2011 at a liquidation value of $9.104 per share.


During the period ending July 31, 2011, the Company redeemed 60,000 shares of the preferred stock at its stated value of $9.104 per share for a total of $546,240.


NOTE 9 - INCOME PER COMMON SHARE


The following data show the amounts used in computing net income per common share:


                                                             For Three Months Ended                                 For Nine Months Ended

                                                                            July 31,                                                         July 31,

 

 

2011

 

 

2010

 

 

2011

 

 

2010

Net income available to common shareholders


$


303,025

 


$


196,798

 


$


1,191,086

 


$


969,837


Weighted average number of common shares used in basic EPS

 



34,416,509

 

 



36,271,461

 

 



35,117,257

 

 



36,271,461

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of preferred stock


Dilutive effect of stock options

 


56,279,273



-

 

 


79,985,143



-

 

 


60,104,078



-

 

 


71,628,486



-

Weighted average number of common shares and dilutive potential common stock used in diluted EPS

 




90,695,782

 

 




116,256,604

 

 




95,221,335

 

 




107,899,947


NOTE 10 – CONCENTRATIONS


U.S. Postal Service Contracts - The Company receives the majority of its revenues from contracts with the U.S. Postal Service (USPS).  For the nine months ended July 31, 2011 and 2010, the revenues from contracts with the USPS represented 66% and 69% of total revenues, respectively.  At July 31, 2011 and October 31, 2010, trade accounts receivable from the USPS totaled $986,714 and $966,855, or 48% and 60% of total trade accounts receivable, respectively. The contracts currently in effect for USPS routes will expire in September 2015 for mainland US operations. The loss of contracts with this customer would have a material negative effect on the operations of the Company.  




11








ALPINE AIR EXPRESS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 11 – COMMITMENTS AND CONTINGENCIES


The Company operates its aircraft under a certificate which allows it to accumulate time between overhauls (TBO) in excess of manufacturer's recommendations.  The Company regularly inspects its engines.  A majority of the

engines used by the Company have accumulated TBO in excess of manufacturer's recommendations.


Three proposed actions have been put forth by the Federal Aviation Administration (FAA) and are currently being reviewed by the Company. Management has assessed the probability and has estimated and accrued a reasonable amount to cover any penalties the Company may incur. The Company will vigorously defend against the actions and believes the actions are without merit. None of these assertions have resulted in any enforcement action against the Company, nor does the Company expect any actions as a result of the allegations.


NOTE 12- PLAN TO VOLUNTARILY DEREGISTER ITS COMMON STOCK


On July 25, 2011 the Company filed Form 8-K, Schedule 14C, and Schedule 13E-3 with the SEC announcing its intent to voluntarily deregister its common stock. The primary purpose of the transaction will be to reduce the number of stockholders of record to less than 300, thereby allowing the Company file a Form 15 Certificate of Termination of Registration with the SEC under Section 12(g) of the Exchange Act. After consummation of the proposed transaction the Company would no longer be required to file annual, quarterly or current reports, and it would not be required to comply with the SEC’s proxy rules, which require them to distribute proxy statements to its stockholders.


Reducing the number of shareholders to less than 300 would occur by the Company effecting a 1-for-2,000 reverse stock split in which any shareholder holding less than 2,000 shares on the record date of September 6, 2011 would receive cash of $0.16482 per share in lieu of the Company issuing fractional shares. Following the reverse stock split the Company will effect a 2,000-for-1 forward stock split thereby restoring stockholders with greater than 2,000 shares to the original number of shares they owned.


The effective date has not been established and the consummation of the proposed transaction is subject to a number of conditions, including the completion of various filings with the SEC. The Company is proceeding forward with the necessary filings with the SEC.


NOTE 13 – SUBSEQUENT EVENTS


On August 12, 2011 the Company refinanced a note payable originally issued on August 19, 2009 for $2,524,200 due August 19, 2012. The refinanced note dated August 12, 2011 increased the principal by $192,673 and is now due August 12, 2016. The original interest rate of 6.5% was refinanced to 5.745%. The original note was secured by four aircraft Reg #N154GA, N99GH, N326CA, and N239AL and personally guaranteed by an officer/shareholder and now is secured by three aircraft Reg # N95WA, N236AL, and N238AL.


