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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM
10-K



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

For the fiscal year ended: June 30, 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 Number 000-51115





Avantair, Inc.

(Exact name of registrant as specified in its charter)



|                                              |  |                              
|--------------------------------------------- |  | -----------------------------
|Delaware                                      |  | 20-1635240                   
|(State of incorporation)                      |  | (I.R.S. Employer I.D. Number)
|                                              | 
|4311 General Howard Drive Clearwater, Florida |  | 33762                        
|(Address of principal executive offices)      |  | (zip code)                   

727 539 0071

(Registrants telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Units consisting of one share of Common Stock, par value $.0001 per share

Common Stock, $.0001 par value per share

Warrants to purchase shares of Common Stock





Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act.    Yes   ̈    No  x

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 (Section.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   ̈    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and



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will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.  x

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



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  | 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

As of the end of the Registrants second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of
the Registrant was $49,777,274. For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers,
directors, or 10% beneficial owners are, in fact, affiliates of the registrant.

As of September 22, 2011 there were
26,422,845 shares of Common Stock, $.0001 par value per share, outstanding.









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##### Table of Contents

CERTAIN DEFINITIONS

Unless the context indicates otherwise, the terms Avantair, the Company, we, our and us refer to Avantair, Inc. and, where appropriate, its
subsidiary. The term Registrant means Avantair, Inc.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Form 10K contains forward-looking statements relating to future events and the future performance of the Company,
including, without limitation, statements regarding the Companys expectations, beliefs, intentions or future strategies that are signified by the words expects, anticipates, intends, believes, or
similar language. You should read statements that contain these words carefully because they:



| |  |  | discuss future expectations;
| | - |  | ----------------------------



| |  |  | contain information which could impact future results of operations or financial condition; or
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | state other forward-looking information.
| | - |  | ------------------------------------------

We believe it is important to communicate our expectations to the Avantair stockholders. However, there may be events in the future that we are not able to accurately predict or over which we have no
control and which could cause our actual results to differ materially from the information contained in the forward-looking statements contained in this document. The risk factors and cautionary language discussed in this document provide examples
of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by Avantair in its forward-looking statements, including among other things:



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



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



| | (3) | our inability to generate sufficient cash flows to meet our debt service obligations;
| | --- | -------------------------------------------------------------------------------------



| | (4) | our inability to obtain acceptable customer contracts;
| | --- | ------------------------------------------------------



| | (5) | the loss of key personnel;
| | --- | --------------------------



| | (6) | our inability to effectively manage our growth;
| | --- | -----------------------------------------------



| | (7) | our inability to acquire additional aircraft and parts from our single manufacturer;
| | --- | ------------------------------------------------------------------------------------



| | (8) | competitive conditions in the fractional aircraft industry;
| | --- | -----------------------------------------------------------



| | (9) | extensive government regulation;
| | --- | --------------------------------



| | (10) | the failure or disruption of our computer, communications or other technology systems;
| | ---- | --------------------------------------------------------------------------------------



| | (11) | changing economic conditions;
| | ---- | -----------------------------



| | (12) | increases in fuel costs; and
| | ---- | ----------------------------



| | (13) | our failure to attract and retain qualified pilots and other operations personnel.
| | ---- | ----------------------------------------------------------------------------------

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document.

All forward-looking statements included herein attributable to Avantair or any person acting on Avantairs behalf are
expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, Avantair undertakes no obligations to update these forward-looking
statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

You should be aware that the occurrence of the events described in the Risk Factors section, Managements Discussion & Analysis section and elsewhere in this document
could have a material adverse effect on Avantair.



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Table of Contents



|                                                                                                                      |  |  |    | 
|--------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I                                                                                                                |  |  |    | 
|Item 1. Business                                                                                                      |  |  | 1  | 
|                                                                                                                      | 
|Item 1A. Risk Factors                                                                                                 |  |  | 9  | 
|                                                                                                                      | 
|Item 1B. Unresolved Staff Comments                                                                                    |  |  | 16 | 
|                                                                                                                      | 
|Item 2. Facilities                                                                                                    |  |  | 16 | 
|                                                                                                                      | 
|Item 3. Legal Proceedings                                                                                             |  |  | 16 | 
|                                                                                                                      | 
|PART II                                                                                                               |  |  |    | 
|Item 
5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  |  | 17 | 
|                                                                                                                      | 
|Item 6. Selected Financial Data                                                                                       |  |  | 18 | 
|                                                                                                                      | 
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations                         |  |  | 20 | 
|                                                                                                                      | 
|Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                                   |  |  | 28 | 
|                                                                                                                      | 
|Item 8. Financial Statements and Supplementary Data                                                                   |  |  | 29 | 
|                                                                                                                      | 
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure                          |  |  | 29 | 
|                                                                                                                      | 
|Item 9A(T). Controls and Procedures                                                                                   |  |  | 29 | 
|                                                                                                                      | 
|Item 9B. Other Information                                                                                            |  |  | 31 | 
|                                                                                                                      | 
|PART III                                                                                                              |  |  |    | 
|Item 10. Directors, Executive Officers and Corporate Governance                                                       |  |  | 32 | 
|                                                                                                                      | 
|Item 11. Executive Compensation                                                                                       |  |  | 32 | 
|                                                                                                                      | 
|Item 
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters              |  |  | 32 | 
|                                                                                                                      | 
|Item 13. Certain Relationships and Related Transactions and Directors
Independence                                    |  |  | 32 | 
|                                                                                                                      | 
|Item 14. Principal Accountant Fees and Services                                                                       |  |  | 32 | 
|                                                                                                                      | 
|PART IV                                                                                                               |  |  |    | 
|Item 15. Exhibits and Financial Statement Schedules                                                                   |  |  | 33 | 



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PART I

Item 1. BUSINESS

Overview

Avantair, Inc. and subsidiaries (the Company or
Avantair) are in the business of providing private aviation services through three primary flight service programs (i) the sale of fractional ownership interests (Fractional Ownership program): (ii) the lease of fight hours
(Axis Lease program); and (iii) the sale of flight hour cards (Edge Card program and Axis Club Membership program). These services are provided on the Companys managed aircraft fleet by professionally piloted aircraft for business and
personal use. Avantairs core strategic focus is providing our customers with the highest level of safety, service and satisfaction. According to AvData, Avantair is the fifth largest company in the North American fractional aircraft industry
based on aircraft fleet size. As of June 30, 2011, Avantair operated 56 aircraft within its fleet, which is comprised of 47 aircraft for fractional ownership, 5 company-owned core aircraft and 4 leased and company-managed aircraft. In addition,
Avantair provides limited fixed based operation (FBO) services in Clearwater, FL, Camarillo, CA and Caldwell, NJ. In January 2011, the Company opened a maintenance facility in Dallas, Texas.

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

In response to market conditions and to provide further alternatives for private air travel the Company initiated
the Axis Lease program effective February 2011, which offers many of the same benefits as the Fractional Ownership program with a minimum two-year lease and is available in 25 hour increments, starting at 50 hours per year. The Axis Lease program
requires a monthly management fee and lease payment.

Separate from the Axis Lease program, Avantairs Axis Club
Membership program, which was initiated in January 2009, offers access to blocks of flight hours for a three year membership fee of $75,000. The program requires Axis Club members to purchase a minimum of three 25 hour flight hour cards over a three
year period. The program also allows for the conversion of club membership into fractional ownership. Members are not charged a management and maintenance fee until they are fractional owners. The Axis Club Membership program was suspended effective
March 2011.

Avantair presently sources all of its aircraft from a single manufacturer, Piaggio America, Inc.
(Piaggio). As of June 30, 2011, Avantair had contractual commitments to purchase 51 additional Piaggio Avanti II aircraft through 2013 with a mutual understanding that the aircraft delivery dates can be extended. The total
commitment, including a proposed price escalation, is valued at approximately $323 million. Avantair believes that the pricing structure afforded by utilizing the Piaggio Avanti aircraft allows Avantair to attract a customer desiring quality at a
lower price point than its competitors. Offering the cabin cross section of a mid-size aircraft and the fuel efficiency of a turboprop, along with no hourly fees, allows Avantair to lower the cost of private air travel for a broader range of
individuals and businesses.

The Companys primary sources of operating funds are the collection of management and
maintenance fees from fractional share owners, and lessees through the Axis Lease Program, as well as the sale of fractional ownership shares, Axis Club Memberships and flight hour cards. Revenue for sales by product category can be found in the
accompanying Consolidated Statements of Operations for the fiscal year ended June 30, 2011. Sales by product category are as follows:



|                                 |  |                                               |     |  |                   |  |     |                |  |  |               |  |  |       |    |  |       |  |      |  |  |  |     | 
|-------------------------------- |  | --------------------------------------------- | --- |  | ----------------- |  | --- | -------------- |  |  | ------------- |  |  | ----- | -- |  | ----- |  | ---- |  |  |  | --- | 
|                                 |  | FY 2011 Unit Sales for the Three Months Ended |     |  | FY 2011           |  |     | FY 2010        | 
|                                 |  | September 30, 2010                            |     |  | December 31, 2010 |  |     | March 31, 2011 |  |  | June 30, 2011 |  |  | Total |    |  | Total | 
|New Fractional shares            |  |                                               | 3   |  |                   |  | 6   |                |  |  | 9             |  |  |       | 1  |  |       |  | 19   |  |  |  | 7.5 | 
|Axis Lease Program shares leased |  |                                               | N/A |  |                   |  | N/A |                |  |  | 5.5           |  |  |       | 25 |  |       |  | 30.5 |  |  |  | N/A | 
|Axis Club Memberships            |  |                                               | 11  |  |                   |  | 14  |                |  |  | 6             |  |  |       | 0  |  |       |  | 31   |  |  |  | 51  | 
|Flight hour cards                |  |                                               | 104 |  |                   |  | 162 |                |  |  | 102           |  |  |       | 93 |  |       |  | 461  |  |  |  | 388 | 

Avantairs primary growth strategy is to continue to increase the number of fractional share owners
and lessees and aircraft under management, as well as increase the number of flight hour cards. At June 30, 2011, the Company had 25.5 fractional aircraft shares available for sale. In addition to the cost of acquiring aircraft, Avantairs
primary expenses are related to fuel, aircraft repositioning (i.e., moving an aircraft to another location to accommodate a customers need and for demonstration flights for sales purposes), flight operations and pilot expenses, maintenance,
charters, insurance and sales general and administrative expenses. To finance its growth strategy, the Company will continue to actively pursue additional funds through equity financing, including the sale of additional shares of common and
preferred stock, asset sales, promotional sales incentives, cash receipts associated with accelerated



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payments of management and maintenance fees, debt financing, or a combination thereof. At June 30, 2011 and 2010, Avantair had assets of approximately $110.9 million and $131.6 million,
respectively. For the fiscal years ended June 30, 2011 and 2010, the Company had revenue of approximately $149.0 million and $143.0 million, respectively, and net losses of approximately $10.8 million and $4.0 million, respectively. Avantair
has incurred losses since inception and may not be able to generate sufficient net revenue from its business in the future to achieve or sustain profitability and positive cash flows. At August 31, 2011, the Company had approximately $4.0
million of unrestricted cash on hand. Assuming cash flows and sales remain consistent with recent operating activity and expenses remain at or below recent levels, the Company believes that its cash position will be sufficient to continue operations
for at least the next twelve months.

Recent Developments

During July 2011, the Company entered into an Aircraft Lease Agreement with three third parties for the Company to lease one Piaggio Avanti II aircraft. Pursuant to the agreement between the parties, the
Company will pay a total of $50,000 per month for ten years, as well as provide a total of 125 flight hours per year to the three third parties. The Company accounts for the Aircraft Lease Agreement as an operating lease.

In September 2011, simultaneous with the termination of the Floor Plan Finance Renewal Agreement and Renewal Guaranteed Aircraft Purchase
Agreement for a Piaggio P-180 aircraft, the Company entered into a Lease Agreement, pursuant to which Midsouth Services, Inc. (Midsouth) leases a Piaggio P-180 aircraft to the Company for a five year lease term at $75,000 per month, at
15.0% interest per annum, plus taxes if applicable. Following the expiration of the term of the Lease Agreement, the Company has agreed to purchase the leased aircraft for approximately $3.4 million from Midsouth. The Company will account for
the lease as a capital lease.

In September 2011, the Company took delivery of a new Piaggio Avanti P-180 aircraft, for resale
in the Fractional Ownership program, financed through a Floor Plan Financing Agreement with Midsouth. The financing agreement is similar to the previous arrangements between Midsouth and Avantair with a term of the later of: (1) twelve
months or (2) until the date on which the net purchase price for the aircraft financed pursuant to the Floor Plan Agreement is paid. The Company has agreed to pay Midsouth a monthly fee of $72,500 following the commencement of the term
pursuant to the Floor Plan Agreement. Borrowings outstanding under the Floor Plan Agreement totaled $6.0 million.

Industry Overview

The Company believes that fractional aircraft ownership and leases and flight hour card ownership provides customers with
the convenience and flexibility of private air service without the more significant costs associated with sole ownership of an aircraft. Additionally, fractional aircraft companies generally provide the same conveniences and benefits to individuals
and businesses through their various flight hour card programs. Commercial flight delays can be costly and tiresome, commercial hubs are increasingly crowded, major commercial airports may be far from final destinations and commercial air travel is
increasingly subject to security-related inconveniences. The Company believes that for high net worth individuals and businesses, fractional ownership and leases and flight hour card programs often offer a balance between convenience and cost.

A fractional aircraft company assembles a fleet of planes with each of these planes available for a certain number of revenue
generating flight hours per year. Those hours are then divided into partial ownership shares and these partial ownership shares are sold to individuals and businesses. Avantairs customers typically purchase one-sixteenth or one-eighth shares
in an aircraft, although in some cases the purchases are one-quarter shares or more. The purchase of a one-eighth share means that the owner will pay approximately one-eighth of the aircraft retail price initially and receive one-eighth of the total
number hours of flying time per year for the initial term of the contract, which is five years for a new shareowner. An Avantair fractional share owner agrees to pay Avantair an additional predetermined monthly fee to cover the various costs of
maintaining and operating the aircraft. Avantair is responsible for all of these services.

As part of its model, a fractional
aircraft company may also own core fleet aircraft which are owned or leased by the Company for the demand and use of its fractional lessees and flight hour card owners. The Companys various flight hour card products offer access to blocks of
flight hours which are purchased through a membership or individually. The Company is currently advising certain international parties on private aviation opportunities, including but not limited to fractional ownership operations and on-demand
charter.

According to AvData, the North American fractionally owned fixed-wing aircraft fleet has grown from 8 aircraft in
1986 to an aggregate of 814 aircraft as of July 2011. According to AvData, five companies - NetJets, Flight Options, FlexJet, CitationAir, and Avantair - account for a majority of the total market for fractional aircraft, based on unique
owners. Among the five major fractional companies, NetJets has a market share of approximately 54.0% and Flight Options, FlexJet, CitationAir have a combined market share of approximately 34.0%. According to AvData, as of July 2011,
Avantair had an overall market share of 12.0%. However, in the light-cabin category in which it competes, Avantair has a market share of approximately 32.0%, the largest among the five major fractional companies.



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The general aviation industry builds and sells aircraft ranging from single passenger,
single engine propeller planes to transoceanic jets costing $50.0 million or more. The fractional aircraft industry has primarily concentrated on the middle to upper end of that market. Most fractionally owned aircraft have a capacity of between
four and seven passengers and a minimum range of 1,250-1,500 nautical miles. The list prices of these types of aircraft are generally $5.0 million to $50.0 million. Avantairs Piaggio aircraft have a capacity of eight passengers and a maximum
range of 1,200-1,500 nautical miles. There are numerous manufacturers and models in most categories of aircraft. Both providers of fractional aircraft shares and purchasers of these shares consider the choice of aircraft based upon a variety of
factors including:



| |  |  | price;
| | - |  | ------



| |  |  | availability;
| | - |  | -------------



| |  |  | operating costs;
| | - |  | ----------------



| |  |  | reliability;
| | - |  | ------------



| |  |  | speed;
| | - |  | ------



| |  |  | range;
| | - |  | ------



| |  |  | cabin size and features;
| | - |  | ------------------------



| |  |  | safety features and record;
| | - |  | ---------------------------



| |  |  | environmental impact;
| | - |  | ---------------------



| |  |  | efficiency;
| | - |  | -----------



| |  |  | maintenance cost;
| | - |  | -----------------



| |  |  | manufacturer; and
| | - |  | -----------------



| |  |  | runway requirements.
| | - |  | --------------------

Some of Avantairs principal competitors are wholly or partially owned by aircraft manufacturers and/or their affiliated parent companies, which have resulted in their fleets being largely comprised
of aircraft built by their respective parent companies. Although Avantair operates exclusively one aircraft type, the Company is not owned by any manufacturer.

Fractional operators must have sufficient numbers of aircraft in the fleet to provide the service required. Since fractional share buyers desire to enter the program as soon as possible after purchasing
shares, operators are obligated to provide access to aircraft when the shareowner requests it. If the operator does not have ample capacity available, it must charter that capacity, a practice that can be very costly. Fractional operators may also
offer various flight hour card programs, which provide a certain number of flight hours to be used during a specific period of time, generally one year. The flight hour card programs subject the fractional operators to similar capacity requirements
as fractional shareowners.

The current economic climate has made potential fractional owners less incentivized to purchase a
fractional share. In addition, the current political environment has created a negative impression concerning the use of private aircraft, including fractional aircraft ownership and flight hour time card use.

The capital requirements for ordering aircraft require the operator to place deposits well in advance of receiving its planes. Progress
payments are made as certain milestones are achieved. The amounts of the deposits and progress payments are a function of several factors including the price of the underlying plane, the creditworthiness of the buyer, and the time until delivery.
The majority of the payments are generally made upon delivery. As of June 30, 2011, the Company has paid approximately $9.5 million in deposits for future aircraft deliveries and will make additional deposits totaling approximately $30.6
million on future deliveries at various dates throughout the term of the contract.

The Avantair Fractional Ownership Program

Each of Avantairs current aircraft is available to fractional owners for a total of 800 flight hours per year. Those
hours are then divided into blocks of ownership, beginning at fifty hours per year (a one-sixteenth share of the aircraft), and these partial ownership shares are sold to buyers. A share of an aircraft currently can be purchased from Avantair
starting at $425,000 for a one-sixteenth share. Purchase prices for larger interests are slightly discounted. Each fractional owner must enter into a Management and Dry Lease Exchange Agreement with Avantair as part of the purchase of shares in an
Avantair aircraft. This agreement allows the Company to pass along additional billings to owners based on FAA required maintenance and other improvements performed on the Companys aircraft. A monthly management and maintenance fee is assessed
per 1/16th share owned. This fee covers any direct costs in operating and maintaining the aircraft, other than fuel surcharges which are based on actual aircraft usage. This is unlike most other fractional programs, which generally charge fractional
owners an occupied hourly rate for use of the aircraft. All programs have fuel surcharges, but due to the fuel efficiency of the Avanti and the way Avantair calculates its management fee, Avantair believes its surcharges tend to be less than those
charged by its competitors. Any landing fees, excess catering fees, applicable international fees and taxes are billed to the owner. Monthly fees are adjusted upwards on each anniversary date by the greater of either the current Consumer Price
(CPI) Index or 3.75%, but will not exceed the then-current rate offered to new share owners.

Each fractional
owner is allocated a certain number of flight hours per year based on the size of their ownership share. The owner may exceed the number of annual allocated hours by up to 20.0%, to the extent that the owner did not use all of their allocated



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hours in the prior year and/or as an advance use of the next years allocated hours.

Each share owner owns an undivided interest that cannot be affected or encumbered by the financial actions of other owners. In order to avoid scheduling conflicts, each share owner throughout
Avantairs fleet agrees to exchange use of such owners airplane with the other share owners in the fleet. Avantair must move planes to the necessary destinations to meet the fractional owners needs. Avantair keeps a certain number
of core aircraft in the fleet in order to have enough planes to meet demand. Owners may sell, assign or transfer rights with respect to their undivided interest. Each owner has the right to sell their undivided interest in their aircraft to a third
party with the Companys prior written consent, which cannot be unreasonably withheld. Further, each owner is entitled to assign or transfer their undivided interest in the aircraft, but only to a wholly owned subsidiary, parent or
successor in interest with the Companys prior written consent, which cannot be unreasonably withheld.

Upon the
expiration of the term of Avantairs agreement with a fractional owner, the owner shall have the option to (i) sell the owners interest in the aircraft and cease to participate in the Avantair program, (ii) sell their interest
and purchase an interest in another aircraft that participates or will participate in the Avantair program or (iii) retain their interest and renew their participation in the program.

The Avantair Axis Lease Program

Effective February 2011, the Company
introduced the Axis Lease Program to provide a further alternative for private aircraft travel. The Axis Lease Program offers many of the same benefits as the Fractional Ownership Program with a minimum two-year lease and is available in 25 hour
increments, starting at 50 hours per year. The new plan requires a monthly management fee and lease payment. The monthly management fee covers any direct costs in operating and maintaining the aircraft, other than fuel surcharges which are based on
actual aircraft usage. The service area for the Axis Lease Program is identical to that of the Fractional Ownership Program further below.

The Avantair Card Program

In 2006, Avantair introduced the Edge Card Program, which allows a purchaser to access Avantairs aircraft for 15 or 25 hours of
flight time without the requirement to purchase ownership shares in an aircraft. The card holder purchases the entire card amount in advance and receives the same service as a fractional owner. After the card holder has exhausted the hours
purchased, the holder has no further obligations to Avantair. The program offers an alternative to fractional ownership for individuals and businesses seeking to experience private aircraft travel. Avantairs management believes its card
program to be a means of introducing potential purchasers to its fractional ownership program.

The Axis Club Membership Program

In January 2009, the Company introduced the Axis Club Membership program, which allows a customer access to flight blocks
of 25 hours at a set rate for a three-year term for a one-time membership fee. Tiered membership options are available to fit the flight needs of the customer. Each membership has a minimum required purchase of three 25 hour blocks of flight hours
over the three year term. Each block of 25 flight hours is priced depending on the membership level. The cost of each block of flight hours is also subject to an annual CPI increase. In addition, conversion options into a fractional share are also
available, should a customers needs change throughout the course of the membership term. The Axis Club Membership program was suspended effective March 2011.

Aircraft Usage and Scheduling

A fractional share or flight hour card owner
is required to provide a minimum of 24 hours notice to Avantair prior to the scheduled take-off time when scheduling the first leg of a trip during non-peak travel times. During peak travel times, requests for use by owner of an aircraft must
be made at least 72 hours prior to the scheduled departure date of the first leg. No later than January 1st of each year, Avantair will notify all of its fractional owners and lessees of a list of the years peak travel days, which will
not exceed 25 days.