On August 24, 2011 the Board of Directors approved a redemption of 40,000 shares of Series A 6.5% Preferred Stock of Alpine Air held by Mallette Holdings, LLLP to be redeemed at its stated value of $9.104 per share. The Company redeemed the preferred shares on August 24, 2011 and September 6, 2011.


Alpine Air Express has evaluated subsequent events through the date the financial statements were issued, and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements.






12







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


General.


Alpine Aviation Inc. operates two business divisions. The operations division provides air cargo transportation services in the United States in Montana, North Dakota, and South Dakota (66% of revenue). In addition to air cargo transportation, the Company flies charters for other cargo carriers (25% of revenue), and leases passenger aircraft to other air carriers (9% of revenue). The public division segment provides maintenance service on aircraft owned and operated by third parties (less than 1% of revenue), and operates a First Officer training program (less than 1% of revenue).

     

     During the three months ended July 31, 2011, cargo volumes were lower (3%) when compared to the same period last year. The Company carried 2,029 tons of cargo this quarter in 2011 compared to 2,100 tons in the same quarter in 2010.  


     In 2009 the Company was successful in its attempts to renew the Montana/South Dakota/North Dakota contract with the US Postal Service. The contract began in 2009 and runs for six years through 2015. In the future, if the Company were unable to renew this contract, it would have a significant impact on earnings and revenues. However, management has had substantial success in renewing contracts with the USPS over the past 20 years. The Company is also under contract with a major US cargo carrier until 2013.


     The current US Postal Service contract includes a per pound rate increase over previous contracts as well as a monthly fuel cost adjustment. The Company continues to experience moderate rising costs. Fuel, insurance, aircraft maintenance, and repairs place a demand on the Company’s cash resources, however, management has been exceptionally proactive in containing and reducing operating costs in order to better maximize the use of cash resources.


Liquidity and Capital Resources


July 31, 2011 and October 31, 2010.


Historical Source of Cash and Capital Expenditures:


     The Company has a working capital position on July 31, 2011 of $2,324,667, as compared to working capital on October 31, 2010, of $2,255,625. The increase in working capital has been the direct result of a $353,580 increase in current assets coupled with an increase of $284,538 in current liabilities. The Company presently has no material off-balance sheet financing arrangements.   


     Total assets increased to $28,254,636 on July 31, 2011 from $27,783,424 on October 31, 2010. Total liabilities increased to $13,027,267 from $12,306,428 during the same period.  Stockholders' equity has also increased a total of $1,024,933, from $8,011,716 to $9,036,649 for October 31, 2010 and July 31, 2011, respectively.


     For the nine months ended July 31, 2011 the Company had a net profit from operations before income taxes and preferred stock dividends of $2,506,287. This is an increase of $141,515 from the previous year’s net income of $2,364,772. Depreciation and amortization expense for the nine months ending July 31, 2011 was $2,566,732 for an increase of $58,436 over last year.


    During the nine months ended July 31, 2011, the Company’s tax net operating loss carryforward decreased by $2,080,000 and deferred taxes totaled $836,000.   


     Investing activities for the nine months ended July 31, 2011, primarily consisted of the purchases of property and equipment of $2,884,473.


     For the nine months ended July 31, 2011, net cash used in financing activities was $2,456,774. The subsequent use of these funds was the retiring of $1,176,635 of long-term debt, the payment of preferred stock dividends of $339,427, the redemption of $166,152 of Common Stock of the Company, and the redemption of $1,274,560 of Preferred Stock of the Company. The Company also received $500,000 from the refinance of a note payable.  


     For the nine months ended July 31, 2011 and July 31, 2010, net decreases in cash and cash equivalents were $630,325 and $481,467, and ending cash and cash equivalents were $705,998 and $711,469, respectively.




13








Cash Requirements:


The following table summarizes the Company’s contractual obligations as of July 31, 2011:


 

 

 


Total

 

 


One Year

 

 


2-5 Years

 

 

After 5 Years

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt principal

 

$

7,716,598

 

$

1,254,567

 

$

6,462,031

 

$

-

Capital leases principal

 

 

619,038

 

 

251,404

 

 

367,634

 

 

-

Interest payments

 

 

1,391,940

 

 

488,658

 

 

903,282

 

 

-

Operating leases

 

 

466,493

 

 

62,857

 

 

155,186

 

 

248,450

Dividend payment of preferred shares

 

 


1,877,986

 

 


402,397

 

 


1,475,589

 

 


-

Total

 

$

12,072,055

 

$

2,459,883

 

$

9,363,722

 

$

248,450

Future Capital Expenditures:

The Company, as of July 31, 2011, had no open commitments to purchase additional aircraft.


Results of Operations.


    Three months ended July 31, 2011 and 2010.


Operating Revenue


     During the three months ended July 31, 2011 total operating revenues were $5,263,422, representing a 9% increase over 2010 revenues for the same period of $4,823,087. The following tables summarize Alpine Air’s operating revenue and associated percentage-of-change for the periods indicated.



 

Three months ended July 31, 2011

 

 

Three months ended July 31, 2010

 

2011 over 2010 Change

Operating Revenue:

 

 

 

 

 

 

 

  Operations

 

 

 

 

 

 

 

    Mail revenue

$

3,527,518

 

$

3,285,367

 

7%

    Contract cargo revenue and

    ad-hoc charters

 


1,243,978

 

 


1,171,101

 


6%

    Aircraft leasing

 

399,057

 

 

346,100

 

15%

      Total operations

 

5,170,553

 

 

4,802,568

 

8%

  Public services

 

 

 

 

 

 

 

    First officer

 

1,153

 

 

14,779

 

(92)%

    Maintenance

 

91,716

 

 

5,740

 

1,498%

      Total public services

 

92,869

 

 

20,519

 

353%

        Total operating revenue

$

5,263,422

 

$

4,823,087

 

9%





14








 

 

Three months ended July 31, 2011

 

Three months ended July 31, 2010

 

2011 over 2010 Change

Operating Revenue:

 

 

 

 

 

 

  Operations

 

 

 

 

 

 

    Mail revenue

 

67%

 

68%

 

(1)%

    Contract cargo revenue and

    ad-hoc charters

 


24%

 


24%

 


-

    Aircraft leasing

 

8%

 

7%

 

1%

      Total operations

 

99%

 

99%

 

-

  Public services

 

 

 

 

 

 

    First officer

 

Less than 1%

 

Less than 1%

 

-

    Maintenance

 

1%

 

Less than 1%

 

-

      Total public services

 

1%

 

1%

 

-

        Total operating revenue

 

100%

 

100%

 

-


     Direct Costs


     Total direct costs increased to $3,806,725 from $3,405,734 for the three months ending July 31, 2011 and 2010, respectively. This increase is mainly due to an increase in fuel expense that occurred because of an increase in overall fuel prices and additional charter flights flown during 2011. Depreciation and amortization expense for the three months ended July 31, 2011 increased to $829,952 from $784,661 during the same period in 2010. This increase was due to an increase in engine times for aircraft leases to third parties and by an increase in depreciation on major engine and airframe component overhauls capitalized in 2010 and 2011. The following table summarizes the Company’s direct costs and the associated percentages-of-change for the periods indicated.


 

 

Three months ended July 31, 2011

 

 

Three months ended July 31, 2010

 

2011 over 2010 Change

Direct Costs:

 

 

 

 

 

 

 

  Operations

 

 

 

 

 

 

 

    Depreciation and amortization

$

829,952

 

$

784,661

 

5%

    Other direct costs

 

2,946,342

 

 

2,572,128

 

15%

      Total operations

 

3,776,294

 

 

3,356,789

 

12%

  Public services

 

 

 

 

 

 

 

      Total public services

 

30,431

 

 

48,945

 

(38)%

        Total direct costs

$

3,806,725

 

$

3,405,734

 

12%


Operating Expenses


     Operating expenses decreased to $625,214 from $724,774 for the three months ended July 31, 2011 and 2010, respectively. This decrease was due mainly to the accrual of fines and penalties in 2010. The following table summarizes Alpine Air’s operating expenses and the associated percentages-of-change for the periods indicated.


 

 

Three months ended July 31, 2011

 

 

Three months ended July 31, 2010

 

2011 over 2010 Change

Operating Expenses:

 

 

 

 

 

 

 

  General and administrative

$

625,214

 

$

724,774

 

(14)%

        Total operating expenses

 

625,214

 

 

724,774

 

(14)%


     Interest Income


     Interest income for the three months ended July 31, 2011 decreased to $930 from the amount at July 31, 2010 of $2,816. This decrease in interest income is due to a decrease in interest rates earned on interest bearing accounts.