For all flights outside of the Primary Service Area (which varies by program and is comprised of the
continental United States, as well as certain airports in geographic locations such as the Bahamas, Canada, Mexico and the Caribbean) fractional owners must request an aircraft at least 7 days prior to the scheduled date of the first leg of the
trip. All such requests are completed, provided that, for each such request, the fractional owner has provided sufficient information regarding the trip to enable Avantair to schedule the trip.

Avantair currently uses one core software application for operations management, which has been approved by the FAA. The software
application is designed for use in Avantairs Operations Control Center to plan, schedule, and optimize utilization of its aircraft fleet (see Flight Operations below).

Chartering



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Whenever possible, Avantair will schedule an aircraft from its fleet for each request for
use by a fractional or flight hour card owner. In the event that none of Avantairs aircraft are available, or when circumstances warrant otherwise, Avantair will charter a comparable aircraft for use by the owner, provided that the fractional
owner has complied with all applicable notice requirements and all other program provisions. Avantair will only charter aircraft that satisfy the Aviation Research Group US (ARG/US) Gold or Platinum rating.

Sales and Marketing

Avantair targets customers based on demographic data, including net worth, household income, job title and age.

Avantair uses a variety of methods to market and advertise its various programs, including print advertising, direct mail, trade events,
web site and online and referral incentives. Advertising strategy is based on historical performance data, demographics and competitive analysis.

Avantairs direct mail advertising consists of several mailings and e-mailings per year to targeted prospective customers. Avantair also participates in live events, including aircraft display events
at fixed base operators attended by owners and prospective owners. The events are targeted geographically and costs are often shared with the aircraft manufacturer to reduce the cost to Avantair.

As part of its marketing, Avantair maintains a web site atwww.avantair.com. All of Avantairs collateral and print marketing
materials, direct mail, email and video materials direct prospective buyers to its web site.

Public relations efforts are
driven by editorial opportunities and news pitches to key editors and media constituents. Recent editorial placements include magazines such as WSJ.com, Robb Report, Forbes and Business Jet Traveler, as well as travel and aircraft industry
publications. An owner newsletter, Contrails, is published and sent to customers three times per year with pertinent news, purchase reinforcement and any new programs. It is also mailed to potential customers.

An important element of Avantairs marketing strategy is referral incentives. Under Avantairs referral incentive program, any
owner who refers a customer to Avantair receives a choice, dependent on the number of referrals, of additional allocated hours of flight time or other initiatives. Recognizing that a significant portion of its success is due to referrals from
current owners, Avantair launched two owner loyalty programs. Under the new loyalty program, Avantair awards added flight hours or monetary credits to owners who renew their arrangement with Avantair. This in turn assists the Company in solidifying
and stabilizing its customer base. Avantair has also launched the Ambassador Program under which owners interested in actively recommending Avantair to prospective customers will receive additional rewards for those that lead to new sales.

One internal measurement used to assess future sales is leads generated by both the sales force and the marketing methods
targeting the high net worth demographic, competitive owners and methods described above. While many leads may not turn into sales, they provide the basis for future sales. Another important indicator is demonstration flights. A percentage of
potential buyers of shares will request a demonstration flight on one or more aircraft types and on one or more products from different fractional operators. Avantairs demonstration flight cost is deducted from the purchase only in the event
that a share or shares are ultimately purchased or leased.

Avantairs sales department is comprised of an executive vice
president of sales, regional sales directors and regional sales managers supported by a sales department and a marketing department. Avantairs sales staff is compensated with a base salary plus commissions.

Fleet and Geographic Scope

As of June 30, 2011, Avantair operated 56 aircraft within its fleet which is comprised of 47 aircraft for fractional ownership, 5 company owned core aircraft and 4 leased and company managed
aircraft.

At June 30, 2011, Avantair had 51 additional Piaggio aircraft on order. Currently, all of the fractional
aircraft in Avantairs fleet are Piaggio Avanti turboprops. In addition, on October 17, 2006, Avantair announced orders for 20 Embraer Phenom 100 aircraft. The Phenom 100 is in the Very Light Jet category of business jets, with the largest
cabin in the category. On June 20, 2008, Avantair assigned its rights and obligations to purchase twenty Embraer Phenom 100 (Phenom 100) aircraft positions to Share 100 Holding Co., LLC (Share 100), a wholly-owned
subsidiary of Avantair. On the same date, Avantair entered into a membership interest purchase agreement with Executive Air Shares Corporation (EAS), in which EAS purchased the Class A membership of Share 100 and Avantair retained
the Class B membership. EAS, as Class A member, has the rights and obligations to purchase the Phenom 100 aircraft with positions one through eighteen and to fund payment due in connection with these aircraft. EAS paid Share 100 approximately
$2.47 million in connection with these transactions and made an additional $750,000 capital contribution to Share 100 in December 2008, all of which was, immediately distributed to Avantair. Avantair, as Class B member, has the rights and
obligations to purchase the Phenom 100 aircraft with positions nineteen and twenty and to fund payment due in connection with these aircraft. EAS had the option to purchase aircraft nineteen and twenty which was to have been exercised by
October 1, 2010; if exercised, EAS would reimburse Avantair for all payments made relative to these aircraft and provide all remaining funds required. In



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the event that EAS did not exercise the option to purchase aircrafts nineteen and twenty by October 1, 2010, Avantair would have the right and obligation to purchase the nineteenth and
twentieth aircraft. During November 2010, the Company and EAS entered into an agreement to extend the exercise requirement date to April 1, 2011. In April 2011, the Company further extended the exercise requirement date with EAS to
December 1, 2011. If EAS defaults under its obligations to purchase the aircraft positions, EAS will forfeit all deposits paid for the undelivered aircraft, including the funds distributed to Avantair. Avantair will then be responsible for the
rights and obligations of the remaining undelivered aircraft. If Avantair defaults under its obligations to purchase the last two aircraft positions, any deposits paid by Avantair in connection with the undelivered Class B aircraft will be
forfeited.

Avantair has focused its sales efforts to date on a national basis. A fractional owner is entitled to board a
plane at the location of his/her choosing. The costs of moving a plane, or repositioning it, are borne by Avantair. These costs have been significant due to fuel, pilots and crew and maintenance costs arising from increased overall usage of the
aircraft. As the number of planes in Avantairs fleet increases, Avantair believes that two of the Companys key performance indicators, dispatch availability and utility, will increase and the relative amount of repositioning should
decline. The Company also expects lower charter expenses as the size of Avantairs fleet reaches a critical mass, as aircraft will be positioned in strategic locations based on travel patterns. Those locations are frequently determined through
the usage of a software optimization program. In addition, Avantair incurs costs associated with pilots and crew, such as transportation to flight departure locations, overtime, per diems, meals and hotel expenses. As Avantairs fleet expands,
it is expected that crews will be domiciled in cities frequented by fractional owner and flight hour card holder flights. This presents an opportunity for Avantair to reduce overtime and to leverage more favorable discounts for air and hotel due to
volume, as well as the opportunity for making more efficient use of pilot and crew work hours.

Avantair believes that
operating a very limited number of aircraft models provides it with cost and operating advantages relative to other fractional aircraft operators that may operate as many as 14 different aircraft models. Among the advantages of operating a
limited number of aircraft models are:



| |  |  | Maintenance  Reduces costs of repair and maintenance by enabling nearly every member of Avantairs maintenance staff to service all
of its aircraft, plus reduced repositioning of an aircraft results in fewer flight hours and therefore less frequent maintenance;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pilot Training  Pilots need to be certified for a given aircraft model, therefore the operation of a limited number of models means that
nearly all employed pilots are available to operate any aircraft in the fleet.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inventory  Fewer parts need to be inventoried which reduces the overall cost of inventory. Due to the uniformity of the fleet, Avantair is
exposed to lower capital investment and inventory due to interchangeability of parts and the greater ease of troubleshooting.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Avantair is the sole fleet provider of the Piaggio Avanti aircraft in North America. The Piaggio Avanti has a unique design that uses forward wing technology which the Company believes allows it to both
provide the fastest speed of any turboprop and yet have an unusually large cabin relative to aircraft in its category. The Piaggio Avanti also compares favorably to light jets as the Piaggio Avanti has the lowest fuel usage in the category. This
aircraft also allows access to a greater number of airports than most of the jets in its category since it has the capability to land on shorter runways.

The Piaggio Avanti has several features such as:



| |  |  | Stand-up Cabin  A stand-up cabin and a private lavatory, which is unique in its category.
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Flying Capacity  Ability to fly 1,300 nautical miles with five passengers, luggage and a full fuel load.
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Speed  Fastest turboprop manufactured, with jet-like speed of 458 mph.
| | - |  | -----------------------------------------------------------------------



| |  |  | Runway capability  Ability to land on shorter runways allowing access to a greater number of airports.
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | Comfortable Ride  Sound dampening interior and rear mounted props, which help deliver a quiet ride.
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Safety  Since its introduction in 1989, there has not been a fatal accident involving a Piaggio Avanti. In addition, the Avantis
wing design reduces the effects of turbulence and its de-icing system reduces the impact of inclement weather on aircraft operation.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Flight Operations

Avantairs Operations Control Center is made up of
four departments that all play a role in an Avantair program participants trip from the first phone call to completion of the trip at the final destination:



| |  |  | Owner Services
| | - |  | --------------



| |  |  | Pilot Services
| | - |  | --------------



| |  |  | Flight Specialists
| | - |  | ------------------



| |  |  | Flight Following
| | - |  | ----------------

After a purchase with Avantair in one of our various programs, an owner is assigned an Owner Services Team. This team



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assists the owner in scheduling flights and making necessary arrangements based on the owners flight requirements, including coordinating with Avantairs Operations Control Center.

The flight scheduling process begins when an owner contacts the owners Owner Services Team. The team member will ask
for all details of the proposed trip, including airport of departure and arrival as well as fixed base operation preference. This department also handles any ground transportation and/or catering orders.

The trip request is subject to an approval process with a Flight Specialist. After approval, the trip is entered into Avantairs
flight scheduling and optimization software by Owner Services. The trip request is then delivered to the owner for approval. This is used as a quality control so that Avantair is sure it has all the correct details of the owners trip. After a
signed confirmation is received from the owner, Owner Services will confirm this trip reservation in the flight scheduling and optimization software. The night before and the morning of the trip, Owner Services reconfirms all ground and/or catering
requests for quality control.

The day before the trip, the flights will be assigned to an Avantair aircraft by the Flight
Specialist. The Flight Specialist then confirms the availability and location of the aircraft for the next day in an effort to ensure that the owner gets the optimal schedule with the least amount of repositioning time. This confirmation process
also takes into consideration the crew duty, rest and flight time regulations.

The job of Pilot Services is to schedule
pilots for flights and arrange accommodations for pilots away from their base of operations. Pilot Services is also responsible for the crew scheduling of all aircraft.

Flight Following tracks all current flights that are in progress through direct contact with the crew and through the flight scheduling and optimization software. Flight Following monitors weather
conditions and other situations which may lead to delays, and works with the flight crews and the Operations Control Center to resolve delays as quickly as possible.

Pilot Recruitment and Training

Avantair selects and hires pilots based on
a detailed screening process, including interviews, assessments of the candidates knowledge of Avantairs aircraft, applicable regulations and flight skills, and background checks. All pilots are initially hired into first officer
positions. Minimum requirements for initial hires include:



| |  |  | 2,500 hours of total flight time;
| | - |  | ---------------------------------



| |  |  | 1,000 multi-engine flight hours; and
| | - |  | ------------------------------------



| |  |  | Recent flight time commensurate with experience.
| | - |  | ------------------------------------------------

All pilots must complete FAA required and approved ground and flight training prior to flying any flight leg for any of Avantairs fractional owners. Further, all of Avantairs pilots must
fulfill ongoing training requirements. Actual average experience of pilot hires significantly exceeds these minimum requirements.

Aircraft
Maintenance

Avantair aircraft maintenance follows a schedule of inspections based on the numbers of hours flown at the
recommendation of the aircraft manufacturer and approval of the FAA. This schedule consists of four levels of inspection - A, B, C and D checks. An A check occurs at every 150 flight hours; a B check at every 600 flight hours; a C check at every
1,500 flight hours; and a D check at every 3,000 flight hours. The scheduled maintenance events, as well as unanticipated events, result in an average downtime of one day for A checks, two days for B checks, five days for C checks and twenty-one
days for D checks. As a condition of employment, all of Avantairs maintenance technicians must have an FAA license and are subject to a background check and drug screening prior to employment. Avantairs Lead Technicians and Supervisors
attend the FAA-approved Piaggio factory training program at Flight Safety. In addition, training is provided at the Rockwell Collins factory school as well as Pratt & Whitney Powerplant (engine) school. Avantairs main maintenance base
and its Maintenance Control Center, which oversees and coordinates all maintenance activity on Avantairs aircraft, are located in Clearwater, Florida and are staffed 24 hours a day and seven days a week. The average years of experience is over
11 years for Avantairs maintenance technicians, 14 years for its maintenance controllers and over 17 years for its maintenance quality control staff.

In April 2008, the Company terminated its Airframe Maintenance contract with its third party vendor and began to manage the Airframe Maintenance Program on an internal basis. In January 2009, the Company
replaced a former engine service vendor with another nationally recognized, FAA certified engine maintenance vendor.

Competition

Avantair faces competition from other fractional aircraft operations. Avantairs primary competitors are NetJets (a
subsidiary of Berkshire Hathaway), Flight Options, FlexJet (a Bombardier subsidiary), and CitationShares (which is 75.0% owned by Cessna, a wholly-owned Textron subsidiary). None of these competitors are publicly traded stand-alone entities like
Avantair and all of these



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competitors are significantly larger than Avantair and with more resources. Some of these companies are subsidiaries of business jet manufacturers, which Avantairs management believes may
hamper their flexibility in purchasing aircraft. According to AvData, the North American fractionally owned fixed-wing aircraft fleet has grown from 8 aircraft in 1986 to an aggregate of 814 aircraft as of July 2011. According to AvData, five
companies - NetJets, Flight Options, FlexJet, CitationAir, and Avantair - account for a majority of the total market for fractional aircraft, based on unique owners. Among the five major fractional companies, NetJets has a market
share of approximately 54.0% and Flight Options, FlexJet, CitationAir have a combined market share of approximately 34.0%. According to AvData, as of July 2011, Avantair had an overall market share of 12.0%. However, in the light-cabin category
in which it competes, Avantair has a market share of approximately 32.0%, the largest among the five major fractional companies.

Avantair and other fractional airlines also face competition from charter airlines, air taxis and commercial airlines. Some of these competitors offer greater selection of aircraft (including jet
aircraft) and some permit owners to fly greater distances or at greater speeds, travel with a greater number of passengers and on shorter advance notice before flying.

Avantairs management believes that fractional and flight hour card aircraft operators compete on the basis of aircraft model and features, price, customer service and scheduling flexibility.
Avantairs management believes that customers are generally willing to continue to use the same aircraft operator so long as such operator provides satisfactory service with competitive pricing. Avantairs management believes that the
quality of its aircraft and service, and the value it provides to its customers, enables it to compete effectively against its larger competitors.

Government and Other Regulations

Avantair, like all air carriers, is
subject to extensive regulatory and legal compliance requirements, both domestically and internationally. In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect aircraft operations. The FAA
regulates Avantairs activities, primarily in the areas of flight operations, maintenance, and other safety and technical matters. FAA requirements cover, among other things, security measures, collision avoidance systems, airborne windshear
avoidance systems, noise abatement and other environmental concerns, and aircraft safety and maintenance procedures. Specifically, the FAA may issue mandatory orders, relating to, among other things, the grounding of aircraft, inspection of
aircraft, installation of new safety-related items and removal and replacement of aircraft parts that have failed or may fail in the future.

The FAA also has authority to issue air carrier operating certificates and aircraft airworthiness certificates and regulate pilot and other employee training, among other responsibilities. Avantairs
management of fractional aircraft is regulated by the FAA under Part 91, subpart K of the Federal Aviation Regulations (FARs), and the FAA has issued Management Specifications reflecting Avantairs authority to manage such aircraft.
In some cases, including all current international operations, the FAA deems Avantair to transport persons or property by air for compensation. Such charter operations are regulated under Part 135 of the FARs, and Avantairs
authority to conduct those operations is reflected in an Air Carrier Operating Certificate with operating specifications. Both types of FAA authority potentially are subject to amendment, suspension or revocation. From time to time, the FAA issues
rules that require aircraft operators to take certain actions, such as the inspection or modification of aircraft and other equipment.

Avantairs charter operations under Part 135 also are subject to economic regulation by the U.S. Department of Transportation (DOT). To retain its DOT registration as an air taxi,
Avantair must remain a U.S. citizen; that is, U.S. citizens must actually control Avantair, at least 75.0% of Avantairs outstanding voting stock must be owned and controlled by U.S. citizens, and the President and two-thirds of the directors
and other managing officers must be U.S. citizens. Avantairs organizational documents provide for the automatic reduction in voting power of common stock owned or controlled by non-U.S. citizens if necessary to maintain U.S. citizenship. If
Avantair cannot maintain its U.S. citizenship, it would lose its ability to conduct its charter operations (though not its fractional program manager operations).

Aircraft operators also are subject to various other federal, state and local laws and regulations. The Department of Homeland Security (DHS) has jurisdiction over virtually all aspects of
civil aviation security and arrivals into and departures from the United States. Avantair is also subject to inquiries by the DOT, the FAA, and other U.S. and international regulatory bodies.

Environmental Regulation

Many aspects of Avantairs operations also
are subject to increasingly stringent federal, state, local and foreign laws and regulations protecting the environment concerning emissions to the air, discharges to surface and subsurface waters, safe drinking water, and the management of
hazardous substances, oils, and waste materials. Future regulatory developments in the U.S. and abroad could require aircraft operators to take additional action to maintain compliance with applicable laws. For example, potential future actions that
may be taken by the U.S. government, foreign governments, or the International Civil Aviation Organization to limit the emission of greenhouse gases by the aviation sector are unknown at this time but could require significant action from aircraft
operators in the future.

Avantair is also subject to other environmental laws and regulations, including those that require
it to remediate soil or groundwater to meet certain objectives. Under the federal Comprehensive Environmental Response, Compensation and Liability Act (commonly known as Superfund) and similar environmental cleanup laws, generators of
waste materials, and owners or operators of



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facilities, can be subject to liability for investigation and remediation costs at facilities that have been identified as requiring response actions. Certain operations of Avantair are also
subject to the oversight of the Occupational Safety and Health Administration (OSHA) concerning employee safety and health matters. Avantair also conducts voluntary remediation actions. Environmental cleanup obligations can arise from, among other
circumstances, the operation of fueling facilities, and primarily involve airport sites. Future costs associated with these activities are not expected to have a material adverse effect on Avantairs business.

Risk of Loss and Liability Insurance

The operation of any fractional aircraft business includes risks such as mechanical failure, physical damage, collision, property loss or damage due to events beyond the operators control. Avantair
carries an all-risk aviation insurance policy (subject to standard aviation exclusions and provisions) which offers protection for physical damage to the hull, bodily injury to passengers, as well as third party bodily injury and property damage.
While Avantair believes that its present insurance coverage is adequate, there are dollar limits to its coverage and not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that Avantair will always be
able to obtain adequate insurance coverage at reasonable rates.

Employees

As of June 30, 2011, Avantair had approximately 530 full-time employees, 54 of whom were management and 476 of whom were operational,
the majority of which were pilots. Avantair believes that it has good relations with its employees.

Item 1A.
RISK FACTORS

You should carefully consider the risks described below before making a decision to buy our common stock.
If any of the following risks actually occurs, our business, financial condition and results of operations could be harmed. In that case, the trading price of our common stock could decline and you might lose all or part of your investment in our
common stock. You should also refer to the other information set forth in this Annual Report on Form 10-K, including our financial statements and the related notes.

Risks Related to Our Business

Avantair has a history of losses and may
not be able to generate sufficient net revenue from its business in the future to achieve or sustain profitability and positive cash flows.

Avantairs revenues are largely derived from the sales and leases of fractional interests and flight hour cards in aircraft and monthly management fees. The Company has obtained positive income from
operations in certain years such as fiscal years 2010 and 2009, however it has not been sufficient to cover interest expense related to the costs of financing aircraft and therefore, has incurred losses since inception. Avantairs consolidated
financial statements have been prepared assuming that Avantair will continue as a going concern. This basis of accounting contemplates the recovery of the Companys assets and the satisfaction of its liabilities in the normal course of
business. Successful transition to profitable operations is dependent upon obtaining a level of sales adequate to support the Companys cost structure and an uninterrupted delivery of aircraft. The Company has suffered recurring losses
resulting in a stockholders deficit of approximately $44.0 million and a working capital deficiency of $63.9 million as of June 30, 2011. As of June 30, 2010 the Company had a stockholders deficit of $32.2 million and a working
capital deficiency of $43.9 million. Historically, the Company has been able to finance operations from the capital obtained through the Reverse Merger which was completed on February 22, 2007, the November 2007 private placement of Series A
Convertible Preferred Stock which raised gross proceeds of $15.2 million and the June, September and October 2009 private placements of Common Stock which raised net proceeds of $1.3 million, $0.6 million and $7.3 million, respectively. Management
intends to continue to finance the operations of the Company through future cash flows from operations and future financings. However, Avantairs expenses are expected to increase as it acquires additional aircraft and expands its operations,
and there is no assurance that Avantair will be able to obtain sufficient financing (or financing on acceptable terms) or earn sufficient revenues to generate positive cash flow and attain profitability. The Company is focused on aligning its
resources on its core strategy, and has also identified key areas for expense and cost savings that will improve our financial results, but will not impact pilot operations, maintenance or customer service.

While, as discussed above in the Industry Overview section, the Company believes that a number of its expenses will decrease
(either on an absolute basis or on a relative basis) as its business reaches a critical mass, this belief could prove to be incorrect. In addition, the Companys business may never reach a critical mass and, therefore, never realize the
resulting benefits.

If Avantair is unable to fund its operations and capital expenditures, Avantair may not be able to
continue to acquire additional aircraft, which would have a material adverse effect on its business.

Avantair has
experienced significant negative cash flow since its inception. In order to fund Avantairs operations and capital expenditures, Avantair may be required to incur borrowings or raise capital through the sale of debt or equity securities. The
Companys ability to borrow or access the capital markets for future offerings may be limited by its financial condition at the time of any such offering as well as by adverse market conditions resulting from, among other things, general
economic conditions and contingencies and uncertainties that are beyond our control. Avantairs failure to obtain the funds for necessary future capital expenditures would limit its ability to acquire additional inventory of aircraft and could
have a material adverse effect on our business,



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results of operations and financial condition.

Avantair may not be
able to generate sufficient cash flows to meet its debt service obligations or other financial obligations.

Avantairs ability to make payments on its indebtedness and acquire additional aircraft will depend on its ability to generate cash
from its future operations. As of June 30, 2011 and 2010, Avantair had incurred an aggregate of approximately $29.1 million and $30.8 million, respectively, in short and long-term indebtedness to third party lenders. Much of this indebtedness
is secured by some or all of Avantairs assets. In addition, as of June 30, 2011, the Company had contractual commitments to purchase 51 additional Piaggio Avanti II aircraft through 2013 with a mutual understanding that the aircraft
delivery dates can be extended. The total commitment, including a proposed price escalation, is valued at approximately $323 million. Avantairs business may not generate sufficient cash flow from operations or from other sources sufficient to
enable it to repay its indebtedness and to fund its other liquidity needs, including capital expenditure and aircraft acquisition requirements. Avantair may need to refinance or restructure all or a portion of its indebtedness or other financial
obligations on or before maturity. Avantair may not be able to refinance any of its indebtedness on commercially reasonable terms, or at all. If Avantair cannot service or refinance its indebtedness or restructure its other financial obligations, it
may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, any of which could have a material adverse effect on our operations. Additionally, Avantair may not be able to effect such
actions, if necessary, on commercially reasonable terms, or at all.

Avantair has experienced a substantial decrease in the
number of fractional aircraft share sales and may not be able to obtain acceptable customer contracts covering all of the fractional interests of its new aircraft, a sufficient number of flight hour cards and/or Axis Club Memberships, or a
combination thereof, which could adversely affect our cash flows and profitability and may incur losses by expanding its business during an economic downturn.

Since the beginning of the current economic downturn, the Company has experienced a decrease in the number of fractional aircraft share sales, with fractional aircraft shares sold decreasing 50.0% to 19
during fiscal year 2011 from 38 in fiscal year 2009. At June 30, 2011, the Company has 25.5 fractional aircraft shares available for sale. In fiscal 2011, the Company incurred approximately $1.7 million in interest expense on floor-plan
arrangements securing two aircraft underlying the 25.5 fractional aircraft shares available for sale, and will incur approximately $65,000 in interest expense per floor plan per month until the related aircraft are fully fractionalized. The Company
believes that the decrease in fractional aircraft share sales is due to capital constraints on, and reluctance to commit to long-term expenditures by, individuals and companies who are potential customers. In contrast, the Company has
experienced an increase in fractional leases and flight hour time card sales which allow customers to fly privately without the capital commitment, and in the case of flight hour time cards, without long-term obligations of fractional ownership or
leases. This increase in flight hour time card sales requires an increase in the Companys aircraft fleet in order to meet demand, with the Company bearing all of the financing risk in respect of the additional aircraft. During the
current economic downturn, general credit market conditions have tightened, including credit necessary to acquire additional aircraft. The Company may not be able to secure sufficient financing for its fleet expansion due to the current economic
downturn and the tightening credit conditions, or generate sufficient revenue from short-term flight hour time card sales to satisfy the cost of financing the acquisition of additional aircraft. If the Company is unable to secure sufficient
financing at reasonable terms or to continue to generate sufficient revenue from flight hour time card sales and fractional leases to cover the costs of such additional aircraft, the Companys financial performance may be adversely affected.

Avantair is dependent upon key personnel whose loss may adversely impact Avantairs business.

Avantair depends on the expertise, experience and continued services of its senior management employees, especially Steven Santo, its
Chief Executive Officer (CEO). Mr. Santo has acquired specialized knowledge and skills with respect to Avantair and its operations and most decisions concerning the business of Avantair will be made or significantly influenced by him. Avantair
does not maintain life insurance with respect to Mr. Santo, or any other of its executives. The loss of Mr. Santo, or other senior management employees, or an inability to attract or retain other key individuals, could materially adversely
affect the Company. The Company seeks to compensate and incentivize its key executives, as well as other employees, through competitive salaries and bonus plans, but there can be no assurance that these programs will allow Avantair to retain key or
hire new employees. As a result, if Mr. Santo, or other senior management were to leave Avantair, the Company could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any such successors
obtain the necessary training and experience. On September 24, 2009, Avantair entered into a three-year employment agreement with Mr. Santo, effective that same day. However, there can be no assurance that a successor employment agreement
will be entered into with Mr. Santo following this three year term or that the terms of this employment agreement will be sufficient to retain Mr. Santo.

Avantairs management systems and personnel may not be sufficient to effectively manage its growth.

Avantairs growth strategy involves increasing the number of available aircraft, fractional share owners and flight hour card and membership program participants. Achieving Avantairs growth
strategy is critical in order for its business to achieve economies of scale and to achieve profitability. Any condition that would deny, limit or delay its ability to acquire additional aircraft, sell fractional shares and sell flight hour cards or
memberships in the future will constrain Avantairs ability to grow. Acquiring additional aircraft, selling fractional shares and selling flight hour cards or memberships requires Avantair to commit a substantial amount of



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resources. Expansion is also dependent upon Avantairs ability to maintain a safe and secure operation and will require additional personnel, equipment and facilities.

An inability to hire and retain personnel, timely secure the required equipment and facilities in a cost-effective manner, efficiently
operate Avantairs expanded facilities, or maintain the necessary regulatory requirements may adversely affect Avantairs ability to achieve its growth strategy. There can be no assurance that Avantair will be able to successfully expand
its business in this increased competitive environment, and if Avantair fails to do so, its business could be harmed.

Expansion of Avantairs business may also strain its existing management resources and operational, financial and management
information systems to the point that they may no longer be adequate to support its operations, requiring Avantair to make significant expenditures in these areas. Avantair will need to develop further financial, operational and management reporting
systems and procedures to accommodate future growth and reporting requirements under Section 404 of the Sarbanes Oxley Act of 2002 (including pursuant to other applicable securities laws). There can be no assurance that Avantair will be able to
develop such additional systems or procedures to accommodate its future expansion on a timely basis, and the failure to do so could harm its business.

The aviation industry has inherent operational risks that may not be adequately covered by Avantairs insurance.

Avantair maintains insurance on its aircraft for risks commonly insured against by aircraft owners and operators, including hull physical damage liability, third-party liability, airport premises
liability, war risk liability and ground hangar keepers liability coverage. Avantair can give no assurance that Avantair will be adequately insured against all risks or that its insurers will pay a particular claim. Even if its insurance
coverage is adequate to cover its losses, Avantair may not be able to timely obtain a replacement aircraft in the event of a loss. Furthermore, in the future, Avantair may not be able to obtain adequate insurance coverage at reasonable rates for its
fleet. Avantairs insurance policies will also contain deductibles, limitations and exclusions which, although the Company believes that such policies are standard in the aviation industry, may nevertheless increase its costs. Moreover, certain
accidents or other occurrences may result in intangible damages (such as damages to reputation) for which insurance may not provide an adequate remedy.

A default under Avantairs indebtedness may have a material adverse effect on Avantairs financial condition.

In the event of a default under certain of Avantairs indebtedness, the holders of the indebtedness generally would be able to declare all of such indebtedness, together with accrued interest, to be
due and payable. In addition, borrowings under certain of Avantairs indebtedness are secured by a first priority lien on all of its assets, and, in the event of a default, the lenders generally would be entitled to seize the collateral. In
addition, default under certain debt instruments could in turn permit lenders under other debt instruments to declare borrowings outstanding under those other instruments to be due and payable pursuant to cross default clauses. Accordingly, the
occurrence of a default under any debt instrument, unless cured or waived, would likely have a material adverse effect on Avantairs business and Avantairs results of operations.

Avantairs loan agreements contain restrictive covenants that will limit Avantairs liquidity and corporate activities.

Avantairs loan agreements impose operating and financial restrictions that will limit Avantairs ability to:



| |  |  | create additional liens on its assets;
| | - |  | --------------------------------------



| |  |  | make investments;
| | - |  | -----------------



| |  |  | engage in mergers or acquisitions;
| | - |  | ----------------------------------



| |  |  | pay dividends; and
| | - |  | ------------------



| |  |  | sell any of Avantairs aircraft or any other assets outside the ordinary course of business.
| | - |  | --------------------------------------------------------------------------------------------

Therefore, Avantair will need to seek permission from its lenders in order for Avantair to engage in some corporate actions.
Avantairs lenders interests may be different from those of Avantair, and no assurance can be given that Avantair will be able to obtain its lenders permission when needed. This may prevent Avantair from taking actions that are in
its best interest.

Avantairs dependence on Piaggio Avanti aircraft and its manufacturer poses a significant risk to
Avantairs business and prospects.

As part of the Companys business strategy, Avantair has historically sold
and flown only Piaggio Avanti aircraft. The type of aircraft sold and operated by Avantair is the product of a single manufacturer. If the Piaggio Avanti manufacturer faced production delays due to, for example, natural disasters or labor strikes,
Avantair may experience a significant delay in the delivery of previously ordered aircraft and parts, which would adversely affect its revenues and profitability and could jeopardize its ability to meet the demands of its customers. Avantair is
currently negotiating a Parts Agreement with the Piaggio Avanti aircraft manufacturer which, if completed, will further increase Avantairs reliance on this manufacturer. This agreement would include exclusivity with respect to certain parts
and stipulated service levels, and penalties for the manufacturers failure to meet agreed upon service levels. Although Avantair could choose to operate aircraft of other types, such a change would involve substantial expense to the Company
and could



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disrupt the Companys business activities. Avantair has limited alternatives to find alternate sources of new aircraft.

Avantairs dependence on the importation of foreign aircraft poses a significant risk to its business prospects.

Avantairs revenue and profitability are based in part on current laws and regulations regarding the exportation from Italy by
Piaggio Aero Industries S.p.A, the country of manufacture and importation into the United States of the aircraft. Current laws and regulations do not preclude the exportation from the subject manufacturers countries of operation or importation
of the aircraft into the United States, provided that all applicable statutory and regulatory requirements are satisfied. Modification of such statutes and regulations by any foreign government or any agency thereof with respect to the exportation
of the aircraft or modification of such statutes and regulations by the federal government of the United States or any agency thereof affecting the importation of the aircraft could pose a significant risk to Avantairs business operations. The
risks for Avantair associated with the modification of the exportation and importation statutes and regulations are increased due to Avantairs current dependence on the importation of foreign aircraft for the operation of its business. Piaggio
America, Inc. ensures compliance with the statutory and regulatory requirements for the importation of the aircraft into the United States prior to the Company taking delivery of the aircraft in the United States.

Avantairs reputation and financial results could be harmed in the event of an accident or incident involving its aircraft, or
aircraft of the same type.

An accident or incident involving one of Avantairs aircraft could involve significant
potential claims of injured passengers or others in addition to repair or replacement of a damaged aircraft and its consequential temporary or permanent loss from service. Although Avantair believes it currently maintains liability insurance in
amounts and of the type generally consistent with industry practice, the amount of such coverage may not be adequate and Avantair may be forced to bear substantial losses from an accident. Substantial claims resulting from an accident in excess of
Avantairs related insurance coverage would harm its business and financial results. Moreover, any aircraft accident or incident, even if fully insured, could cause a public perception that Avantair or the Piaggio Avanti aircraft is less safe
or reliable than other competitors, which would harm Avantairs business. In addition, any accident involving the Piaggio Avanti aircraft type, even if the aircraft involved is not operated by Avantair, could also cause a public perception that
Avantair or the Piaggio Avanti aircraft is less safe or reliable than other competitors, which would harm Avantairs business.

The fractional aircraft industry is competitive.

Avantair competes with
national airlines, regional airlines, charter carriers, other fractional aircraft ownership operators, and particularly on shorter routes, ground transportation. According to AvData, the North American fractionally owned fixed-wing aircraft fleet
has grown from 8 aircraft in 1986 to an aggregate of 814 aircraft as of July 2011. According to AvData, five companies - NetJets, Flight Options, FlexJet, CitationAir, and Avantair - account for a majority of the total market for fractional
aircraft, based on unique owners. Among the five major fractional companies, NetJets has a market share of approximately 54.0% and Flight Options, FlexJet, CitationAir have a combined market share of approximately 34.0%.
According to AvData, as of June 2011, Avantair had an overall market share of 12.0%. However, in the light-cabin category in which it competes, Avantair has a market share of approximately 32.0%, the largest among the five major fractional
companies.

Many of Avantairs competitors have been in business far longer than Avantair and have significantly greater
financial stability, access to capital markets and name recognition. In addition, some of our competitors offer a greater selection of aircraft (including jet aircraft), some of which permit owners to fly greater distances or at greater speeds,
travel with a greater number of passengers and on shorter advance notice before flying. Unanticipated shortfalls in expected revenues as a result of price competition or in delivery delays by suppliers would negatively impact our financial results
and harm Avantairs business. There is no assurance that Avantair will be able to successfully compete in this industry.

Restriction on foreign ownership and possible required divestiture of stock may impact Avantairs stock price.

In some cases, including all current international operations, Avantair is deemed to transport persons or property by air for
compensation, and Avantair accordingly is regulated by the FAA and the U.S. Department of Transportation as an on demand air carrier. Therefore, to comply with restrictions imposed by U.S. aviation laws on foreign ownership of air carriers, the
Companys certificate of incorporation and bylaws have been amended to reflect that at least 75.0% of its voting stock is required to be held by U.S. citizens. Although Avantairs amended and restated certificate of incorporation contains
provisions limiting non-citizen ownership of its voting stock, Avantair could lose its operating certificate, which allows it to conduct aircraft operations in the U.S., if such provisions prove unsuccessful in maintaining the required level of
citizen ownership. Such loss would have a material adverse effect on Avantair. If Avantair determines that persons who are not citizens of the U.S. own more than the permitted percentage, currently 25.0%, of Avantairs voting stock, Avantair
may redeem such stock or, if redemption is not permitted by applicable law or Avantairs Board of Directors, in its discretion, elects not to make such redemption, the Company may restrict the voting rights of such excess shares. The required
redemption would be at a price equal to the average closing price during the preceding 10 trading days, which price could be materially different from the current price of the common stock, or if the Companys common stock is not traded or
quoted, at a price equal to the fair market value as determined in good faith by Avantairs Board of Directors, in each case, plus the amounts of any dividends or other distributions which may be owed to the stockholder. Avantairs
Board of Directors has not



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adopted a formula for determining fair market value as the Companys common stock is currently traded and quoted. If a non-citizen purchases the voting stock, there can be no assurance that
their stock will not be redeemed, which redemption could result in a material loss, or that they will be able to exercise full voting rights with respect to such voting stock. Such restrictions and redemption rights may make Avantairs equity
securities less attractive to potential investors, which may result in Avantairs publicly traded voting stock having a lower market price than it might have in the absence of such restrictions and redemption rights.

Avantair may decide to further reduce or vacate one or more of its FBOs, which in the near term, could negatively impact our
operating results.

In the future, Avantair may decide to further reduce or vacate its FBOs as these are not within
the Companys core strategy. If Avantair reduces or vacate its fixed based operations, it may adversely affect investor relations, maintenance, customer service and satisfaction, employee relations and vendor relations. Any one or more of these
effects could harm our financial condition, results of operations and competitive position.

In addition, further reducing or
vacating its FBOs may adversely affect Avantairs operating performance and capital structure relating to potential payment of one-time charges associated with terminating certain of its lease and other contractual obligations.

Avantairs business is subject to extensive government regulation, which can result in increased costs, delays,
limits on its operating flexibility and competitive disadvantages.

Commercial aircraft operators are subject to extensive
regulatory requirements. Many of these requirements result in significant costs. For example, the Federal Aviation Administration (FAA) from time to time issues directives and other regulations relating to the maintenance and operation of aircraft,
and compliance with those requirements drives significant expenditures.

Moreover, additional laws, regulations, taxes and
airport rates and charges have been enacted from time to time that have significantly increased the costs of commercial aircraft operations, reduced the demand for air travel or restricted the way the Company can conduct its business. For example,
the Aviation and Transportation Security Act, which became law in 2001, mandates the federalization of certain airport security procedures and imposes additional security requirements on airlines. Similar laws or regulations or other governmental
actions in the future may adversely affect Avantairs business and financial results.

Avantairs results of
operations may be affected by changes in law and future actions taken by governmental agencies having jurisdiction over Avantairs operations, including:



| |  |  | changes in the law which affect the services that can be offered by commercial aircraft operators in particular markets and at particular airports;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | restrictions on competitive practices (for example court orders, or agency regulations or orders, that would curtail a commercial aircraft
operators ability to respond to a competitor);
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the adoption of regulations that impact customer service standards (for example, new passenger security standards); or
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | the adoption of more restrictive locally-imposed noise restrictions.
| | - |  | --------------------------------------------------------------------

The FAA has jurisdiction over many aspects of Avantairs business, including personnel, aircraft and ground facilities. Avantair is
required to have an FAA Air Carrier Operating Certificate to transport personnel and property for compensation in aircraft it operates directly. The FAA certificate contains operating specifications that allow Avantair to conduct its present
operations, but it is potentially subject to amendment, suspension or revocation in accordance with procedures set forth in federal aviation laws. The FAA is responsible for ensuring that Avantair complies with all FAA regulations relating to the
operation of its aviation business, and conducts regular inspections regarding the safety, training and general regulatory compliance of its aviation operations. Additionally, the FAA requires Avantair to file reports confirming our continued
compliance.

Many aspects of Avantairs operations are subject to foreign laws and regulations protecting the
environment, in addition to federal, state and local laws. The Company does not anticipate that the costs of compliance with current environmental regulations will have a material adverse effect on our business. However, the cost of compliance with
any future environmental regulations is unknown and may have a material effect. Although the Company believes its aircraft produce 35.0% less carbon emissions than its competitors aircraft, based upon fuel usage rates of the Piaggio Avanti
aircraft as compared to other aircraft in the light jet category as derived from data compiled by the Halogen Guide, February 2007 issue, it could be impacted significantly if more stringent environmental laws and regulations related to
aircraft emissions were imposed.

Avantair could be adversely affected by a failure or disruption of its computer,
communications or other technology systems.

Avantair is highly dependent on its computer systems and call center software
to operate its business. The systems and software on which Avantair relies to manage the scheduling and monitoring of its flights could be disrupted due to events beyond Avantairs control, including natural disasters, power failures, terrorist
attacks, equipment failures, software failures and computer



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viruses and hackers. Further, the vendors of Avantairs scheduling software are small businesses and for one of these vendors highly dependent on the services of its founder. Any substantial
or repeated failure of Avantairs systems or software could impact Avantairs operations and customer service, result in a disruption in flight scheduling, the loss of important data, loss of revenues, increased costs and generally harm
its business. Moreover, a catastrophic failure of certain of Avantairs vital systems could limit its ability to operate flights for an indefinite period of time, which would have a material adverse impact on Avantairs business.

Sales of fractional interests and flight hour cards in excess of available fleet capacity could adversely affect
Avantairs business.

Since fractional shareowners generally desire to enter a fractional program when they make
their decision to purchase a fractional share, it is difficult for a fractional operator to pre-sell many shares in advance of receipt of additional aircraft. Flight hour card, Axis Club Membership program and Axis Lease Program participants often
likewise purchase their flight hour cards and begin utilizing the services within a short time thereafter. An aircraft fleet provides a finite level of capacity, and the addition of significant additional share owners and flight hour card users to
the usage base may require an increase in charter usage, which may not be economical. If Avantair does not adequately manage the sales process and sells shares or timecards in excess of its available capacity, its business could be adversely
affected.

Avantairs business could be adversely affected by a failure to attract and retain qualified pilots and
other operations personnel. In addition, if any of our pilot or mechanic personnel groups were to establish a collective bargaining agreement, it may increase the Companys operational costs.

Avantairs ability to attract and retain qualified pilots, mechanics, and other highly trained personnel will be an important factor
in determining Avantairs future success. Many of Avantairs customers require pilots of aircraft that service them to have high levels of flight experience. The market for these experienced and highly trained personnel is extremely
competitive. If Avantair is unable to attract and retain such persons, flight operations may be disrupted, which could have a negative effect on its results.

While our pilot or mechanic personnel groups are not currently represented by labor unions, we have and may in the future from time to time experience union organizing activities. Such organizing
activities could lead to work slowdowns or stoppages, which could result in loss of business. In addition, union activity could result in higher labor costs, which could harm our financial condition, results of operations and competitive position.

Avantairs business is affected by many changing political and economic conditions beyond its control which may
adversely affect its results of operations.

Ownership of fractional shares and flight hour cards is likely considered a
luxury item to consumers, especially compared to the costs associated with commercial air travel. As a result, a general downturn in economic, business and financial conditions, including the current recession, inflation and higher interest rates,
could have an adverse effect on consumers spending habits and could cause them to travel less frequently and, to the extent they travel, to travel using commercial air carriers or other means considered to be more economical than owning a
fractional interest, flight hour card, and/or membership in a fractional aircraft program.

Since 2008 and in connection with
weakened macroeconomic conditions, the corporate and executive jet aviation industry, and companies that utilize corporate jets, has come under more intensified political and media scrutiny. In 2008, the political administration criticized US
automobile executives for their use of corporate aircraft in connection with providing congressional testimony. Since then, the political administration has indicated that it may curtail tax incentives and increase fees related to private aviation.
If this were to occur, it could harm the fractional aircraft industry, our financial condition and our results of operations.

The operation of aircraft is dependent on the price and availability of fuel. Continued periods of historically high fuel costs may
materially adversely affect Avantairs operating results.

Avantairs operating results may be significantly
impacted by changes in the availability or price of fuel for aircraft operated by Avantair. Fuel prices have fluctuated significantly since 2004 and although Avantair is currently able to obtain adequate supplies of fuel, it is impossible to predict
the price of fuel. Political disruptions or wars involving oil-producing countries, changes in government policy, changes in fuel production capacity, environmental concerns and other unpredictable events may result in fuel supply shortages and
additional fuel price increases in the future. Furthermore, Avantair bears the entire cost of fuel when repositioning aircraft and for satisfying flight hour card sale demands of flight hour cards sold before May 16, 2011. There can be no
assurance that Avantair will be able to fully recover its increased fuel costs by passing these costs on to its customers. In the event that Avantair is unable to do so, Avantairs operating results will be adversely affected.