Interest Expense


     Total interest expense for the three months ended July 31, 2011 and 2010 was $146,298 and $381,483, respectively. This decrease in interest expense is due to a refinance of a capital lease to a note payable with more favorable terms.




15








Gain (Loss) on Disposal of Assets


     Gain (loss) on disposal of assets for the three months ended July 31, 2011 changed to $(872) from $425,044 as of July 31, 2010. This difference is due to a small loss on a disposition of one asset occurring during the current quarter versus a gain occurring from the difference in the cost basis versus net book value on the sale of a Beechcraft 1900 aircraft during the same quarter in 2010.


Income Tax Expense


     The provision for income tax expense for the three months ended July 31, 2011 and 2010 was $277,000 and $419,850, respectively. The decrease in income taxes as a percentage of income before taxes of 40.4% in 2011 and 56.8% in 2010 was due to state income tax rates.


Net Income


     For the three months ended July 31, 2011 and 2010, income before preferred dividends was $408,243 and $319,106, or $0.01 per share and $0.00 per share, respectively. For the same periods net income available to shareholders was $303,025 and $196,798, or $0.01 per share and $0.00 per share, respectively. The difference for both years presented is $105,218 and $122,308, respectively ($0.00 and $0.00 per share, respectively), which is related to dividends declared on preferred stock and income tax expense.


     Nine months ended July 31, 2011 and 2010.


Operating Revenue


     During the nine months ended July 31, 2011 total operating revenues were $15,851,482, representing a 6% increase over 2010 revenues for the same period of $14,946,448. The following tables summarize Alpine Air’s operating revenue and associated percentage-of-change for the periods indicated.



 

Nine months ended July 31, 2011

 

 

Nine months ended July 31, 2010

 

2011 over 2010 Change

Operating Revenue:

 

 

 

 

 

 

 

  Operations

 

 

 

 

 

 

 

    Mail revenue

$

10,488,592

 

$

10,253,693

 

2%

    Contract cargo revenue and

    ad-hoc charters

 


3,890,458

 

 


3,491,817

 


11%

    Aircraft leasing

 

1,350,658

 

 

1,159,375

 

16%

      Total operations

 

15,729,708

 

 

14,904,885

 

6%

  Public services

 

 

 

 

 

 

 

    First officer

 

5,392

 

 

28,080

 

(81)%

    Maintenance

 

116,382

 

 

13,483

 

763%

      Total public services

 

121,774

 

 

41,563

 

193%

        Total operating revenue

$

15,851,482

 

$

14,946,448

 

6%





16








 

 

Nine months ended July 31, 2011

 

Nine months ended July 31, 2010

 

2011 over 2010 Change

Operating Revenue:

 

 

 

 

 

 

  Operations

 

 

 

 

 

 

    Mail revenue

 

66%

 

68%

 

(2)%

    Contract cargo revenue and

    ad-hoc charters

 


25%

 


23%

 


2%

    Aircraft leasing

 

8%

 

8%

 

-

      Total operations

 

99%

 

99%

 

-

  Public services

 

 

 

 

 

 

    First officer

 

Less than 1%

 

Less than 1%

 

-

    Maintenance

 

Less than 1%

 

Less than 1%

 

-

      Total public services

 

1%

 

1%

 

-

        Total operating revenue

 

100%

 

100%

 

-


     Direct Costs


     Total direct costs increased to $11,525,367 from $10,677,114 for the nine months ending July 31, 2011 and 2010, respectively. This increase is mainly due to an increase in fuel expense that occurred because of an increase in overall fuel prices and additional charter flights flown during 2011. Depreciation and amortization expense for the nine months ended July 31, 2011 increased to $2,566,732 from $2,428,769 during the same period in 2010. The following table summarizes the Company’s direct costs and the associated percentages-of-change for the periods indicated.