Avantairs reliance on current laws and regulations with respect to the opportunity to conduct sales with foreign customers and
flights to currently permitted areas poses a significant risk to its business prospects.

Avantairs revenue and
profitability are based in part on current laws and regulations by the federal government of the United



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States and the agencies thereof, including but not limited to the Department of Homeland Security, the Department of State, the Department of Commerce and the Department of the Treasury, allowing
sales to and provision of services for foreign persons and flights to foreign locations that are permissible under current laws and regulations. Modification of such statutes and regulations could pose a significant risk to Avantairs business
operations by reducing the pool of potential customers through the preclusion of foreign persons and the locations of permissible flights.

In addition, Avantiar is currently advising certain entities in international markets on fractional ownership operation and may increase this aspect of its business. These international operations are,
have been and may be subject to a number of risks, including:



| |  |  | political and economic instability (including acts of terrorism, widespread criminal activities and outbreaks of war);
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | coordinating our communications and logistics across geographic distances and multiple time zones;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | unexpected changes in regulatory requirements and laws or government or judicial interpretations of such regulatory requirements and laws;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | longer customer payment cycles and difficulty collecting accounts receivable; and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | fluctuations in currency exchange rates, which could affect local payroll and other expenses;
| | - |  | ---------------------------------------------------------------------------------------------

Also, entry into new international markets may require considerable management time as well as start-up expenses for market development,
hiring and establishing facilities before any significant revenue is generated. As a result, initial operations in a new market may operate at low margins or may be unprofitable.

Another significant legal risk resulting from our international operations is compliance with the U.S. Foreign Corrupt Practices Act
(FCPA). In many foreign countries, particularly in those with developing economies, it may be a local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA or other U.S. laws and
regulations. Although we have implemented policies and procedures designed to cause compliance with the FCPA and similar laws, there can be no assurance that all of our employees and agents will not take actions in violation of our policies. Any
such violation, even if prohibited by our policies, could have a material adverse effect on our business.

Risks Related to Our Common
Stock

There will be a substantial number of shares of Avantairs common stock available for sale in the future
that may be dilutive to its current stockholders and may cause a decrease in the market price of its common stock.

As of
June 30, 2011, the Company had 26,418,246 shares of common stock outstanding, 2,069,066 shares of common stock available for future issuance under its 2006 Long-Term Stock Incentive Plan and warrants to purchase 2,811,507 shares outstanding. In
addition, as of June 30, 2011, the Company has 152,000 shares of Series A Preferred Shares outstanding. As of June 30, 2011, the Company has 4,251,857 shares of common stock reserved on its books and records for issuance upon the
conversion of the outstanding Series A Preferred Shares. As a result of the sales of shares consummated on June 30, September 25, and October 16, 2009, the conversion price of the Series A Preferred Shares was reduced from $5.15 to
$3.57.

Future sales or issuances of the Companys common stock or securities convertible into common stock, the
perception such sales or issuances may occur or the availability for sale in the public market of substantial amounts of our common stock could adversely affect the prevailing market price of our common stock and could impair our ability to raise
capital through future sales of equity securities at a time and price that we deem appropriate.

Avantairs shares of
common stock may become subject to the SECs penny stock rules and broker-dealers may experience difficulty in completing customer transactions and trading activity in its securities may be adversely affected.

If at any time Avantair has net tangible assets of $5.0 million or less and its ordinary shares have a market price per share of less
than $5.00, transactions in its ordinary shares may be subject to the penny stock rules promulgated under the Securities Exchange Act of 1934. Under these rules, broker-dealers who recommend such securities to persons other than
institutional accredited investors must:



| |  |  | make a special written suitability determination for the purchaser;
| | - |  | -------------------------------------------------------------------



| |  |  | receive the purchasers written agreement to a transaction prior to sale;
| | - |  | -------------------------------------------------------------------------



| |  |  | provide the purchaser with risk disclosure documents that identify certain risks associated with investing in penny stocks and that
describe the market for these penny stocks as well as a purchasers legal remedies; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure
document before a transaction in a penny stock can be completed.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If Avantairs shares of
common stock become subject to these rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in its securities may be adversely affected. As a result, the market price of the securities



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may be depressed, and you may find it more difficult to sell the securities.

Avantair has been unable to receive a listing of its securities on NASDAQ or another national securities exchange and this may make it more difficult for its stockholders to sell their securities or
for the Company to raise additional capital through the sale of its securities.

Shares of Avantairs common stock
and units are currently traded in the over-the-counter market and quoted on the OTCBB. The Companys common stock and units are not currently eligible for inclusion in The NASDAQ Stock Market. If the Company is unable to receive a listing or
approval of trading of securities on NASDAQ or another national securities exchange, then it may be more difficult for stockholders to sell their securities.

Under the October 16, 2009 Securities Purchase and Exchange Agreement, the Company has agreed to use its commercially reasonable best efforts to qualify for the listing of the outstanding common
stock on the NASDAQ Capital Market as promptly as practicable. In order to complete a listing on the NASDAQ Capital Market, the Company may be required to complete a reverse split of its common stock to satisfy the minimum per share price
requirement for initial listing on that market. The consummation of a reverse split will reduce the number of outstanding shares of the Companys common stock and may adversely affect the trading price and liquidity of the Companys common
stock. The Company cannot provide assurance that a reverse stock split will increase the trading price of its common stock. Even if a reverse stock split is completed, the Company may be unable to qualify its common stock for listing on the NASDAQ
Capital Market, or to maintain such a listing if initially qualified.

Item 1B. Unresolved Staff Comments

There are no unresolved written comments that were received from the SEC staff 180 days or more before the fiscal year
ended June 
30, 2011 relating to our periodic or current reports filed under the Securities Exchange Act of 1934.

Item 
2. Facilities

Avantair leases its corporate headquarters and hangar space, which is approximately 125,000 square feet at
4311 General Howard Drive, Clearwater, Florida under one lease that expires on April 30, 2020, with the option to extend until September 2025. In addition, Avantair currently leases the following principal properties:



| |  |  | approximately 65,258 square feet of office and hangar space at 575 Aviation Drive, Camarillo, California under a lease that expires on August 1,
2021
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | approximately 17,752 square feet of office and hangar space at 125 Passaic Avenue, Caldwell, New Jersey under a lease that expires on October 31,
2018; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | approximately 5,880 square feet of office and hangar space at 7515 Lemon Avenue, Dallas, Texas under a lease that expires December 14, 2013
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

Item 3. Legal Proceedings

From time to time, the Company is party to various legal proceedings in the normal course of business. It is expected that these claims
would be covered by insurance subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. As of June 30, 2011, there were no legal proceedings which
the Company would anticipate having a material adverse effect on its financial position, results of operations or cash flows.



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PART II

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

PRICE RANGE OF SECURITIES AND DIVIDENDS

Avantairs common stock is traded on the Over-the-Counter Bulletin Board under the symbol AAIR. The following table sets forth the
range of high and low closing bid prices for the common stock for the periods indicated. The over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual
transactions. On June 30, 2011, the last reported sale price of our shares was $1.88 per share. As of June 30, 2011, there were approximately 63 shareholders of record of the common stock.



|               |  |              |      |  |     |  |      | 
|-------------- |  | ------------ | ---- |  | --- |  | ---- | 
|               |  | Common Stock |     
|Quarter Ended  |  | High         |      |  | Low | 
|               |  |             
|2010           |  |              |      |  |     |  |      | 
|First Quarter  |  |              | 1.65 |  |     |  | 1.20 | 
|Second Quarter |  |              | 2.05 |  |     |  | 1.00 | 
|Third Quarter  |  |              | 2.35 |  |     |  | 2.00 | 
|Fourth Quarter |  |              | 3.20 |  |     |  | 2.20 | 
|               |  |             
|2011           |  |              |      |  |     |  |      | 
|First Quarter  |  |              | 3.10 |  |     |  | 2.10 | 
|Second Quarter |  |              | 2.75 |  |     |  | 2.05 | 
|Third Quarter  |  |              | 2.64 |  |     |  | 1.80 | 
|Fourth Quarter |  |              | 2.35 |  |     |  | 1.71 | 

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its common stock. The Company currently expects to retain all future earnings for use in the operation and expansion of its business and does not
anticipate paying cash dividends in the foreseeable future. The declaration and payment of any dividends in the future will be determined by our board of directors, in its discretion, and will depend on a number of factors, including our earnings,
capital requirements and overall financial condition.

EQUITY COMPENSATION PLANS

The following table sets forth information regarding the Companys Equity Compensation Plan as of June 30, 2011:



|                                                           |  |                                                                                          |         |  |                                                                           |   |      |                                                                                                                                         |  |  |           | 
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- | ------- |  | ------------------------------------------------------------------------- | - | ---- | --------------------------------------------------------------------------------------------------------------------------------------- |  |  | --------- | 
|Plan category                                              |  | Number of securitiesto 
be issued uponexercise ofoutstanding options,warrants and rights |         |  | Weighted averageexercise 
price ofoutstandingoptions, 
warrantsand rights |   |      | Number of 
securitiesremaining available forfuture issuance underequity compensationplans 
(excludingsecuritiesreflected in column (a)) | 
|                                                           |  | (a)                                                                                      |         |  | (b)                                                                       |   |      | (c)                                                                                                                                     | 
|                                                           |  |                                                                                          |        
|Equity compensation plans approved by security holders     |  |                                                                                          | 951,100 |  |                                                                           | $ | 3.03 |                                                                                                                                         |  |  | 2,069,066 | 
|Equity compensation plans not approved by security holders |  |                                                                                          |        |  |                                                                           |   |     |                                                                                                                                         |  |  |          | 
|                                                           |  |                                                                                          |         |  |                                                                           |   |      |                                                                                                                                         |  |  |           | 
|Total                                                      |  |                                                                                          | 951,100 |  |                                                                           | $ | 3.03 |                                                                                                                                         |  |  | 2,069,066 | 
|                                                           |  |                                                                                          |         |  |                                                                           |   |      |                                                                                                                                         |  |  |           | 

The maximum number of shares of Avantairs common stock issuable in connection with the 2006
Long-Term Incentive Plan (sometimes referred to as the Plan) may not exceed 3,500,000 shares. There are 951,100 shares subject to issuance upon exercise of outstanding stock options; 479,834 shares have been issued with respect to awards
of restricted stock; and 2,069,066 remain available for future issuance under the Plan.

RECENT SALES OF UNREGISTERED
SECURITIES

On October 16, 2009, Avantair, Inc. (the Company or Avantair) entered into a
Securities Purchase and Exchange Agreement (the Purchase Agreement) with the investors party thereto (the Investors) in connection with a PIPE (Private



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Investment in a Public Entity) financing. Pursuant to the Purchase Agreement, certain new investors purchased 8,818,892 shares of common stock in a private placement for net proceeds of
approximately $7.3 million, or $9.2 million when combined with the proceeds of two prior placements consummated in June and September 2009. The Company used the net proceeds from this financing transaction to retire debt, for working capital and
general corporate purposes.

Under the terms of the Purchase Agreement, Avantair sold 8,818,892 shares of common stock to the
new investors at a price per share of $0.95. In addition, pursuant to the Purchase Agreement, the Company exchanged the 817,200 outstanding warrants that had been issued to existing investors in the two prior private placements for an aggregate
of 516,127 shares of common stock. The Purchase Agreement terminated the purchase agreement and registration rights agreement entered into in connection with the June and September 2009 private placements. The securities were issued in a
private placement in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, and Section 3(a)(9) under the Securities Act of 1933, as amended. Avantair did not engage in any general
solicitation or advertisement for the issuance of these securities.

On October 16, 2009, pursuant to an agreement
between EarlyBirdCapital (EBC) and the Company, in consideration for services rendered as placement agent for the Companys June, September and October 2009 private placements, the Company issued to EBC and its affiliates 455,887
fully vested warrants which expire on June 30, 2012. Each warrant permits the holder to purchase one share of the Companys common stock at an exercise price of $1.05 per share. The shares issuable upon exercise of the warrants are
entitled to registration rights under the October 2009 Registration Rights Agreement. The Company may redeem the warrants at any time on or after October 16, 2011 at the price of $0.01 per warrant, provided that the volume weighted average
price of the Companys common stock has been at least 200.0% of the exercise price of a warrant for any twenty trading days during any consecutive thirty trading day period ending on the third trading day preceding the date of the notice of
redemption. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as a transaction by an issuer not involving any public
offering. [In November 2010, the Company, as part of a cashless transaction, exchanged 18,000 outstanding warrants that had been issued to EBC for an aggregate of 10,687 shares of common stock.]

During the second quarter of fiscal 2010, the Company, through an arms-length transaction transferred its rights to purchase four Piaggio
Avanti II aircraft to LW Air pursuant to the existing aircraft purchase agreement between the Company and Piaggio America, Inc. Upon delivery of the aircraft, Piaggio America returned $2.6 million of deposits previously paid on the aircraft by the
Company. Simultaneous with this transaction, the Company entered into an eight-year management agreement for those aircraft and the Company issued 2,373,620 warrants to Lorne Weil, the Managing Member of LW Air.

The warrants issued in conjunction with the LW Air transactions to Lorne Weil, Managing Member of LW Air, provide for the purchase of 2,373,620 shares of
the Companys common stock at an exercise price of $1.25 per share. The warrants expire on October 16, 2012, and the warrants and any underlying shares purchased upon exercise of the warrants may not be sold, transferred, assigned or
hypothecated, in whole or in part, at any time on or prior to October 16, 2011, other than to an affiliate of the warrant holder. The Company may redeem the warrants held by Lorne Weil at any time on and after October 16, 2011 at the price
of $0.01 per warrant, provided that the volume weighted average price of the Companys common stock has been at least 300.0% of the exercise price of a warrant for any twenty trading days during any consecutive thirty trading day period ending
on the third trading day preceding the date of the notice of redemption. These warrants were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof,
as a transaction by an issuer not involving any public offering.

Item 6. Selected Financial Data

The following table presents the Companys summary historical consolidated financial information. The summary
consolidated statements of operations data for each of the two fiscal years in the period ended June 30, 2011 and 2010 and the consolidated balance sheet data as of June 30, 2011 and 2010 have been derived from our audited consolidated
financial statements included elsewhere in this report. The consolidated statements of operations data for each of the fiscal years ended June 30, 2009, 2008, and 2007 and the consolidated balance sheet information as of June 30, 2009,
2008 and 2007 was derived from our audited consolidated financial statements which are not presented herein. These historical results are not necessarily indicative of results to be expected in any future period.



18



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##### Table of Contents

Avantair, Inc. and Subsidiaries



|                                                   |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|-------------------------------------------------- |  | -------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | - |  | ---- | ----------- | - |  | - | ----------- | -
|                                                   |  | Years Ended June 30, |            
|                                                   |  | 2011                 |             |   | 2010 |   |             | 2009 |  |   | 2008        |   |  | 2007 |            
|Consolidated Statement of Operations Data          |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|                                                   |  |                      |             |   |     
|Revenue                                            |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Fractional aircraft sold and lease revenue         |  | $                    | 33,328,485  |   |      | $ | 43,756,222  |      |  | $ | 51,864,010  |   |  | $    | 43,426,696  |   |  | $ | 29,695,175  |  
|Maintenance and management fees                    |  |                      | 75,205,044  |   |      |   | 72,957,679  |      |  |   | 70,693,367  |   |  |      | 58,211,457  |   |  |   | 38,787,596  |  
|Flight hour card and club membership revenue       |  |                      | 30,725,624  |   |      |   | 20,024,602  |      |  |   | 9,384,110   |   |  |      | 7,236,151   |   |  |   | 3,607,831   |  
|Other revenue                                      |  |                      | 9,742,823   |   |      |   | 6,268,071   |      |  |   | 4,885,563   |   |  |      | 6,744,679   |   |  |   | 4,302,630   |  
|                                                   |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|                                                   |  |                      |             |   |     
|Total revenue                                      |  |                      | 149,001,976 |   |      |   | 143,006,574 |      |  |   | 136,827,050 |   |  |      | 115,618,983 |   |  |   | 76,393,232  |  
|                                                   |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|                                                   |  |                      |             |   |     
|Operating expenses                                 |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Cost of fractional aircraft shares sold            |  |                      | 29,156,635  |   |      |   | 37,317,493  |      |  |   | 44,118,352  |   |  |      | 36,637,959  |   |  |   | 24,370,988  |  
|Cost of flight operations                          |  |                      | 69,253,465  |   |      |   | 54,151,877  |      |  |   | 46,723,184  |   |  |      | 50,058,692  |   |  |   | 35,665,057  |  
|Cost of fuel                                       |  |                      | 17,104,502  |   |      |   | 14,272,477  |      |  |   | 13,349,084  |   |  |      | 16,489,422  |   |  |   | 10,192,406  |  
|Gain on sale of assets                             |  |                      |            |   |      |   | (897,595    | )    |  |   | (1,394,164  | ) |  |      | (861,410    | ) |  |   |             |  
|Write-off of aircraft deposit                      |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   | 300,000     |  
|General and administrative expenses                |  |                      | 29,550,763  |   |      |   | 25,861,629  |      |  |   | 23,628,541  |   |  |      | 20,703,120  |   |  |   | 18,540,610  |  
|Selling expenses                                   |  |                      | 6,029,517   |   |      |   | 5,116,153   |      |  |   | 3,736,424   |   |  |      | 4,670,246   |   |  |   | 4,333,268   |  
|Depreciation and amortization                      |  |                      | 4,164,460   |   |      |   | 5,471,677   |      |  |   | 5,233,250   |   |  |      | 3,624,710   |   |  |   | 2,013,530   |  
|                                                   |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Total operating expenses                           |  |                      | 155,259,342 |   |      |   | 141,293,711 |      |  |   | 135,394,671 |   |  |      | 131,322,739 |   |  |   | 95,415,859  |  
|                                                   |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|                                                   |  |                      |             |   |     
|Income (loss) from operations                      |  |                      | (6,257,366  | ) |      |   | 1,712,863   |      |  |   | 1,432,379   |   |  |      | (15,703,756 | ) |  |   | (19,022,627 | )
|                                                   |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|                                                   |  |                      |             |   |     
|Other income (expenses)                            |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Interest income                                    |  |                      | 65,356      |   |      |   | 43,959      |      |  |   | 46,073      |   |  |      | 482,666     |   |  |   | 444,179     |  
|Other income                                       |  |                      | 4,200       |   |      |   | 31,884      |      |  |   | 2,848       |   |  |      | 252         |   |  |   | 284,723     |  
|Interest expense                                   |  |                      | (4,588,111  | ) |      |   | (5,757,264  | )    |  |   | (5,942,221  | ) |  |      | (3,661,227  | ) |  |   | (3,406,181  | )
|                                                   |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Total other expenses                               |  |                      | (4,518,555  | ) |      |   | (5,681,421  | )    |  |   | (5,893,300  | ) |  |      | (3,178,309  | ) |  |   | (2,677,279  | )
|                                                   |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|                                                   |  |                      |             |   |     
|Net loss                                           |  |                      | (10,775,921 | ) |      |   | (3,968,558  | )    |  |   | (4,460,921  | ) |  |      | (18,882,065 | ) |  |   | (21,699,906 | )
|                                                   |  |                      |             |   |     
|Preferred stock dividend and accretion of expenses |  |                      | (1,477,459  | ) |      |   | (1,506,814  | )    |  |   | (1,488,071  | ) |  |      | (903,851    | ) |  |   |            |  
|                                                   |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Net loss attributable to common stockholders       |  | $                    | (12,253,380 | ) |      | $ | (5,475,372  | )    |  | $ | (5,948,992  | ) |  | $    | (19,785,916 | ) |  | $ | (21,699,906 | )
|                                                   |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|                                                   |  |                      |             |   |     
|Loss per common share:                             |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Basic and diluted                                  |  | $                    | (0.46       | ) |      | $ | (0.23       | )    |  | $ | (0.39       | ) |  | $    | (1.30       | ) |  | $ | (2.47       | )
|                                                   |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|                                                   |  |                      |             |   |     
|Weighted- average common shares outstanding:       |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Basic and diluted                                  |  |                      | 26,389,758  |   |      |   | 23,419,624  |      |  |   | 15,306,725  |   |  |      | 15,230,482  |   |  |   | 8,780,234   |  
|                                                   |  |                      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  

Avantair, Inc. and Subsidiaries



|                                |  |                |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|------------------------------- |  | -------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | - |  | ---- | ----------- | - |  | - | ----------- | -
|                                |  | As of June 30, |            
|                                |  | 2011           |             |   | 2010 |   |             | 2009 |  |   | 2008        |   |  | 2007 |            
|Consolidated Balance Sheet Data |  |                |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|                                |  |                |             |   |     
|Total assets                    |  | $              | 110,938,498 |   |      | $ | 131,637,600 |      |  | $ | 164,065,403 |   |  | $    | 204,477,455 |   |  | $ | 160,490,260 |  
|                                |  |                |             |   |     
|Long-term liabilities           |  | $              | 30,225,121  |   |      | $ | 55,000,107  |      |  | $ | 88,229,537  |   |  | $    | 123,018,837 |   |  | $ | 112,509,063 |  
|                                |  |                |             |   |     
|Stockholders deficit           |  | $              | (44,011,127 | ) |      | $ | (32,163,152 | )    |  | $ | (36,007,683 | ) |  | $    | (31,651,546 | ) |  | $ | (11,959,024 | )



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Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations

The following discussion should be read in conjunction with the consolidated financial
statements and related notes which appear elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly under the heading Risk Factors.

Overview

Avantair, Inc.
and subsidiaries (the Company) are in the business of providing private aviation services through three primary flight service programs (i) the sale of fractional ownership interests (Fractional Ownership program): (ii) the
lease of fight hours (Axis Lease program); and (iii) the sale of flight hour cards (Edge Card program and Axis Club Membership program). These services are provided on the Companys managed aircraft fleet by professionally piloted aircraft
for business and personal use. Avantairs core strategic focus is providing our customers with the highest level of safety, service and satisfaction. According to AvData, Avantair is the fifth largest company in the North American fractional
aircraft industry based on aircraft fleet size. As of June 30, 2011, Avantair operated 56 aircraft within its fleet, which is comprised of 47 aircraft for fractional ownership, 5 company-owned core aircraft and 4 leased and company-managed
aircraft. In addition, Avantair provides limited fixed based operation (FBO) services in Clearwater, FL, Camarillo, CA and Caldwell, NJ. In January 2011, the Company opened a maintenance facility in Dallas, Texas.

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

In response to market conditions and to provide further alternatives for private air travel the Company initiated
the Axis Lease program effective February 2011, which offers many of the same benefits as the Fractional Ownership program with a minimum two-year lease and is available in 25 hour increments, starting at 50 hours per year. The Axis Lease program
requires a monthly management fee and lease payment.

Separate from the Axis Lease program, Avantairs Axis Club
Membership program, which was initiated in January 2009, offers access to blocks of flight hours for a three year membership fee of $75,000. The program requires Axis Club members to purchase a minimum of three 25 hour flight hour cards over a three
year period. The program also allows for the conversion of club membership into fractional ownership. Members are not charged a management and maintenance fee until they are fractional owners. The Axis Club Membership program was suspended effective
March 2011.

Avantair presently sources all of its aircraft from a single manufacturer, Piaggio America, Inc.
(Piaggio). As of June 30, 2011, Avantair had contractual commitments to purchase 51 additional Piaggio Avanti II aircraft through 2013 with a mutual understanding that the aircraft delivery dates can be extended. The total
commitment, including a proposed price escalation, is valued at approximately $323 million. Avantair believes that the pricing structure afforded by utilizing the Piaggio Avanti aircraft allows Avantair to attract a customer desiring quality at a
lower price point than its competitors. Offering the cabin cross section of a mid-size aircraft and the fuel efficiency of a turboprop, along with no hourly fees, allows Avantair to lower the cost of private air travel for a broader range of
individuals and businesses.

The Companys primary sources of operating funds are the collection of management and
maintenance fees from fractional share owners, and lessees through the Axis Lease Program, as well as the sale of fractional ownership shares, Axis Club Memberships and flight hour cards. Revenue for sales by product category can be found in the
accompanying Consolidated Statements of Operations for the fiscal year ended June 30, 2011. Sales by product category are as follows:



|                                 |  |                                               |     |  |                   |  |     |                |  |  |               |  |  |       |    |  |       |  |      |  |  |  |     | 
|-------------------------------- |  | --------------------------------------------- | --- |  | ----------------- |  | --- | -------------- |  |  | ------------- |  |  | ----- | -- |  | ----- |  | ---- |  |  |  | --- | 
|                                 |  | FY 2011 Unit Sales for the Three Months Ended |     |  | FY 2011           |  |     | FY 2010        | 
|                                 |  | September 30, 2010                            |     |  | December 31, 2010 |  |     | March 31, 2011 |  |  | June 30, 2011 |  |  | Total |    |  | Total | 
|New Fractional shares            |  |                                               | 3   |  |                   |  | 6   |                |  |  | 9             |  |  |       | 1  |  |       |  | 19   |  |  |  | 7.5 | 
|                                 |  |                                               |     |  |                   | 
|Axis Lease Program shares leased |  |                                               | N/A |  |                   |  | N/A |                |  |  | 5.5           |  |  |       | 25 |  |       |  | 30.5 |  |  |  | N/A | 
|                                 |  |                                               |     |  |                   | 
|Axis Club Memberships            |  |                                               | 11  |  |                   |  | 14  |                |  |  | 6             |  |  |       | 0  |  |       |  | 31   |  |  |  | 51  | 
|                                 |  |                                               |     |  |                   | 
|Flight hour cards                |  |                                               | 104 |  |                   |  | 162 |                |  |  | 102           |  |  |       | 93 |  |       |  | 461  |  |  |  | 388 | 

Avantairs primary growth strategy is to continue to increase the number of fractional share owners
and lessees and aircraft under management, as well as increase the number of flight hour cards. At June 30, 2011, the Company had 25.5 fractional aircraft shares available for sale. In addition to the cost of acquiring aircraft, Avantairs
primary expenses are related to fuel, aircraft



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repositioning (i.e., moving an aircraft to another location to accommodate a customers need and for demonstration flights for sales purposes), flight operations and pilot expenses,
maintenance, charters, insurance and sales general and administrative expenses. To finance its growth strategy, the Company will continue to actively pursue additional funds through equity financing, including the sale of additional shares of common
and preferred stock, asset sales, promotional sales incentives, cash receipts associated with accelerated payments of management and maintenance fees, debt financing, or a combination thereof. At June 30, 2011 and 2010, Avantair had assets of
approximately $110.9 million and $131.6 million, respectively. For the fiscal years ended June 30, 2011 and 2010, the Company had revenue of approximately $149.0 million and $143.0 million, respectively, and net losses of approximately $10.8
million and $4.0 million, respectively. Avantair has incurred losses since inception and may not be able to generate sufficient net revenue from its business in the future to achieve or sustain profitability and positive cash flows. At
August 31, 2011, the Company had approximately $4.0 million of unrestricted cash on hand. Assuming cash flows and sales remain consistent with recent operating activity and expenses remain at or below recent levels, the Company believes that
its cash position will be sufficient to continue operations for at least the next twelve months.

Critical Accounting Policies and
Estimates

Avantairs discussion and analysis of its financial condition and results of operations for the purposes of
this document are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).

Avantairs significant accounting policies are presented in Note 2 to its audited consolidated financial statements, and the
following summaries should be read in conjunction with the financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. While all accounting policies affect the financial statements, certain policies may be
viewed as critical. Critical accounting policies are those that are both most important to the portrayal of the financial statements and results of operations and that require Avantairs managements most subjective or complex judgments
and estimates. Avantairs management believes the policies that fall within this category are the policies related to revenue recognition, aircraft costs related to fractional sales, use of estimates, capital assets, impairment of long-lived
assets, income taxes and loss per share. The judgments, or the methodology on which the judgments are made, are reviewed with the Audit Committee.

In January 2011, the Company changed its estimate of its depreciable life of its core aircraft to 20 years from an original seven year life. This change in estimate was based upon an evaluation of the
aircrafts actual service life. This change in estimate was adopted prospectively and resulted in a $1.3 million reduction in depreciation expense recognized during the fiscal year ended June 30, 2011.

Revenue Recognition

Avantair is engaged in the sale, lease and management of fractional ownership interests of professionally piloted aircraft for personal
and business use and access to its aircraft fleet through either 15 or 25 hour flight hour cards (either individually or through the Companys Axis Club Membership program). In the case of fractional ownership sales, the aircraft are sold in
one-sixteenth shares or multiples thereof. The purchase agreement grants the customer an undivided interest in a specified aircraft. When a customer purchases a fractional share or enters into a lease of a fractional share through the Companys
Axis Lease Program (introduced in February 2011), they are also required to enter into a management and maintenance agreement which grants the customer the right to the use of the aircraft for a specified number of hours each year. Under the terms
of the management and maintenance agreement, the Company agrees to manage, operate and maintain the aircraft on behalf of the customer in exchange for a fixed monthly fee which is recognized ratably over the term of the agreement, usually five
years. If a customer prepays its management and maintenance fee, the prepayment is recorded as unearned revenue and is recognized as revenue on a monthly basis in accordance with the schedule provided for within each agreement. Flight hour cards
provide customers with a fixed number of flight hours for a fixed fee. The Company defers the entire amount paid by the customer and recognizes revenue on an incremental basis as aircraft hours are flown. Axis Club Membership fees are paid by the
customer in advance, deferred and recognized as revenue over the three year membership term. Similar to standard flight hour card sales, payment for flight hour cards sold through the Axis Club Membership program are collected in advance of access
to the aircraft fleet, deferred and recognized as revenue on an incremental basis as aircraft hours are flown over the three year membership term.

Fractional Aircraft Shares Sales

Fractional aircraft sold and lease
revenue includes revenue from fractional aircraft shares sold and fractional lease revenue from the Companys Axis Lease Program. Axis Lease Program lease revenue is the monthly fee charged lessees over their lease terms, typically two to five
years.

Prior to the first quarter of fiscal year 2011, the Company did not have the objective evidence specified by ASC
605-25 to determine the fair value of fractional aircraft shares sold independent of the fair value of the management and maintenance agreement entered into by the purchaser of the fractional aircraft share. Therefore, the Company adopted the
provisions of ASC 605-25 to account for the sale of fractional aircraft shares under which fractional aircraft share sales revenue and related costs of fractional aircraft shares sold were deferred at the time of sale and were recognized ratably
over the five-year life of the management and



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maintenance agreement.

Effective July 1, 2010, the Company adopted
the guidance of ASU 2009-13, which updates ASC 605-25, to value its management and maintenance agreements independent of the sale of a new fractional aircraft share and recognizes fractional aircraft share sales revenue and related costs of
fractional aircraft shares sold at the time of the fractional aircraft share sale. The Company reported the adoption of ASU 2009-13 for sales beginning in fiscal year 2011 without reflecting the impact of the new accounting guidance on fractional
aircraft share sales made prior to July 1, 2010. However, see the discussion in the paragraph immediately following concerning the accounting for the sale of select fractional aircraft shares with a repurchase guarantee. The adoption of ASU
2009-13 has a material effect on the financial statements issued in periods after July 1, 2010 with respect to the sale of new fractional aircraft shares without residual guarantees. There was a single fractional aircraft share sold during the
year ended June 30, 2011 requiring recognition under this new guidance. Had the sale of this share been accounted for under the prior revenue recognition policy, the effect in the current year would not be material.

In July 2010, the Company initiated a promotion on select fractional aircraft shares that offer customers a discount on the fractional
aircraft share purchase price and a guarantee to repurchase the fractional aircraft share at the expiration of the related management and maintenance agreement, at the customers option, at a determined percent of the original purchase price
less the specified remarketing fee. The program requires that the owners of the select fractional aircraft shares enter into a seven year management and maintenance agreement. The sale of the select fractional aircraft shares have been accounted for
as operating leases in accordance with ASC 840 and the revenue earned (less the guaranteed residual value) in connection with the select fractional aircraft shares is recognized ratably over the term of the management and maintenance agreement,
usually seven years. During the year ended June 30, 2011, the Company sold eighteen select fractional aircraft shares under this program. At June 30, 2011, guarantees under this program totaled approximately $4.6 million and are included
in deferred revenue related to fractional aircraft share sales.

Other Revenues

Other revenues are comprised primarily of revenue from demonstration flights, the sale of previously owned fractional aircraft shares, and
revenue from the sale of fuel and rental of hangar space at the Companys Clearwater, FL, Camarillo, CA, and Caldwell, NJ facilities. Demonstration revenue is earned as the Company charges prospective fractional share owners on an hourly basis
for each hour the prospective share owners are flown to demonstrate the quality and capabilities of the aircraft. The Company recognizes revenue related to these demonstration flights when the flight is completed. Revenue from the sale of previously
owned fractional aircraft shares are recorded similar to the sale of new fractional aircraft shares. Revenue from fuel sales and hangar rentals are recorded when goods are delivered or services are rendered.

Aircraft Costs Related To Fractional Aircraft Sales

As a result of the initial adoption of ASC 605-25, the Company recognized revenue from the sale of fractional aircraft shares as income over the five-year period of the management and maintenance
agreement. The aircraft costs related to sales of fractional aircraft shares consist of the cost of the aircraft which is recorded as an asset and recognized as the cost of fractional aircraft shares sold over the five-year period of the management
and maintenance agreement. In connection with its adoption of ASU 2009-13, the Company established the specific objective evidence required by ASC 605-25 for arrangements with multiple-deliverables. Management adopted ASU 2009-13 on a prospective
basis effective July 1, 2010 and applied the separation accounting to new fractional aircraft share sales contracts. Fractional aircraft share sale costs are recognized at the time of a fractional aircraft share sale, rather than over the
five-year period of the management and maintenance agreement.

Maintenance Expense Policy

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

Stock-Based Compensation

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



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Income Taxes

Income taxes are accounted for under the asset and liability method in accordance with ASC 740Income Taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. A valuation allowance is established to reduce deferred tax assets to the amounts expected to be realized.

Goodwill and Long-lived Assets

The Company accounts for goodwill and other
intangible assets under ASC 350. ASC 350 eliminates the amortization of goodwill and certain other intangible assets and requires an evaluation of impairment by applying a fair-value based test. The goodwill impairment test is a two-step process
which requires management to make judgments in determining the assumptions to use in the calculation. The first step of the process consists of estimating the fair value of the Companys reporting units based on discounted cash flow models
using revenue and profit forecasts and comparing the estimated fair values with the carrying values of the Companys reporting units which include the goodwill. If the estimated fair values are less than the carrying values, a second step is
performed to compute the amount of the impairment by determining an implied fair value of goodwill. The determination of the Companys implied fair value requires the Company to allocate the estimated fair value to the
assets and liabilities of the reporting unit. Any unallocated fair value represents the implied fair value of goodwill, which is compared to the corresponding carrying value.

The Company performs its annual goodwill impairment testing in the fourth quarter of each fiscal year, or more frequently if events or
changes in circumstances indicate that goodwill may be impaired. Application of the goodwill impairment test requires significant judgments, including the estimation of future cash flows, which is dependent on internal forecasts; the estimation of
the long-term rate of growth for the Company; the estimation of aircraft in use; the useful life over which cash flows will occur; and the determination of cost of capital. Changes in these estimates and assumptions could materially affect the
determination of fair value and/or conclusions on goodwill impairment.

Results of Operations

Fiscal year ended June 30, 2011 compared to the fiscal year ended June 30, 2010

Revenues for the fiscal year ended June 30, 2011 were $149.0 million, an increase of 4.2% from $143.0 million for the fiscal year
ended June 30, 2010. This increase was primarily due to:



| |  |  | an increase of 3.1% in management and maintenance fees to $75.2 million for the fiscal year ended June 30, 2011 from $73.0 million or the
comparable 2010 period;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase of 53.4% in flight hour card and Axis Club Membership revenue to $30.7 million for the fiscal year ended June 30, 2011 from $20.0
million for the comparable 2010 period;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase of 55.4% in other revenue to $9.7 million for the fiscal year ended June 30, 2011 from $6.3 million for the comparable 2010 period;
and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a partially offsetting 23.8% decrease in the revenue generated from the sale of fractional aircraft shares to $33.3 million for the fiscal year ended
June 30, 2011 from $43.8 million for the comparable 2010 period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue from the sale of fractional
aircraft shares decreased due to the full amortization of revenue from shares sold in prior periods, partially offset by amortization of revenue from shares sold in fiscal year 2011.

Revenue from management and maintenance fees increased $2.2 million primarily due to the higher average number of fractional shares sold
through June 30, 2011 from the comparable 2010 period, coupled with an increase in the average monthly management fee per share.

Flight hour card revenue and Axis Club Membership revenue increased $10.7 million primarily due to an increase in flight hour card sales as a result of the greater acceptance of time card travel in the
existing economy compared to fractional ownership and the resulting increase in flight hour card utilization by owners during the fiscal year ended June 30, 2011 from the comparable 2010 period. Partially offsetting this increase is a decrease
in the per hour revenue rate recognized in 2011 as a result of a greater number of lower priced Axis cards, exclusive of membership fees.

Other revenue increased 55.4% to $9.7 million for the fiscal year ended June 30, 2011 from $6.3 million for the fiscal year ended June 30, 2010, due to increased sales of previously owned
fractional aircraft shares, demonstration flights, fuel and remarketing fees.



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Operating expenses for the fiscal year ended June 30, 2011 were 9.9% higher than the
fiscal year ended June 30, 2010, with total operating expenses of $155.3 million compared to $141.3 million, respectively. The cost of fractional aircraft shares sold decreased $8.1 million to $29.2 million for the fiscal year ended
June 30, 2011 from $37.3 million for the fiscal year ended June 30, 2010, due to the full amortization of costs that had been deferred from shares sold in prior periods, partially offset by amortization of costs from shares sold in fiscal
year 2011. In fiscal 2010, the Company recognized a $0.9 million nonrecurring gain on the sale of one of the Companys core aircraft; no such gain was recognized in fiscal 2011. The cost of flight operations, together with the cost of fuel,
increased 26.2% to $86.4 million for the year ended June 30, 2011 from $68.4 million for the year ended June 30, 2010, primarily due to:



| |  |  | a $7.7 million increase in maintenance expense as a result of an increase in flight hours and fleet size, and completion of the aircraft maintenance
acceleration of required fleet maintenance during fiscal 2011 to prepare for peak travel and increased flight hours;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $3.2 million increase in aircraft lease expense as a result of the addition of four leased aircraft conformed and made available to the
Companys fleet operations in the third quarter of fiscal year 2010;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $2.2 million increase in pilot expense, including training costs, due primarily to the increase in fleet size;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | a $1.2 million increase in charter expense due to aircraft availability; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | a $2.8 million increase in cost of fuel due to an increase in flight hours and an increase in the per gallon cost of fuel.
| | - |  | --------------------------------------------------------------------------------------------------------------------------

General and administrative expenses increased 14.3% to $29.6 million for the year ended June 30, 2011
from $25.9 million for the fiscal year ended June 30, 2010, primarily due to an increase in the costs related to pilot training, administrative costs, payroll, expenses related to flight scheduling costs, maintenance related administrative
costs, costs of reacquired fractional shares subsequently sold and a non-cash reserve in 2011 for amounts due from former fractional owners and card customers relating to tax assessments that the Company will pay on their behalf. In addition,
depreciation expense decreased $1.3 million, or 24.0%, for the year ended June 30, 2011 from $5.5 million for the comparable 2010 period, primarily due to the change in estimated useful lives of the Companys core aircraft in January 2011.
(See also Critical Accounting Policies and Estimates above.)

Selling expenses increased to $6.0 million during the year ended
June 30, 2011, from $5.1 million during the year ended June 30, 2010 due to increased commission expense as a result of increased sales levels and increased advertising.

Results of operations decreased to a loss of $6.3 million for the year ended June 30, 2011 compared to income of $1.7 million for
the year ended June 30, 2010, for the reasons set forth above.

Interest expense decreased 20.3% to $4.6 million for the
year ended June 30, 2011 from $5.8 million for the year ended June 30, 2010 due to decreases in the short-term and long-term debt obligations between the two periods as a result of maturity and repayment of loan amounts.

Net loss increased to $10.8 million for the fiscal year ended June 30, 2011 compared to $4.0 million for the fiscal year ended
June 30, 2010 due to the reasons set forth above.

Fiscal year ended June 30, 2010 compared to the fiscal year ended
June 30, 2009

Revenues for the fiscal year ended June 30, 2010 were $143.0 million, an increase of 4.5% from
$136.8 million for the fiscal year ended June 30, 2009. This increase was the result of an increase of 3.2% in management and maintenance fees to $73.0 million for the fiscal year ended June 30, 2010 from $70.7 million for the comparable
2009 period, an increase of 113.4% in flight hour card and Axis Club Membership revenue to $20.0 million for the fiscal year ended June 30, 2010 from $9.4 million for the comparable 2009 period, and an increase of 28.3% in other revenue to $6.3
million for the fiscal year ended June 30, 2010 from $4.9 million for the comparable 2009 period, offset by a 15.6% decrease in the revenue generated from the sale of fractional aircraft shares to $43.8 million for the fiscal year ended
June 30, 2010 from $51.9 million for the comparable 2009 period.

Revenue from the sale of fractional aircraft shares
decreased due to the full amortization of revenue from shares sold in prior periods, partially offset by amortization of revenue from shares sold in fiscal year 2010.

The increase in revenue from management and maintenance fees is primarily due to a 3.0% increase in the average number of fractional shares through June 30, 2010 from the comparable 2009 period,
coupled with an increase in the average monthly management fee per shareowner.

Flight hour card revenue and Axis Club
Membership revenue increased $10.6 million primarily due to an increase in flight hour card sales as a result of the greater acceptance of time card travel in the existing economy compared to fractional ownership and the resulting increase in flight
hour card utilization by owners during the fiscal year ended June 30, 2010 from the comparable 2009 period. Partially offsetting this increase is a decrease in the per hour revenue rate recognized in 2010 as a result of a greater number of
lower priced Axis cards, exclusive of membership fees.



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Other revenue increased 28.3% to $6.3 million for the fiscal year ended June 30, 2010
from $4.9 million for the fiscal year ended June 30, 2009, due to increased fuel, remarketing and engine rental revenue offset by a decrease in demonstration revenue. Demonstration flights that generate demonstration revenue are in anticipation
of a fractional share sale, but not for flight hour time card sales. Demonstration revenue therefore decreased because of the decrease in fractional share sales, despite the increases in flight hour time card sales.

Operating expenses for the fiscal year ended June 30, 2010 were 4.4% higher than the fiscal year ended June 30, 2009, with
total operating expenses of $141.3 million compared to $135.4 million, respectively. The cost of fractional aircraft shares sold decreased to $37.3 million for the fiscal year ended June 30, 2010 from $44.1 million for the fiscal year ended
June 30, 2009, due to the full amortization of costs that had been deferred from shares sold in prior periods, partially offset by amortization of costs from shares sold in fiscal year 2010. The gain on sale of assets decreased 35.6% to $0.9
million for the fiscal year ended June 30, 2010 from $1.4 million for the fiscal year ended June 30, 2009, due to a $0.9 million nonrecurring gain recognized on the sale of one of the Companys core aircraft during the fiscal year
ended June 30, 2010. The cost of flight operations, together with the cost of fuel, increased 13.9% to $68.4 million for the fiscal year ended June 30, 2010 from $60.1 million for the fiscal year ended June 30, 2009, primarily due to:



| |  |  | an increase in chartering expense due to aircraft availability and an increase in maintenance expense as a result of an increase in fleet size, flight
hours and aircraft maintenance management, partially offset by decreases by use of enhanced flight optimization software and flight staff training and a decrease in insurance expense and aircraft lease expense as a result of the conversion of a
Company leased aircraft to a Company core aircraft; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $1.0 million increase in cost of fuel due to an increase in flight hours offset by a decrease in the per gallon cost of fuel.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

General and administrative expenses increased 9.5% to $25.9 million for the fiscal year ended June 30,
2010 from $23.6 million for the fiscal year ended June 30, 2009, primarily due to a $0.7 million increase in expenses related to fixed based operations primarily as a result of an increase in the volume of fuel sales, a $0.4 million increase in
payroll and related expenses, and a $0.2 million increase in shipping expenses.

Selling expenses increased 36.9% to $5.1
million for the fiscal year ended June 30, 2010 from $3.7 million for the fiscal year ended June 30, 2009 due to an increase in payroll and commission expenses as a result of increased flight hour card sales and an increase in marketing
expenses due to participation in static displays and target-focused marketing events.

Income from operations was $1.7 million
for the fiscal year ended June 30, 2010, an increase from $1.4 million income from operations for the fiscal year ended June 30, 2009 for the reasons set forth above.