 

 

Nine months ended July 31, 2011

 

 

Nine months ended July 31, 2010

 

2011 over 2010 Change

Direct Costs:

 

 

 

 

 

 

 

  Operations

 

 

 

 

 

 

 

    Depreciation and amortization

$

2,566,732

 

$

2,428,769

 

6%

    Other direct costs

 

8,848,615

 

 

8,126,033

 

9%

      Total operations

 

11,415,347

 

 

10,554,802

 

8%

  Public services

 

 

 

 

 

 

 

      Total public services

 

110,020

 

 

122,312

 

(10)%

        Total direct costs

$

11,525,367

 

$

10,677,114

 

8%


Operating Expenses


     Operating expenses decreased to $1,417,332 from $1,570,842 for the nine months ended July 31, 2011 and 2010, respectively. This decrease was due mainly to a decrease in the accrual of fines and penalties. The following table summarizes Alpine Air’s operating expenses and the associated percentages-of-change for the periods indicated.


 

 

Nine months ended July 31, 2011

 

 

Nine months ended July 31, 2010

 

2011 over 2010 Change

Operating Expenses:

 

 

 

 

 

 

 

  General and administrative

$

1,417,332

 

$

1,570,842

 

(10)%

        Total operating expenses

 

1,417,332

 

 

1,570,842

 

(10)%


     Interest Income


     Interest income for the nine months ended July 31, 2011 decreased to $5,902 from the amount at July 31, 2010 of 9,259. This decrease in interest income is due to a decrease in interest rates earned on interest bearing accounts.


Interest Expense


     Total interest expense for the nine months ended July 31, 2011 and 2010 was $407,526 and $766,807, respectively. This decrease in interest expense is due to a refinance of a capital lease to a note payable with more

favorable terms.




17








Gain (Loss) on Disposal of Assets


     Gain (loss) on disposal of assets for the nine months ended July 31, 2011 changed to $(872) from $423,828 as of July 31, 2010. This decrease is due to the sale of one company vehicle occurring during the current year versus the sale of one Beechcraft 1900 aircraft for the same period last year.


Income Tax Expense


     The provision for income tax expense for the nine months ended July 31, 2011 and 2010 was $982,000 and $1,032,000, respectively. The decrease in income taxes as a percentage of income before taxes of 39.1% in 2011 and 43.6% in 2010 was due to state income tax rates.


Net Income


     For the nine months ended July 31, 2011 and 2010, income before preferred dividends was $1,524,287 and $1,332,772, or $0.04 per share and $0.04 per share, respectively. For the same periods net income available to shareholders was $1,191,086 and $969,837, or $0.03 per share and $0.03 per share, respectively. The difference for both years presented is $333,201 and $362,935, respectively ($0.01 and $0.01 per share, respectively), which is related to dividends declared on preferred stock.


Off-balance sheet arrangements


We have no off balance sheet arrangements during the quarter ended July 31, 2011.


Forward Looking Statements.


Statements made in this Form 10-Q which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of the Company, including, without limitation, (i) our ability to retain existing commercial relationships and to obtain additional profitable sources of revenue, and (ii) statements preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets" or similar expressions.


Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond the Company's control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, in addition to those contained in the Company's reports on file with the SEC: general economic or industry conditions, nationally and/or in the communities in which the Company conducts business, legislation or regulatory requirements, the economic condition of the U.S. Postal Service, changes in the air cargo, charter and leasing industries, demand for air cargo, charter and leasing services, competition, changes in the quality or composition of the Company's services, our ability to develop profitable new sources of revenue, changes in accounting principals, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting the Company's operations, services and prices.


Accordingly, results actually achieved may differ materially from expected results in these statements.  Forward-looking statements speak only as of the date they are made.  The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.


Not applicable to smaller reporting companies.


 


18







Item 4.  Controls and Procedures.


Management’s report on disclosure controls and procedures.


As of the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our CEO and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our CEO and Principal Financial Officer concluded that information required to be disclosed is recorded, processed, summarized and reported within the specified periods and is accumulated and communicated to management, including our CEO and Principal Financial Officer, to allow for timely decisions regarding required disclosure of material information required to be included in our periodic Securities and Exchange Commission reports. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our CEO and Principal Financial Officer have concluded that our disclosure controls and procedures are effective to a reasonable assurance level of achieving such objectives. However, it should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.


Changes in internal control over financial reporting


The Company had no changes in internal control over financial reporting during the quarter ended July 31, 2011.



PART II - OTHER INFORMATION


Item 1. Legal Proceedings.


Not applicable.


Item 1A. Risk Factors


Not applicable to smaller reporting companies.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.


Recent Sales of Unregistered Securities


During the quarter ended July 31, 2011, we did not issue any unregistered securities.