Interest expense decreased 3.1% to $5.8 million for the fiscal year ended June 30, 2010 from $5.9 million for the fiscal year ended
June 30, 2009, as a result of maintaining two aircraft floor plan notes payable throughout fiscal year 2010 compared to an average of two and a half floor plan notes payable during fiscal year 2009 and from the repayment of two long-term notes
payable during the second quarter of fiscal year 2010, partially offset by interest expense from two aircraft capital lease obligations in 2010 that were entered into during the fourth quarter of fiscal year 2009.

Net loss decreased to $4.0 million for the fiscal year ended June 30, 2010 compared to $4.5 million for the fiscal year ended
June 30, 2009 due to the increase in income from operations partially offset by the increase in total expenses discussed above.

Liquidity and Capital Resources

Avantairs primary sources of liquidity have been cash provided by operations, cash raised from its equity offering as Ardent Acquisition Corp., cash provided from its debt facilities, cash raised
from the preferred and common stock offerings, and other asset- based borrowing. The Company uses its cash primarily to fund losses from operations, to make deposits on aircraft, to fund the purchase and lease of core aircraft and to fund the
purchase of aircraft which are to be fractionalized. Cash generated from operations has not been sufficient to provide for all the working capital needed to meet Avantairs requirements. At June 30, 2011 and 2010, Avantair had a working
capital deficit of approximately $63.9 million and $43.9 million, respectively, and a stockholders deficit of approximately $44.0 million and $32.2 million, respectively. As of June 30, 2011, cash and cash equivalents amounted to
approximately $5.6 million and total assets to $110.9 million. The cash and cash equivalent balance decreased $3.8 million from June 30, 2010 and total assets decreased $20.7 million. The decrease in cash and cash equivalents occurred primarily
as a result of the repayment of $4.2 million of long-term debt and $5.8 million of short-term debt, and expenditures related to completion of the aircraft maintenance acceleration of required fleet maintenance, which occurred during fiscal year 2011
so as to prepare for the peak travel season, partially offset by cash generated from operations and general timing differences in cash receipts and payments during the period.

In January 2009, the Company introduced the Axis Club Membership program and in February 2011 introduced the Axis Lease Program, both programs designed to bridge the gap between the financial commitment
of a fractional aircraft share ownership and flight hour card. The current rate of flight hour card sales, including those through the Axis Club Membership program, and Axis



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##### Table of Contents

Lease Program lessees, require the Company to acquire aircraft to satisfy the increased flight hour demands on its core aircraft fleet if its core utility is strained.

Avantairs primary growth strategy is to continue to increase the number of fractional share owners and lessees and aircraft under
management, as well as increase the number of flight hour cards. At June 30, 2011, the Company had 25.5 fractional aircraft shares available for sale. In addition to the cost of acquiring aircraft, Avantairs primary expenses are related
to fuel, aircraft repositioning (i.e., moving an aircraft to another location to accommodate a customers need and for demonstration flights for sales purposes), flight operations and pilot expenses, maintenance, charters, insurance and sales
general and administrative expenses. To finance its growth strategy, the Company will continue to actively pursue additional funds through equity financing, including the sale of additional shares of common and preferred stock, asset sales,
promotional sales incentives, cash receipts associated with accelerated payments of management and maintenance fees, debt financing, or a combination thereof. At June 30, 2011 and 2010, Avantair had assets of approximately $110.9 million and
$131.6 million, respectively. For the fiscal years ended June 30, 2011 and 2010, the Company had revenue of approximately $149.0 million and $143.0 million, respectively, and net losses of approximately $10.8 million and $4.0 million,
respectively. Avantair has incurred losses since inception and may not be able to generate sufficient net revenue from its business in the future to achieve or sustain profitability and positive cash flows. At August 31, 2011, the Company had
approximately $4.0 million of unrestricted cash on hand. Assuming cash flows and sales remain consistent with recent operating activity and expenses remain at or below recent levels, the Company believes that its cash position will be sufficient to
continue operations for at least the next twelve months.

Fiscal year ended June 30, 2011 compared to fiscal year ended
June 30, 2010.

Net cash provided by operating activities was $6.9 million for the year ended
June 30, 2011 compared to net cash provided by operating activities of $9.4 million for the same period last year. Net cash provided by operating activities during the year ended June 30, 2011 is primarily attributable to the $10.8 million
net loss, combined with depreciation expense of $4.2 million and stock-based compensation expense of $0.4 million, $2.2 million of unsold aircraft costs, a $2.3 million increase in accounts payable and accrued expenses, and a $16.6 million increase
in unearned management fee, flight hour card and Axis Club Membership revenue, which were partially offset by an increase of a $3.7 million in prepaid expenses, a $1.2 million increase in accounts receivable, a $1.8 million increase in deposits on
aircraft, and a $1.0 million decrease in deferred revenue related to Axis Club Membership sales.

Net cash used in investing
activities was $1.1 million for the year ended June 30, 2011 compared to net cash provided by investing activities of $2.6 million for the same period last year. Net cash used in investing activities during the year ended June 30, 2011
resulted from $1.1 million of capital expenditures on leasehold improvements and computer systems.

Net cash used in financing
activities was $9.6 million for the year ended June 30, 2011 compared to net cash used in financing activities of $6.3 million for the same period last year. Net cash used in financing activities for the year ended June 30, 2011 resulted
primarily from repayment of approximately $10.0 million of short and long-term indebtedness and dividends paid of approximately $1.4 million, partially offset by net proceeds from short-term indebtedness of approximately $1.8 million.

Financing Arrangements

Avantairs financing arrangements at June 30, 2011 are described below:



|                                    |  |   |            | 
|----------------------------------- |  | - | ---------- | 
|Wells Fargo Equipment Finance, Inc. |  | $ | 2,240,600  | 
|Iberia Bank                         |  |   | 1,567,595  | 
|Wells Fargo                         |  |   | 1,523,275  | 
|Midsouth Services, Inc              |  |   | 10,722,973 | 
|                                    |  |   |            | 
|                                    |  | $ | 16,054,443 | 
|                                    |  |   |            | 

Wells Fargo Equipment Finance, Inc.: In February 2005, the Company entered into financing arrangements
for the purchase of core aircraft under various notes payable with Wells Fargo Equipment Finance, Inc. The notes outstanding at June 30, 2011 totaled approximately $2.2 million and are payable in monthly installments ranging from $10,644 to
$38,480 with interest ranging from 5.96% to 6.12% per annum, through 2012. The notes are collateralized by the aircraft.

Iberia Bank: In August 2007, the Company and Iberia Bank, formerly Century Bank F.S.B., executed a $2.2 million note agreement for the
purchase of one aircraft. The note outstanding at June 30, 2011 totaled approximately $1.6 million and is payable in monthly installments of $27,175 with interest of 8.25% per annum, through August 3, 2012. The note is collateralized
by the aircraft.

Wells Fargo: On October 31, 2007, the Company and Wells Fargo, formerly Wachovia Bank, entered into a
financing arrangement for the purchase of one used aircraft at a total purchase price of approximately $4.5 million (inclusive of the value of a flight hour card of 100 hours). Financing was obtained from Wells Fargo through a note payable of $3.9
million. This debt will be repaid monthly over 7 years at an interest rate of the LIBOR rate plus 4.0%. Borrowings outstanding under this arrangement at June 30, 2011 totaled approximately $1.5 million. As of June 30, 2011, the Company was
not in compliance with certain financial



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covenants and has requested, but has not yet received as of the date of this filing, a waiver of compliance from these financial covenants. As a result, long-term debt relating to this note
payable balance outstanding as of June 30, 2011 has been classified as a short-term obligation.

Midsouth Services, Inc.
(Midsouth): The Company has three separate lease agreements with Midsouth.

On October 10, 2007, Avantair
acquired a core aircraft under a capital lease obligation with Midsouth. Under the lease agreement, Midsouth provided funding for the $4.7 million purchase of a pre-owned Piaggio P-180 aircraft and holds title to the aircraft. Midsouth
leases the aircraft exclusively to Avantair on a five year lease at 15.0% interest per annum. The monthly lease payments for the term of the lease are $89,000. At the end of the five year lease, Avantair shall purchase the aircraft from
Midsouth at the guaranteed residual value in the amount of approximately $2.3 million. Avantair also has the option to purchase the aircraft anytime during the lease term at the then current guaranteed residual value as set forth on the
amortization schedule without penalty. The obligation outstanding at June 30, 2011 totaled approximately $3.2 million.

In April 2009, the Company entered into a lease agreement, effective April 6, 2009, pursuant to which Midsouth leases a Piaggio P-180 aircraft to the Company for a ten year lease term at $75,000 per
month, at 15.0% interest per annum, plus taxes if applicable. The Company is required to provide Midsouth with 100 hours of flight time per year during the lease term. Hours have been accounted for at their fair value and are liquidated as hours are
flown. Midsouth has the sole option to terminate the lease at the end of the fifth year of the lease term and require the Company to purchase the leased aircraft for approximately $3.8 million within ninety days of that date. If this
option is not exercised by Midsouth, the lease will continue for the remaining five years of the lease term and, at the end of the ten year lease, the Company will be required to purchase the aircraft from Midsouth for $0.3 million. The obligation
outstanding at June 30, 2011 totaled approximately $4.5 million.

In April 2009, the Company amended a lease agreement
previously accounted for as an operating lease under ASC 840Leases, dated as of July 31, 2006 between the Company and Midsouth. Pursuant to the amendment, the Company was required to pay $74,900 per month, at 11.0% interest
per annum until August 2011, the expiration of the lease agreement. In addition, the Company agreed to purchase the leased aircraft for approximately $3.0 million from Midsouth within sixty days following the expiration of the lease agreement. The
lease, as amended, had been classified as a capital lease in the accompanying consolidated balance sheets. The obligation outstanding at June 30, 2011 totaled approximately $2.9 million, net of deferred interest of $0.1 million. In August 2011,
the Company entered into a second amendment to the aircraft lease agreement dated July 2006 to extend the lease term for five years, and decrease monthly payments to $62,500. Upon expiration of the five year term, the Company may purchase, at its
sole discretion, the aircraft at a purchase price of approximately $0.3 million.

For additional information regarding these
financing arrangements, see Note 11 to the Companys consolidated financial statements.

Contractual Obligations

The following table summarizes the Companys contractual cash obligations at June 30, 2011, and the effect these obligations are
expected to have on liquidity and cash flow in future periods:



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|                                               |  |                        |             |   |                 |   |            |           |  |   |             |  |  |                  |            |  |  |   |            | 
|---------------------------------------------- |  | ---------------------- | ----------- | - | --------------- | - | ---------- | --------- |  | - | ----------- |  |  | ---------------- | ---------- |  |  | - | ---------- | 
|                                               |  | Payments due by period |            
|Contractual Obligations as of June 30, 2011(1) |  | Total                  |             |   | Less Than1 Year |   |            | 1-3 Years |  |   | 3- 5 Years  |  |  | More than5 Years |           
|                                               |  |                        |             |   |                
|Short-term debt obligations(2)                 |  | $                      | 13,000,000  |   |                 | $ | 13,000,000 |           |  | $ |            |  |  | $                |           |  |  | $ |           | 
|Long-term debt obligations(3)                  |  |                        | 5,331,470   |   |                 |   | 3,967,515  |           |  |   | 1,363,955   |  |  |                  |           |  |  |   |           | 
|Operating lease obligations(4)                 |  |                        | 60,070,126  |   |                 |   | 7,306,136  |           |  |   | 14,759,370  |  |  |                  | 17,851,456 |  |  |   | 20,153,164 | 
|Capital lease obligations(5)                   |  |                        | 10,722,973  |   |                 |   | 3,811,472  |           |  |   | 6,911,501   |  |  |                  |           |  |  |   |            | 
|Aircraft purchase commitments(6)               |  |                        | 323,459,221 |   |                 |   | 36,710,528 |           |  |   | 286,748,693 |  |  |                  |           |  |  |   |           | 
|                                               |  |                        |             |   |                 |   |            |           |  |   |             |  |  |                  |            |  |  |   |            | 
|                                               |  |                        |             |   |                
|Total minimum payment                          |  |                        | 412,583,790 |   |                 |   | 64,795,651 |           |  |   | 309,783,519 |  |  |                  | 17,851,456 |  |  |   | 20,153,164 | 
|Less obligation prepayment as of June 30, 2010 |  |                        | (8,800,000  | ) |                 |   | (8,800,000 | )         |  |   |            |  |  |                  |           |  |  |   |           | 
|                                               |  |                        |             |   |                 |   |            |           |  |   |             |  |  |                  |            |  |  |   |            | 
|Total contractual cash obligations             |  | $                      | 403,783,790 |   |                 | $ | 55,995,651 |           |  | $ | 309,783,519 |  |  | $                | 17,851,456 |  |  | $ | 20,153,164 | 
|                                               |  |                        |             |   |                 |   |            |           |  |   |             |  |  |                  |            |  |  |   |            | 



|(1) | Amounts shown in table are not necessarily representative of, and may vary substantially from, amounts that will actually be paid in future years as Avantair may incur
additional or different obligations subsequent to June 30, 2011.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | See Note 10 to the accompanying Consolidated Financial Statements.
|--- | ------------------------------------------------------------------

|(3) | Long-term debt obligation means a payment obligation under long-term borrowings referenced in ASC 470 Disclosure of Long-Term Obligations.See
Note 11 to the accompanying Consolidated Financial Statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Operating lease obligation means a payment obligation under a lease classified as a operating lease pursuant to ASC 840 Accounting for Leases. The
amounts above include aircraft, hangar, office and automobile leases. See Note 8 to the accompanying Consolidated Financial Statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Capital lease obligation means a payment obligation under a lease classified as a capital lease pursuant to ASC 840 Accounting for Leases.See Note 9
to the accompanying Consolidated Financial Statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Purchase obligation means an agreement to purchase goods or services that is enforceable and legally binding on the Company that specifies all significant terms,
including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The amounts above include purchase commitments for 51 Piaggio Avanti II aircraft through 2013 with a
mutual understanding that the aircraft delivery dates can be extended. See Note 8 to the accompanying Consolidated Financial Statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Tax Assessments

The states of California and Minnesota have assessed taxes
on flights into and out of their respective states. The Company is contractually able to pass through the prorated portion of the tax to its owners who flew the relevant flights, but there can be no assurance that owners who have already exited
the program will pay their relevant portion. As a result, the Company has accrued reserves related to those amounts it believes will not be collected.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Quantitative and Qualitative Disclosures about Market Risk

Avantair is
exposed to various market risks, including changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. Avantair does not enter into
derivatives or other financial instruments for trading or speculative purposes. Avantair has also not entered into financial instruments to manage and reduce the impact of changes in interest rates and foreign currency exchange rates, although
Avantair may enter into such transactions in the future.

Interest Rate Risk

Avantair is subject to market risk from exposure to changes in interest rates associated with its debt facility with Wells Fargo (formerly
Wachovia). The current liability, pursuant to which Avantair is obligated to pay Wells Fargo, has an interest rate that is equal to the LIBOR rate plus 4.0%. At June 30, 2011, the liabilities of Avantair with exposure to interest rate risk were
approximately $1.5 million. The Company has not historically used derivative instruments to manage exposure to changes in interest rates.



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|                      |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |      |   |            |   |      |       |  |   |      |   |  |   |            | 
|--------------------- |  | ---------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | ---- | - | ---------- | - | ---- | ----- |  | - | ---- | - |  | - | ---------- | 
|                      |  | June 30, 2011          |          
|                      |  | Expected Maturity Date |          
|                      |  | 2012                   |           |   | 2013 |   |           | 2014 |  |   | 2015      |   |  | 2016 |      |   | Thereafter |   |      | Total | 
|Liabilities           |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |      |   |            |   |      |       |  |   |      |   |  |   |            | 
|Long-term debt:       |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |      |   |            |   |      |       |  |   |      |   |  |   |            | 
|Fixed Rate            |  | $                      | 6,255,712 |   |      | $ | 4,244,184 |      |  | $ | 4,031,272 |   |  | $    |     |   |            | $ |     |       |  | $ |     |   |  | $ | 14,531,168 | 
|Average interest rate |  |                        | 8.60      | % |      |   | 8.60      | %    |  |   | 8.60      | % |  |      | 8.60 | % |            |   | 8.60 | %     |  |   | 8.60 | % |  |   |            | 
|Variable Rate         |  | $                      | 1,523,275 |   |      | $ |          |      |  | $ |          |   |  | $    |     |   |            | $ |     |       |  | $ |     |   |  | $ | 1,523,275  | 
|Average interest rate |  |                        | 4.21      | % |      |   | 4.21      | %    |  |   | 4.21      | % |  |      | 4.21 | % |            |   | 4.21 | %     |  |   | 4.21 | % |  |   |            | 

Off-Balance Sheet Arrangements

At June 30, 2011, the Company did not have any material commercial commitments (except for those noted in Note 8 Purchase Commitments in the accompanying Consolidated Financial
Statements), including guarantees or standby repurchase obligations, or any relationships with unconsolidated entities or financial partnerships, including entities often referred to as structured finance or special purpose entities or variable
interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

From time to time, during the normal course of business, the Company may make certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain
transactions. These include, but are not limited to: (i) indemnities to clients, vendors and service providers pertaining to claims based on negligence or willful misconduct and (ii) indemnities involving breach of contract, the accuracy
of representations and warranties, or other liabilities assumed by us in certain contracts. In addition, the Company has agreements whereby we will indemnify certain officers and directors for certain events or occurrences while the officer or
director is, or was, serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officers or directors lifetime. The maximum potential amount of future payments we could be
required to make under these indemnification agreements is unlimited; however, the Company has director and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. The Company believes the
applicable insurance coverage is generally adequate to cover any estimated potential liability under these indemnification agreements. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum
potential for future payments the Company could be obligated to make.

Item 8. Financial Statements and
Supplementary Data

The financial statements and supplementary data required by this item are included in this Annual
Report on Form 10-K beginning on page F-1.

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

None.

Item 9A(T). Controls and Procedures

Evaluation of
Disclosure Controls and Procedures

As of June 30, 2011, under the direction of the Chief Executive Officer and Chief
Financial Officer, the Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a  15(e) under the Securities Exchange Act of 1934, as amended. Based on the evaluation, it
was concluded that, as of June 30, 2011, the Companys disclosure controls and procedures are effective at a reasonable assurance level and are designed to ensure that the information required to be disclosed in SEC reports is recorded,
processed, summarized and reported within the time period specified by the SECs rules and forms, and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.

Limitations on the Effectiveness of Controls and Other Matters

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule
13a-15(f) under the Securities Exchange Act of 1934, as amended). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the control.



29



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##### Table of Contents

The design of any system of controls also 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; over time, a control may become inadequate because of changes in conditions, or the
degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Notwithstanding the foregoing limitations on the effectiveness of controls, the Company has nonetheless reached the conclusions set forth
above on the Companys disclosure controls and procedures and its internal control over financial reporting.

The Company
assessed the effectiveness of the Companys internal control over financial reporting as of June 30, 2011. In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.

Based on the assessment, management believes that, as of
June 30, 2011, the Companys internal control over financial reporting was effective.

The Companys
independent registered public accounting firm has issued an attestation report on our internal control over financial reporting as of June 30, 2011. This report appears on page 31.

Changes to Internal Control over Financial Reporting

There has been no
change in the internal controls over financial reporting during the fiscal year ended June 30, 2011, that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.

CEO and CFO Certifications

Exhibits 31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section
302 Certifications). This item of this report is the information concerning the Evaluation referred to in the Section 302 Certifications and should be read in conjunction with the Section 302 Certifications for a more complete
understanding of the topics presented.



30



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##### Table of Contents

Report of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting

To the Board of Directors and Stockholders

Avantair, Inc.

We have audited Avantair, Inc.s internal control over
financial reporting as of June 30, 2011 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Avantair, Inc.s
management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. A companys
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the financial statements.

Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion,
Avantair, Inc. maintained, in all material respects, effective internal control over financial reporting as of June 30, 2011 based on the criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States), the balance sheets of Avantair, Inc. as of June 30, 2011 and 2010, and the related statements of operations, changes in stockholders deficit and cash flows for the years then
ended. Our report dated September 23, 2011 expressed an unqualified opinion.

/s/ J.H. Cohn LLP

Jericho, New York

September 23, 2011

Item 9B. Other Information

Not applicable.



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##### Table of Contents

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is set forth in the Companys Proxy Statement dated September 23, 2011 under the captions
Election of Directors, Corporate Governance and Board of Directors Matters, and Management, and is incorporated herein by reference.

Item 11. Executive Compensation

The
information required by this item is set forth in the Companys Proxy Statement dated September 23, 2011 under the captions Compensation Discussion and Analysis and Compensation and Risk, and is incorporated herein
by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

The information required by this item is set forth in the Companys Proxy Statement dated
September 23, 2011 under the caption Security Ownership of Certain Beneficial Owners and Management, and is incorporated herein by reference.

Item 13. Certain Relationships, Related Transactions and Director Independence

The information required by this item is set forth in the Companys Proxy Statement dated September 23, 2011 under the caption Related Party Transactions, and is incorporated herein
by reference.

Item 14. Principal Accountant Fees and Services

The information required by this item is set forth in the Companys Proxy Statement dated September 23, 2011 under the caption
Principal Accounting Fees and Services and Policy on Pre-Approval by Audit Committee of Services Performed by Principal Independent Registered Public Accounting Firm, and is incorporated herein by reference.



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##### Table of Contents

PART IV

Item 15. Exhibits and Financial Statement Schedules



|(a) | The following are filed as a part of this report.
|--- | -------------------------------------------------



|(1) | Financial Statements
|--- | --------------------

Reference is made to the
Index to Financial Statements on Page F-1.



|(2) | Financial Statement Schedules
|--- | -----------------------------

None.



|(3) | Exhibits.
|--- | ---------

See Exhibit Index.



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto
duly authorized.