Use of Proceeds of Registered Securities


We had no proceeds from the sale of registered securities during the quarter ended July 31, 2011.





19





Purchases of Equity Securities by Us and Affiliated Purchasers


SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

                                                                      

Period

(a) Total Number of Shares (or Units) Purchased

(b) Average Price Paid per Share (or Unit)

(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs

(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be Purchased Under the Plans or Programs

Month #1 May 1, 2011 through May 31, 2011

None

None

None

None

Month #2 June 1, 2011 through June 30, 2011

105,000 shares of Alpine Air Express, Inc. from Carroll College

$.10 per share, $10,500 total purchase value

None

None

Month #3 July 1, 2011 through July 31, 2011

None

None

None

None

Total

105,000

.10

None

None


Item 3. Defaults Upon Senior Securities.


None; not applicable.


Item 4. (Removed and Reserved).


Item 5. Other Information.


(a)

On August 12, 2011, which is subsequent to the end of the period covered by this report, the Company refinanced a note payable originally issued on August 19, 2009 for $2,524,200 due August 19, 2012. The refinanced note dated August 12, 2011 increased the principal by $192,673 and is now due August 12, 2016. The original interest rate of 6.5% was refinanced to 5.745%. The original note was secured by four aircraft Reg #N154GA, N99GH, N326CA, and N239AL and personally guaranteed by an officer/shareholder and now is secured by three aircraft Reg # N95WA, N236AL, and N238AL.


On August 24, 2011, which is subsequent to the end of the period covered by this report, the Company Board of Directors approved a redemption of 40,000 shares of Series A 6.5% Preferred Stock of Alpine Air held by Mallette Holdings, LLLP to be redeemed at its stated value of $9.104 per share. The Company redeemed the preferred shares on August 24, 2011 and September 6, 2011.


Alpine Air Express has evaluated subsequent events through the date the financial statements were issued, and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements.


On July 25, 2011 the Company filed Form 8-K, Schedule 14C, and Schedule 13E-3 with the SEC announcing its intent to voluntarily deregister its common stock. The primary purpose of the transaction will be to reduce the number of stockholders of record to less than 300, thereby allowing the Company file a Form 15 Certificate of Termination of Registration with the SEC under Section 12(g) of the Exchange Act. After consummation of the proposed transaction the Company would no longer be required to file annual, quarterly or current reports, and it would not be required to comply with the SEC’s proxy rules, which require them to distribute proxy statements to its stockholders.


Reducing the number of shareholders to less than 300 would occur by the Company effecting a 1-for-2,000 reverse stock split in which any shareholder holding less than 2,000 shares on the record date of September 6, 2011 would receive cash of $0.16482 per share in lieu of the Company issuing fractional shares. Following the reverse stock split the Company will effect a 2,000-for-1 forward stock split thereby restoring stockholders with greater than 2,000 shares to the original number of shares they owned.




20








The effective date has not been established and the consummation of the proposed transaction is subject to a number of conditions, including the completion of various filings with the SEC. The Company is proceeding forward with the necessary filings with the SEC.


(b)

During the quarterly period ended July 31, 2011, there were no changes in the procedures by which security holders may recommend nominees to the Company’s Board of Directors.


Item 6. Exhibits


(a) Exhibits and index of exhibits.


         31.1              302 Certification of Eugene R. Mallette


         31.2              302 Certification of Rick C. Wood


         32                 906 Certification





















21







SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.


ALPINE AIR EXPRESS, INC.


Date:

09/14/11

 

By:

/s/Eugene R. Mallette

 

 

 

 

Eugene R. Mallette

 

 

 

 

Chief Executive Officer and Director

 

 

 

 

 

Date:

09/14/11

 

By:

/s/Rick C. Wood

 

 

 

 

Rick C. Wood

 

 

 

 

Principal Financial Officer

 

 

 

 

 

Date:

09/14/11

 

By:

/s/Max A. Hansen

 

 

 

 

Max A. Hansen

 

 

 

 

Secretary/Treasurer and Director

 

 

 

 

 

Date:

09/14/11

 

By:

/s/Joseph O. Etchart

 

 

 

 

Joseph O. Etchart

 

 

 

 

Chairman

 

 

 

 

 

Date:

09/14/11

 

By:

/s/Ronald L. Pattison

 

 

 

 

Ronald L. Pattison

 

 

 

 

Director

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





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