September 23, 2011



|               |  |                        
|-------------- |  | -----------------------
|Avantair, Inc.
|               | 
|By:            |  | /s/ Steven Santo       
|               |  | Steven Santo           
|               |  | Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated:



|                         |  |                                                                      |  |                   
|------------------------ |  | -------------------------------------------------------------------- |  | ------------------
|Name                     |  | Title                                                                |  | Date              
|                         |  |                                                                     
|/s/ Steven Santo         |  | Chief Executive Officer and Director (Principal Executive Officer)   |  | September 23, 2011
|Steven Santo             |  |                                                                      | 
|                         |  |                                                                     
|/s/ Richard A. Pytak Jr. |  | Chief Financial Officer (Principal Financial and Accounting Officer) |  | September 23, 2011
|Richard A. Pytak Jr.     |  |                                                                      | 
|                         |  |                                                                     
|/s/ Robert J. Lepofsky   |  | Chairman                                                             |  | September 23, 2011
|Robert J. Lepofsky       |  |                                                                      |  |                   
|                         |  |                                                                     
|/s/ A. Clinton Allen     |  | Director                                                             |  | September 23, 2011
|A. Clinton Allen         |  |                                                                      |  |                   
|                         |  |                                                                     
|/s/ Stephanie Cuskley    |  | Director                                                             |  | September 23, 2011
|Stephanie Cuskley        |  |                                                                      |  |                   
|                         |  |                                                                     
|/s/ Richard B. DeWolfe   |  | Director                                                             |  | September 23, 2011
|Richard B. DeWolfe       |  |                                                                      |  |                   
|                         |  |                                                                     
|/s/ Arthur H. Goldberg   |  | Director                                                             |  | September 23, 2011
|Arthur H. Goldberg       |  |                                                                      |  |                   
|                         |  |                                                                     
|/s/ Barry J. Gordon      |  | Director                                                             |  | September 23, 2011
|Barry J. Gordon          |  |                                                                      |  |                   
|                         |  |                                                                     
|/s/ Lorne Weil           |  | Director                                                             |  | September 23, 2011
|Lorne Weil               |  |                                                                      |  |                   



34



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AVANTAIR, INC. AND SUBSIDIARIES

Index



|                                                                                                       |  |  |      | 
|------------------------------------------------------------------------------------------------------ |  |  | ---- | 
|Report of Independent Registered Public Accounting Firm                                                |  |  | F-2  | 
|                                                                                                       | 
|Consolidated Financial Statements:                                                                     |  |  |      | 
|                                                                                                       | 
|Consolidated Balance Sheets as of June 30, 2011 and 2010                                               |  |  | F-3  | 
|                                                                                                       | 
|Consolidated Statements of Operations for the years ended June 30, 2011 and 2010                       |  |  | F-5  | 
|                                                                                                       | 
|Consolidated Statements of Changes in Stockholders Deficit for the years ended June 30, 2011 and 2010 |  |  | F-6  | 
|                                                                                                       | 
|Consolidated Statements of Cash Flows for the years ended June 30, 2011 and 2010                       |  |  | F-8  | 
|                                                                                                       | 
|Notes to Consolidated Financial Statements                                                             |  |  | F-10 | 



F-1



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Avantair, Inc.

We have audited the accompanying consolidated balance sheets of
Avantair, Inc. and Subsidiaries as of June 30, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders deficit and cash flows for the years then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Avantair, Inc. and Subsidiaries as of June 30, 2011 and 2010, and their results of operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Avantair,
Inc.s internal control over financial reporting as of June 30, 2011, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated September 23, 2011 expressed an unqualified opinion.



|                  
|------------------
|/s/ J.H. Cohn LLP 
|Jericho, New York 
|September 23, 2011



F-2



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##### Table of Contents

AVANTAIR, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

ASSETS



|                                                                                                                                                         |  |              |             |  |              |   |             | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- |  | ------------ | - | ----------- | 
|                                                                                                                                                         |  | June 30,2011 |             |  | June 30,2010 |  
|                                                                                                                                                         |  |             
|Current Assets                                                                                                                                           |  |              |             |  |              |   |             | 
|Cash and cash equivalents                                                                                                                                |  | $            | 5,643,305   |  |              | $ | 9,446,619   | 
|Accounts receivable, net of allowance for doubtful accounts of $231,357 and $208,065 at June 30, 2011 and 2010,
respectively                             |  |              | 12,202,020  |  |              |   | 10,976,129  | 
|Inventory                                                                                                                                                |  |              | 442,634     |  |              |   | 181,782     | 
|Current portion of aircraft costs related to fractional share sales                                                                                      |  |              | 20,770,142  |  |              |   | 26,680,081  | 
|Prepaid expenses and other current assets                                                                                                                |  |              | 7,012,555   |  |              |   | 2,979,055   | 
|                                                                                                                                                         |  |              |             |  |              |   |             | 
|                                                                                                                                                         |  |             
|Total current assets                                                                                                                                     |  |              | 46,070,656  |  |              |   | 50,263,666  | 
|                                                                                                                                                         |  |              |             |  |              |   |             | 
|                                                                                                                                                         |  |             
|Long-Term and Other Assets                                                                                                                               |  |              |             |  |              |   |             | 
|Aircraft costs related to fractional share sales, net of current portion                                                                                 |  |              | 9,913,793   |  |              |   | 43,461,597  | 
|Property and equipment, at cost, net of accumulated depreciation and amortization of $19,838,924 and $15,821,591 at June 30,
2011 and 2010, respectively |  |              | 36,733,929  |  |              |   | 22,583,073  | 
|Cash - restricted                                                                                                                                        |  |              | 2,361,851   |  |              |   | 2,358,558   | 
|Deposits on aircraft                                                                                                                                     |  |              | 9,500,988   |  |              |   | 7,883,834   | 
|Deferred maintenance on aircraft engines                                                                                                                 |  |              | 266,087     |  |              |   | 603,515     | 
|Goodwill                                                                                                                                                 |  |              | 1,141,159   |  |              |   | 1,141,159   | 
|Other assets                                                                                                                                             |  |              | 4,950,035   |  |              |   | 3,342,198   | 
|                                                                                                                                                         |  |              |             |  |              |   |             | 
|                                                                                                                                                         |  |             
|Total long-term and other assets                                                                                                                         |  |              | 64,867,842  |  |              |   | 81,373,934  | 
|                                                                                                                                                         |  |              |             |  |              |   |             | 
|                                                                                                                                                         |  |             
|Total assets                                                                                                                                             |  | $            | 110,938,498 |  |              | $ | 131,637,600 | 
|                                                                                                                                                         |  |              |             |  |              |   |             | 

See Notes to Consolidated Financial Statements.



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##### Table of Contents

AVANTAIR, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

LIABILITIES AND STOCKHOLDERS DEFICIT



|                                                                                                                                                                                               |  |              |              |   |              |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------------ | - | ------------ | - | ----------- | -
|                                                                                                                                                                                               |  | June 30,2011 |              |   | June 30,2010 |  
|                                                                                                                                                                                               |  |             
|Current Liabilities                                                                                                                                                                            |  |              |              |   |              |   |             |  
|Accounts payable                                                                                                                                                                               |  | $            | 5,908,979    |   |              | $ | 4,723,718   |  
|Accrued liabilities                                                                                                                                                                            |  |              | 6,181,807    |   |              |   | 5,000,249   |  
|Customer deposits                                                                                                                                                                              |  |              | 2,082,160    |   |              |   | 1,358,988   |  
|Short-term debt                                                                                                                                                                                |  |              | 13,000,000   |   |              |   | 11,000,000  |  
|Current portion of long-term debt                                                                                                                                                              |  |              | 7,856,117    |   |              |   | 4,202,726   |  
|Current portion of deferred revenue related to fractional aircraft share sales                                                                                                                 |  |              | 23,550,037   |   |              |   | 32,770,605  |  
|Unearned management fee, flight hour card and Axis Club Membership revenues                                                                                                                    |  |              | 51,437,316   |   |              |   | 35,126,401  |  
|                                                                                                                                                                                               |  |              |              |   |              |   |             |  
|                                                                                                                                                                                               |  |             
|Total current liabilities                                                                                                                                                                      |  |              | 110,016,416  |   |              |   | 94,182,687  |  
|                                                                                                                                                                                               |  |              |              |   |              |   |             |  
|                                                                                                                                                                                               |  |             
|Long-Term Liabilities                                                                                                                                                                          |  |              |              |   |              |   |             |  
|Long-term debt, net of current portion                                                                                                                                                         |  |              | 8,198,326    |   |              |   | 15,620,479  |  
|Deferred revenue related to fractional aircraft share sales, net of current portion                                                                                                            |  |              | 18,014,232   |   |              |   | 35,085,148  |  
|Deferred revenue related to Axis Club Membership sales, net of current portion                                                                                                                 |  |              | 1,353,618    |   |              |   | 1,773,943   |  
|Other liabilities                                                                                                                                                                              |  |              | 2,658,945    |   |              |   | 2,520,537   |  
|                                                                                                                                                                                               |  |              |              |   |              |   |             |  
|                                                                                                                                                                                               |  |             
|Total long-term liabilities                                                                                                                                                                    |  |              | 30,225,121   |   |              |   | 55,000,107  |  
|                                                                                                                                                                                               |  |              |              |   |              |   |             |  
|                                                                                                                                                                                               |  |             
|Total liabilities                                                                                                                                                                              |  |              | 140,241,537  |   |              |   | 149,182,794 |  
|                                                                                                                                                                                               |  |              |              |   |              |   |             |  
|                                                                                                                                                                                               |  |             
|Commitments and Contingencies                                                                                                                                                                  |  |              |              |   |              |   |             |  
|                                                                                                                                                                                               |  |             
|Series A convertible preferred stock, $.0001 par value, authorized 300,000 shares; 152,000 shares issued and
outstanding                                                                       |  |              | 14,708,088   |   |              |   | 14,617,958  |  
|                                                                                                                                                                                               |  |              |              |   |              |   |             |  
|                                                                                                                                                                                               |  |             
|Stockholders Deficit                                                                                                                                                                          |  |              |              |   |              |   |             |  
|Preferred stock, $.0001 par value, authorized 700,000 shares; none issued                                                                                                                      |  |              |             |   |              |   |            |  
|Common stock, Class A, $.0001 par value, 75,000,000 shares authorized, 26,418,246 shares issued and outstanding at
June 30, 2011 and 26,353,201 shares issued and outstanding at June 30, 2010 |  |              | 2,642        |   |              |   | 2,635       |  
|Additional paid-in capital                                                                                                                                                                     |  |              | 57,212,099   |   |              |   | 56,896,831  |  
|Accumulated deficit                                                                                                                                                                            |  |              | (101,225,868 | ) |              |   | (89,062,618 | )
|                                                                                                                                                                                               |  |              |              |   |              |   |             |  
|                                                                                                                                                                                               |  |             
|Total stockholders deficit                                                                                                                                                                    |  |              | (44,011,127  | ) |              |   | (32,163,152 | )
|                                                                                                                                                                                               |  |              |              |   |              |   |             |  
|                                                                                                                                                                                               |  |             
|Total liabilities and stockholders deficit                                                                                                                                                    |  | $            | 110,938,498  |   |              | $ | 131,637,600 |  
|                                                                                                                                                                                               |  |              |              |   |              |   |             |  

See Notes to Consolidated Financial Statements.



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##### Table of Contents

AVANTAIR, INC. AND SUBSIDIARIES

Consolidated Statements of Operations



|                                                   |  |                     |             |   |      |   |             |  
|-------------------------------------------------- |  | ------------------- | ----------- | - | ---- | - | ----------- | -
|                                                   |  | Year Ended June 30, |            
|                                                   |  | 2011                |             |   | 2010 |  
|                                                   |  |                    
|Revenue                                            |  |                     |             |   |      |   |             |  
|Fractional aircraft sold and lease revenue         |  | $                   | 33,328,485  |   |      | $ | 43,756,222  |  
|Maintenance and management fees                    |  |                     | 75,205,044  |   |      |   | 72,957,679  |  
|Flight hour card and club membership revenue       |  |                     | 30,725,624  |   |      |   | 20,024,602  |  
|Other revenue                                      |  |                     | 9,742,823   |   |      |   | 6,268,071   |  
|                                                   |  |                     |             |   |      |   |             |  
|                                                   |  |                    
|Total revenue                                      |  |                     | 149,001,976 |   |      |   | 143,006,574 |  
|                                                   |  |                     |             |   |      |   |             |  
|                                                   |  |                    
|Operating expenses                                 |  |                     |             |   |      |   |             |  
|Cost of fractional aircraft shares sold            |  |                     | 29,156,635  |   |      |   | 37,317,493  |  
|Cost of flight operations                          |  |                     | 69,253,465  |   |      |   | 54,151,877  |  
|Cost of fuel                                       |  |                     | 17,104,502  |   |      |   | 14,272,477  |  
|Gain on sale of assets                             |  |                     |            |   |      |   | (897,595    | )
|General and administrative expenses                |  |                     | 29,550,763  |   |      |   | 25,861,629  |  
|Selling expenses                                   |  |                     | 6,029,517   |   |      |   | 5,116,153   |  
|Depreciation and amortization                      |  |                     | 4,164,460   |   |      |   | 5,471,677   |  
|                                                   |  |                     |             |   |      |   |             |  
|Total operating expenses                           |  |                     | 155,259,342 |   |      |   | 141,293,711 |  
|                                                   |  |                     |             |   |      |   |             |  
|                                                   |  |                    
|Income (loss) from operations                      |  |                     | (6,257,366  | ) |      |   | 1,712,863   |  
|                                                   |  |                     |             |   |      |   |             |  
|                                                   |  |                    
|Other income (expenses)                            |  |                     |             |   |      |   |             |  
|Interest and other income                          |  |                     | 69,556      |   |      |   | 75,843      |  
|Interest expense                                   |  |                     | (4,588,111  | ) |      |   | (5,757,264  | )
|                                                   |  |                     |             |   |      |   |             |  
|Total other expenses                               |  |                     | (4,518,555  | ) |      |   | (5,681,421  | )
|                                                   |  |                     |             |   |      |   |             |  
|                                                   |  |                    
|Net loss                                           |  |                     | (10,775,921 | ) |      |   | (3,968,558  | )
|                                                   |  |                    
|Preferred stock dividend and accretion of expenses |  |                     | (1,477,459  | ) |      |   | (1,506,814  | )
|                                                   |  |                     |             |   |      |   |             |  
|Net loss attributable to common stockholders       |  | $                   | (12,253,380 | ) |      | $ | (5,475,372  | )
|                                                   |  |                     |             |   |      |   |             |  
|                                                   |  |                    
|Loss per common share:                             |  |                     |             |   |      |   |             |  
|Basic and diluted                                  |  | $                   | (0.46       | ) |      | $ | (0.23       | )
|                                                   |  |                     |             |   |      |   |             |  
|                                                   |  |                    
|Weighted-average common shares outstanding:        |  |                     |             |   |      |   |             |  
|Basic and diluted                                  |  |                     | 26,389,758  |   |      |   | 23,419,624  |  
|                                                   |  |                     |             |   |      |   |             |  

See Notes to Consolidated Financial Statements.



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AVANTAIR, INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders Deficit

Years Ended June 30, 2011 and 2010



|                                                                                                                  |  |                     |            |  |                          |   |       |                    |  |   |                           |   |  |   |             |   |  |   |             |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------------- | ---------- |  | ------------------------ | - | ----- | ------------------ |  | - | ------------------------- | - |  | - | ----------- | - |  | - | ----------- | -
|                                                                                                                  |  | Class ACommon Stock |            |  | AdditionalPaid-InCapital |   |       | AccumulatedDeficit |  |   | TotalStockholdersDeficit |  
|                                                                                                                  |  | Shares              |            |  | Amount                   |   |       |                    | 
|                                                                                                                  |  |                     |            |  |                         
|Balance at June 30, 2009                                                                                          |  |                     | 16,463,615 |  |                          | $ | 1,646 |                    |  | $ | 47,667,493                |   |  | $ | (83,676,822 | ) |  | $ | (36,007,683 | )
|                                                                                                                  |  |                     |            |  |                         
|Stock-based compensation                                                                                          |  |                     |            |  |                          |   |       |                    |  |   | 387,147                   |   |  |   |             |   |  |   | 387,147     |  
|                                                                                                                  |  |                     |            |  |                         
|Dividend on Series A convertible preferred stock                                                                  |  |                     |            |  |                          |   |       |                    |  |   |                           |   |  |   | (1,417,238  | ) |  |   | (1,417,238  | )
|                                                                                                                  |  |                     |            |  |                         
|Accretion of preferred stock issuance costs                                                                       |  |                     |            |  |                          |   |       |                    |  |   | (89,575                   | ) |  |   |             |   |  |   | (89,575     | )
|                                                                                                                  |  |                     |            |  |                         
|Issuance of shares in connection with vested restricted stock, net of shares surrendered in lieu of payroll taxes |  |                     | 54,566     |  |                          |   | 5     |                    |  |   | (24,618                   | ) |  |   |             |   |  |   | (24,613     | )
|                                                                                                                  |  |                     |            |  |                         
|Issuance of warrants in consideration for services rendered in private placement                                  |  |                     |           |  |                          |   |      |                    |  |   | 209,708                   |   |  |   |             |   |  |   | 209,708     |  
|                                                                                                                  |  |                     |            |  |                         
|Issuance of warrants in connection with aircraft management agreement                                             |  |                     |           |  |                          |   |      |                    |  |   | 807,031                   |   |  |   |             |   |  |   | 807,031     |  
|                                                                                                                  |  |                     |            |  |                         
|Sale of common stock in connection with private sale, net of expenses associated with the registration of shares  |  |                     | 9,835,020  |  |                          |   | 984   |                    |  |   | 7,939,645                 |   |  |   |             |   |  |   | 7,940,629   |  
|                                                                                                                  |  |                     |            |  |                         
|Net loss                                                                                                          |  |                     |            |  |                          |   |       |                    |  |   |                           |   |  |   | (3,968,558  | ) |  |   | (3,968,558  | )
|                                                                                                                  |  |                     |            |  |                          |   |       |                    |  |   |                           |   |  |   |             |   |  |   |             |  
|                                                                                                                  |  |                     |            |  |                         
|Balance at June 30, 2010                                                                                          |  |                     | 26,353,201 |  |                          | $ | 2,635 |                    |  | $ | 56,896,831                |   |  | $ | (89,062,618 | ) |  | $ | (32,163,152 | )
|                                                                                                                  |  |                     |            |  |                          |   |       |                    |  |   |                           |   |  |   |             |   |  |   |             |  

See Notes to Consolidated Financial Statements.



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AVANTAIR, INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders Deficit

Years Ended June 30, 2011 and 2010



|                                                                                                                  |  |                     |            |  |                          |   |       |                    |  |   |                           |   |  |   |              |   |  |   |             |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------------- | ---------- |  | ------------------------ | - | ----- | ------------------ |  | - | ------------------------- | - |  | - | ------------ | - |  | - | ----------- | -
|                                                                                                                  |  | Class ACommon Stock |            |  | AdditionalPaid-InCapital |   |       | AccumulatedDeficit |  |   | TotalStockholdersDeficit |  
|                                                                                                                  |  | Shares              |            |  | Amount                   |   |       |                    | 
|                                                                                                                  |  |                     |            |  |                         
|Balance at June 30, 2010                                                                                          |  |                     | 26,353,201 |  |                          | $ | 2,635 |                    |  | $ | 56,896,831                |   |  | $ | (89,062,618  | ) |  | $ | (32,163,152 | )
|                                                                                                                  |  |                     |            |  |                         
|Stock-based compensation                                                                                          |  |                     |            |  |                          |   |       |                    |  |   | 440,618                   |   |  |   |              |   |  |   | 440,618     |  
|                                                                                                                  |  |                     |            |  |                         
|Dividend on Series A convertible preferred stock                                                                  |  |                     |            |  |                          |   |       |                    |  |   |                           |   |  |   | (1,387,329   | ) |  |   | (1,387,329  | )
|                                                                                                                  |  |                     |            |  |                         
|Accretion of preferred stock issuance costs                                                                       |  |                     |            |  |                          |   |       |                    |  |   | (90,130                   | ) |  |   |              |   |  |   | (90,130     | )
|                                                                                                                  |  |                     |            |  |                         
|Issuance of shares in connection with vested restricted stock, net of shares surrendered in lieu of payroll taxes |  |                     | 54,358     |  |                          |   | 6     |                    |  |   | (30,219                   | ) |  |   |              |   |  |   | (30,213     | )
|                                                                                                                  |  |                     |            |  |                         
|Expenses associated with registration of shares                                                                   |  |                     |            |  |                          |   |       |                    |  |   | (5,000                    | ) |  |   |              |   |  |   | (5,000      | )
|                                                                                                                  |  |                     |            |  |                         
|Issuance of shares in connection with exercise of warrants                                                        |  |                     | 10,687     |  |                          |   | 1     |                    |  |   | (1                        | ) |  |   |              |   |  |   |            |  
|                                                                                                                  |  |                     |            |  |                         
|Net loss                                                                                                          |  |                     |            |  |                          |   |       |                    |  |   |                           |   |  |   | (10,775,921  | ) |  |   | (10,775,921 | )
|                                                                                                                  |  |                     |            |  |                          |   |       |                    |  |   |                           |   |  |   |              |   |  |   |             |  
|                                                                                                                  |  |                     |            |  |                         
|Balance at June 30, 2011                                                                                          |  |                     | 26,418,246 |  |                          | $ | 2,642 |                    |  | $ | 57,212,099                |   |  | $ | (101,225,868 | ) |  | $ | (44,011,127 | )
|                                                                                                                  |  |                     |            |  |                          |   |       |                    |  |   |                           |   |  |   |              |   |  |   |             |  

See Notes to Consolidated Financial Statements.



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AVANTAIR, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows



|                                                                                |  |                     |             |   |      |   |             |  
|------------------------------------------------------------------------------- |  | ------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                |  | Year Ended June 30, |            
|                                                                                |  | 2011                |             |   | 2010 |  
|OPERATING ACTIVITIES:                                                           |  |                     |             |   |      |   |             |  
|Net loss                                                                        |  | $                   | (10,775,921 | ) |      | $ | (3,968,558  | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                     |             |   |      |   |             |  
|Depreciation and amortization                                                   |  |                     | 4,164,460   |   |      |   | 5,471,677   |  
|Amortization of deferred interest related to capital lease obligation           |  |                     | 431,941     |   |      |   | 387,185     |  
|Stock-based compensation                                                        |  |                     | 440,618     |   |      |   | 387,147     |  
|Gain on sale of assets                                                          |  |                     |            |   |      |   | (897,595    | )
|Bad debt (recoveries) expense                                                   |  |                     | 23,292      |   |      |   | (20,223     | )
|                                                                                |  |                    
|Changes in operating assets and liabilities:                                    |  |                     |             |   |      |   |             |  
|Accounts receivable                                                             |  |                     | (1,249,183  | ) |      |   | (5,244,851  | )
|Inventory                                                                       |  |                     | (260,852    | ) |      |   | (40,785     | )
|Deposits on aircraft                                                            |  |                     | (1,817,154  | ) |      |   | 1,381,056   |  
|Deferred maintenance agreement on aircraft engines                              |  |                     | 337,428     |   |      |   | 934,660     |  
|Prepaid expenses and other current assets                                       |  |                     | (3,723,500  | ) |      |   | (1,700,549  | )
|Notes receivable                                                                |  |                     |            |   |      |   | 272,731     |  
|Aircraft costs related to fractional shares                                     |  |                     | 28,490,644  |   |      |   | 36,968,314  |  
|Other assets                                                                    |  |                     | (1,607,837  | ) |      |   | (895,760    | )
|Accounts payable                                                                |  |                     | 1,185,261   |   |      |   | (2,539,502  | )
|Accrued liabilities                                                             |  |                     | 1,132,016   |   |      |   | 1,004,879   |  
|Unearned management fee, flight hour card and Axis Club Membership revenue      |  |                     | 16,556,896  |   |      |   | 15,587,412  |  
|Cash - restricted                                                               |  |                     | (3,293      | ) |      |   | (6,221      | )
|Customer deposits                                                               |  |                     | 723,172     |   |      |   | 76,052      |  
|Deferred revenue related to fractional aircraft share sales                     |  |                     | (26,291,484 | ) |      |   | (40,601,223 | )
|Deferred revenue related to Axis Club Membership sales                          |  |                     | (976,305    | ) |      |   | 3,032,115   |  
|Other liabilities                                                               |  |                     | 138,408     |   |      |   | (193,521    | )
|                                                                                |  |                     |             |   |      |   |             |  
|Net cash provided by operating activities                                       |  |                     | 6,918,607   |   |      |   | 9,394,440   |  
|                                                                                |  |                     |             |   |      |   |             |  
|                                                                                |  |                    
|INVESTING ACTIVITIES:                                                           |  |                     |             |   |      |   |             |  
|Proceeds from the sale of asset                                                 |  |                     |            |   |      |   | 2,900,000   |  
|Capital expenditures                                                            |  |                     | (1,148,217  | ) |      |   | (321,761    | )
|                                                                                |  |                     |             |   |      |   |             |  
|Net cash (used in) provided by investing activities                             |  |                     | (1,148,217  | ) |      |   | 2,578,239   |  
|                                                                                |  |                     |             |   |      |   |             |  
|                                                                                |  |                    
|FINANCING ACTIVITIES:                                                           |  |                     |             |   |      |   |             |  
|Borrowings under short-term debt                                                |  |                     | 1,800,000   |   |      |   |             |  
|Borrowings under long-term debt                                                 |  |                     |            |   |      |   | 56,614      |  
|Dividends paid                                                                  |  |                     | (1,368,000  | ) |      |   | (2,457,226  | )
|Principal payments on long-term debt                                            |  |                     | (4,200,704  | ) |      |   | (11,549,574 | )
|Principal payments on short-term debt                                           |  |                     | (5,800,000  | ) |      |   | (500,000    | )
|Proceeds from issuance of stock, net of cost of stock redemption/registration   |  |                     |            |   |      |   | 8,150,337   |  
|Cost of stock registration                                                      |  |                     | (5,000      | ) |      |   |             |  
|                                                                                |  |                     |             |   |      |   |             |  
|Net cash used in financing activities                                           |  |                     | (9,573,704  | ) |      |   | (6,299,849  | )
|                                                                                |  |                     |             |   |      |   |             |  



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AVANTAIR, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows



|                                                                                        |  |                     |             |  |      |   |           | 
|--------------------------------------------------------------------------------------- |  | ------------------- | ----------- |  | ---- | - | --------- | 
|                                                                                        |  | Year Ended June 30, |            
|                                                                                        |  | 2011                |             |  | 2010 |  
|Net (decrease) increase in cash and cash equivalents                                    |  | $                   | (3,803,314) |  |      | $ | 5,672,830 | 
|Cash and cash equivalents, beginning of the year                                        |  |                     | 9,446,619   |  |      |   | 3,773,789 | 
|                                                                                        |  |                     |             |  |      |   |           | 
|Cash and cash equivalents, end of the year                                              |  | $                   | 5,643,305   |  |      | $ | 9,446,619 | 
|                                                                                        |  |                     |             |  |      |   |           | 
|                                                                                        |  |                    
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                       |  |                     |             |  |      |   |           | 
|Interest paid                                                                           |  | $                   | 4,588,111   |  |      | $ | 5,757,264 | 
|                                                                                        |  |                     |             |  |      |   |           | 
|                                                                                        |  |                    
|SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES                  |  |                     |             |  |      |   |           | 
|Accretion of Series A convertible preferred stock                                       |  | $                   | 90,130      |  |      | $ | 89,575    | 
|                                                                                        |  |                     |             |  |      |   |           | 
|Dividends payable on Series A convertible preferred stock                               |  | $                   | 372,975     |  |      | $ | 353,645   | 
|                                                                                        |  |                     |             |  |      |   |           | 
|Flight hour cards issued in consideration for equipment                                 |  | $                   |            |  |      | $ | 139,570   | 
|                                                                                        |  |                     |             |  |      |   |           | 
|Common shares surrendered in lieu of payroll taxes                                      |  | $                   | 30,213      |  |      | $ | 24,613    | 
|                                                                                        |  |                     |             |  |      |   |           | 
|Issuance of warrants to underwriter in connection with private sale of common stock     |  | $                   |            |  |      | $ | 209,708   | 
|                                                                                        |  |                     |             |  |      |   |           | 
|Issuance of warrants to Lorne Weil in connection with aircraft agreement                |  | $                   |            |  |      | $ | 807,031   | 
|                                                                                        |  |                     |             |  |      |   |           | 
|Reversal of accrued expense                                                             |  | $                   |            |  |      | $ | 44,100    | 
|                                                                                        |  |                     |             |  |      |   |           | 
|Aircraft purchased under short-term notes payable, net of $0.2 million aircraft deposit |  | $                   | 6,200,000   |  |      | $ |          | 
|                                                                                        |  |                     |             |  |      |   |           | 
|Flight hour cards issued in consideration for repurchase of fractional aircraft shares  |  | $                   | 310,000     |  |      | $ |          | 
|                                                                                        |  |                     |             |  |      |   |           | 
|Fractional aircraft shares held for lease transferred to fixed assets                   |  | $                   | 10,940,036  |  |      | $ |          | 
|                                                                                        |  |                     |             |  |      |   |           | 

See Notes to Consolidated Financial Statements.



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AVANTAIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2011 AND 2010

NOTE 1  OPERATIONS AND MANAGEMENTS PLANS

Avantair, Inc. and
subsidiaries (the Company or Avantair) are in the business of providing private aviation services through three primary flight service programs (i) the sale of fractional ownership interests (Fractional Ownership
program): (ii) the lease of fight hours (Axis Lease program); and (iii) the sale of flight hour cards (Edge Card program and Axis Club Membership program). These services are provided on the Companys managed aircraft fleet by
professionally piloted aircraft for business and personal use. Avantairs core strategic focus is providing our customers with the highest level of safety, service and satisfaction. According to AvData, Avantair is the fifth largest company in
the North American fractional aircraft industry based on aircraft fleet size. As of June 30, 2011, Avantair operated 56 aircraft within its fleet, which is comprised of 47 aircraft for fractional ownership, 5 company-owned core aircraft and 4
leased and company-managed aircraft. In addition, Avantair provides limited fixed based operation (FBO) services in Clearwater, FL, Camarillo, CA and Caldwell, NJ. In January 2011, the Company opened a maintenance facility in Dallas,
Texas.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a
going concern. This basis of accounting contemplates the successful recovery of the Companys assets and the satisfaction of its liabilities in the normal course of business. As of June 30, 2011, the Companys recurring losses
resulted in a working capital deficit of approximately $63.9 million and a stockholders deficit of approximately $44.0 million. Avantairs primary growth strategy is to continue to increase the number of fractional share owners and
lessees and aircraft under management, as well as increase the number of flight hour cards. At June 30, 2011, the Company had 25.5 fractional aircraft shares available for sale. In addition to the cost of acquiring aircraft, Avantairs
primary expenses are related to fuel, aircraft repositioning (i.e., moving an aircraft to another location to accommodate a customers need and for demonstration flights for sales purposes), flight operations and pilot expenses, maintenance,
charters, insurance and sales general and administrative expenses. To finance its growth strategy, the Company will continue to actively pursue additional funds through equity financing, including the sale of additional shares of common and
preferred stock, asset sales, promotional sales incentives, cash receipts associated with accelerated payments of management and maintenance fees, debt financing, or a combination thereof. At June 30, 2011 and 2010, Avantair had assets of
approximately $110.9 million and $131.6 million, respectively. For the fiscal years ended June 30, 2011 and 2010, the Company had revenue of approximately $149.0 million and $143.0 million, respectively, and net losses of approximately $10.8
million and $4.0 million, respectively. Avantair has incurred losses since inception and may not be able to generate sufficient net revenue from its business in the future to achieve or sustain profitability and positive cash flows. At
August 31, 2011, the Company had approximately $4.0 million of unrestricted cash on hand. Assuming cash flows and sales remain consistent with recent operating activity and expenses remain at or below recent levels, the Company believes that
its cash position will be sufficient to continue operations for at least the next twelve months.

NOTE 2  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, and have been prepared in conformity with accounting principles generally accepted in the
United States of America (U.S. GAAP). All material intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity
with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates and assumptions are based upon managements
best knowledge of current events and actions that the Company may take in the future. The Company is subject to uncertainties such as the impact of future events, economic, environmental and political factors and changes in the Companys
business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Companys consolidated financial statements will change as new events occur, as more
experience is acquired, as additional information is obtained and as the Companys operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies
are reflected in the reported financial condition and results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management
affect: the proper recording of revenue arrangements with multiple deliverables, the allowance for doubtful accounts, the carrying value of long-lived assets, the amortization period of long-lived assets, the provision for (benefit of) income taxes
and related deferred tax accounts, certain accrued expenses and contingencies, warrant valuations and managements assessment of its ability to continue as a going concern.

In January 2011, the Company changed its estimate of its depreciable life of its core aircraft to 20 years from an original seven year
life. This change in estimate was based upon an evaluation of the aircrafts actual service life. This change in estimate was adopted prospectively and resulted in a $1.3 million reduction in depreciation expense recognized during the year
ended June 30,



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##### Table of Contents

2011.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid short-term investments. Cash in the amount of $5.6 million and $9.4 million at
June 30, 2011 and 2010, respectively, was primarily held in financial institutions, with maturities of three months or less from the date of acquisition.

Cash-restricted

Restricted cash includes cash whereby the Companys
ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations. The Company agreed to restrict approximately $2.4 million in cash at both
June 30, 2011 and 2010, to secure letters of credit related to deposits for leases, provide security for credit card charge backs and to secure fuel purchases. Management believes that these amounts will be restricted for at least one year and,
accordingly, has classified such cash as non-current.

Revenue Recognition

Avantair is engaged in the sale, lease and management of fractional ownership interests of professionally piloted aircraft for personal
and business use and access to its aircraft fleet through either 15 or 25 hour flight hour cards (either individually or through the Companys Axis Club Membership program). In the case of fractional ownership sales, the aircraft are sold in
one-sixteenth shares or multiples thereof. The purchase agreement grants the customer an undivided interest in a specified aircraft. When a customer purchases a fractional share or enters into a lease of a fractional share through the Companys
Axis Lease Program (introduced in February 2011), they are also required to enter into a management and maintenance agreement which grants the customer the right to the use of the aircraft for a specified number of hours each year. Under the terms
of the management and maintenance agreement, the Company agrees to manage, operate and maintain the aircraft on behalf of the customer in exchange for a fixed monthly fee which is recognized ratably over the term of the agreement, usually five
years. If a customer prepays its management and maintenance fee, the prepayment is recorded as unearned revenue and is recognized as revenue on a monthly basis in accordance with the schedule provided for within each agreement. Flight hour cards
provide customers with a fixed number of flight hours for a fixed fee. The Company defers the entire amount paid by the customer and recognizes revenue on an incremental basis as aircraft hours are flown. Axis Club Membership fees are paid by the
customer in advance, deferred and recognized as revenue over the three year membership term. Similar to standard flight hour card sales, payment for flight hour cards sold through the Axis Club Membership program are collected in advance of access
to the aircraft fleet, deferred and recognized as revenue on an incremental basis as aircraft hours are flown over the three year membership term.

Fractional Aircraft Sold and Lease Revenue

Fractional aircraft sold and
lease revenue includes revenue from fractional aircraft shares sold and fractional lease revenue from the Companys Axis Lease Program. Axis Lease Program lease revenue is the monthly fee charged lessees over their lease terms, typically two to
five years.

Prior to the first quarter of fiscal year 2011, the Company did not have the objective evidence specified by ASC
605-25 to determine the fair value of fractional aircraft shares sold independent of the fair value of the management and maintenance agreement entered into by the purchaser of the fractional aircraft share. Therefore, the Company adopted the
provisions of ASC 605-25 to account for the sale of fractional aircraft shares under which fractional aircraft share sales revenue and related costs of fractional aircraft shares sold were deferred at the time of sale and were recognized ratably
over the five-year life of the management and maintenance agreement.

Effective July 1, 2010, the Company adopted the
guidance of ASU 2009-13, which updates ASC 605-25, to value its management and maintenance agreements independent of the sale of a new fractional aircraft share and recognizes fractional aircraft share sales revenue and related costs of fractional
aircraft shares sold at the time of the fractional aircraft share sale. The Company reported the adoption of ASU 2009-13 for sales beginning in fiscal year 2011 without reflecting the impact of the new accounting guidance on fractional aircraft
share sales made prior to July 1, 2010. However, see the discussion in the paragraph immediately following concerning the accounting for the sale of select fractional aircraft shares with a repurchase guarantee. The adoption of ASU 2009-13 has
a material effect on the financial statements issued in periods after July 1, 2010 with respect to the sale of new fractional aircraft shares without residual guarantees. There was a single fractional aircraft share sold during the year ended
June 30, 2011 requiring recognition under this new guidance. Had the sale of this share been accounted for under the prior revenue recognition policy, the effect in the current year would not be material.

In July 2010, the Company initiated a promotion on select fractional aircraft shares that offer customers a discount on the fractional
aircraft share purchase price and a guarantee to repurchase the fractional aircraft share at the expiration of the related management and maintenance agreement, at the customers option, at a determined percent of the original purchase price
less the specified remarketing fee. The program requires that the owners of the select fractional aircraft shares enter into a seven year



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##### Table of Contents

management and maintenance agreement. The sale of the select fractional aircraft shares have been accounted for as operating leases in accordance with ASC 840 and the revenue earned (less the
guaranteed residual value) in connection with the select fractional aircraft shares is recognized ratably over the term of the management and maintenance agreement, usually seven years. During the year ended June 30, 2011, the Company sold
eighteen select fractional aircraft shares under this program. At June 30, 2011, guarantees under this program totaled approximately $4.6 million and are included in deferred revenue related to fractional aircraft share sales.

Referral Incentive Hours

The Company accounts for the additional hours granted under the referral incentive program by expensing costs as they are incurred. Such
costs have not been material to date.

Management and Maintenance Agreement

Revenue earned in connection with the management and maintenance agreements with fractional share owners and Axis Lease Program lessees is
recognized ratably over the term of the agreement, typically two to five years. If a customer prepays its management and maintenance fee for a period of one year or longer, the prepayment is recorded as unearned revenue and amortized into revenue on
a monthly basis in accordance with the schedule provided for within each agreement.

Flight hour card and Axis Club Membership
Revenue

Flight hour card revenue. The Company sells access to its aircraft fleet through either a 15 or 25 hour
flight hour card for flight time without the requirement to purchase an ownership share in an aircraft. The card holder pays the Company the entire amount in advance of access to the aircraft fleet. The Company defers the entire amount paid and
recognizes revenue on an incremental basis as aircraft hours are flown.

Axis Club Membership revenue. In February
2009, the Company initiated the Axis Club Membership program. The Axis Club Membership program offers customers access to blocks of flight time at a discount from standard flight hour card rates for a set, three year membership fee. The program
requires that Axis Club members purchase a minimum of three 25 hour blocks of flight hour cards over the three year membership term. Axis Club Membership fees are paid in advance, deferred and recognized over the three year membership term. Similar
to standard flight hour card sales, payment for flight hour cards sold through the Axis Club Membership program are collected in advance of access to the aircraft fleet, deferred and recognized as revenue on an incremental basis over the three year
membership term. The Axis Club Membership program was suspended effective March 2011.

Other Revenues

Other revenues are comprised primarily of revenue from demonstration flights, the sale of previously owned fractional aircraft shares, and
revenue from the sale of fuel and rental of hangar space at the Companys Clearwater, FL, Camarillo, CA, and Caldwell, NJ facilities. Demonstration revenue is earned as the Company charges prospective fractional share owners on an hourly basis
for each hour the prospective share owners are flown to demonstrate the quality and capabilities of the aircraft. The Company recognizes revenue related to these demonstration flights when the flight is completed. Revenue from the sale of previously
owned fractional aircraft shares are recorded similar to the sale of new fractional aircraft shares. Revenue from fuel sales and hangar rentals are recorded when goods are delivered or services are rendered.

Aircraft Costs Related To Fractional Sales

As a result of the initial adoption of ASC 605-25, the Company recognized revenue from the sale of fractional aircraft shares as income over the five-year period of the management and maintenance
agreement. The aircraft costs related to sales of fractional aircraft shares consist of the cost of the aircraft which is recorded as an asset and recognized as the cost of fractional aircraft shares sold over the five-year period of the management
and maintenance agreement. In connection with its adoption of ASU 2009-13, the Company established the specific objective evidence required by ASC 605-25 for arrangements with multiple-deliverables. Management adopted ASU 2009-13 on a prospective
basis effective July 1, 2010 and applied the separation accounting to new fractional aircraft share sales contracts. Fractional aircraft share sale costs are recognized at the time of a fractional aircraft share sale, rather than over the
five-year period of the management and maintenance agreement.

Maintenance Expense Policy

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



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Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts
(see below).

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts of approximately $0.2 million as of both June 30, 2011 and 2010 of account receivables for estimated losses arising from the inability of
its customers to make required payments. The Companys estimate is based on factors surrounding the credit risk of certain clients, historical collection experience and a review of the current status of accounts receivable. It is reasonably
possible that the Companys estimate of the allowance for doubtful accounts will change if the financial condition of the Companys customers were to deteriorate, resulting in a reduced ability to make payments.

Prepaid Pilot Training

The costs related to the training of pilots as required by Federal Aeronautic Regulations are capitalized and amortized over the twelve
month certification period.

Customer Deposits

Customer deposits are cash payments received from customers who have purchased a fractional interest in an aircraft where that specific aircraft is not available for delivery.

Advertising Costs

Advertising costs are expensed as incurred and totaled approximately $2.2 million and $1.8 million for the years ended June 30, 2011
and 2010, respectively.

Inventory

Fuel and aircraft stock inventory is valued at the lower of cost (determined by the first-in, first-out method) or market.

Deferred Rent

The aggregate of minimum annual operating lease payments are
expensed on a straight-line basis over the term of the related leases. The amount by which straight-line rent differs from actual lease payments is recognized as deferred rent and totaled approximately $2.6 million and $2.5 million at June 30,
2011 and 2010, respectively, and is included in other liabilities.

Income Taxes

Income taxes are accounted for under the asset and liability method in accordance with ASC 740Income Taxes. Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Effective July 1, 2007, the Company adopted the provisions of the ASC 740 relating to uncertain tax positions. ASC 740 prescribes a
recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing authorities. The Company has identified its federal tax return and State of Florida tax return as major tax jurisdictions, as defined in ASC 740. The Company evaluations
were performed for the tax years ended 2005 through 2011. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial
position. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.

Stock-Based
Compensation

The Company has one stock-based compensation plan, the 2006 Long Term Incentive Plan, which the
Companys shareholders approved, for employees, certain non-employees and non-employee directors. Stock-based awards under this plan may consist of common stock, common stock units, stock options, cash-settled or stock-settled stock
appreciation rights, restricted stock and other stock-based awards. The Company issues common stock to satisfy stock option exercises or vesting of stock awards.

The Company accounts for stock-based compensation to employees and directors in accordance with ASC 718Compensation-Stock Compensation, which requires the recognition of compensation
expense for employee stock options and other



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

Accounting for Derivative Instruments

The Company accounts for derivative instruments in accordance with ASC 815Derivatives and Hedging, which establishes
accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts. The Company also considers ASC 815, which provides criteria for
determining whether freestanding contracts that are settled in a companys own stock, including common stock warrants, should be designated as either an equity instrument, an asset or as a liability under ASC 815. The Company evaluates the
conversion feature embedded in its Series A Convertible Preferred Stock based on the criteria of ASC 815 to determine whether the conversion feature would be required to be bifurcated from the Preferred Stock and accounted for separately as a
derivative. Based on managements evaluation, the embedded conversion feature did not require bifurcation and derivative accounting as of June 30, 2011.

Goodwill and Long-lived Assets

The Company accounts for goodwill and other
intangible assets under ASC 350 Intangibles  Goodwill and Other.ASC 350, eliminates the amortization of goodwill and certain other intangible assets and requires an evaluation of impairment by applying a fair-value based
test. The goodwill impairment test is a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of the
Companys reporting units based on discounted cash flow models using revenue and profit forecasts and comparing the estimated fair values with the carrying values of the Companys reporting units which include the goodwill. If the
estimated fair values are less than the carrying values, a second step is performed to compute the amount of the impairment by determining an implied fair value of goodwill. The determination of the Companys implied fair
value requires the Company to allocate the estimated fair value to the assets and liabilities of the reporting unit. Any unallocated fair value represents the implied fair value of goodwill, which is compared to the corresponding
carrying value.

The Company performs its annual goodwill impairment testing in the fourth quarter of each year, or more
frequently if events or changes in circumstances indicate that goodwill may be impaired. Application of the goodwill impairment test requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts,
estimation of the long-term rate of growth for the Company, estimation of aircraft in use, the useful life over which cash flows will occur, and determination of cost of capital. Changes in these estimates and assumptions could materially affect the
determination of fair value and/or conclusions on goodwill impairment.

Fair Value Measurements

The Company has adopted the provisions of ASC 820Fair Value Measurements and Disclosures which defines fair value,
establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants. ASC 820 permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each
period.

The fair value of the Companys assets and liabilities that qualify as financial instruments under ASC 820,
including cash and cash equivalents, cash-restricted, accounts receivable, accounts payable, accrued liabilities, unearned management fees and flight hour card revenues and short-term debt, are carried at cost, which approximates fair value due
to the short-term maturity of these instruments. Long-term obligations approximate fair value, given managements evaluation of the instruments current rates compared to market rates of interest and other factors.

The Company measures at fair value basis based on the following key objectives:



| |  |  | The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A three-level hierarchy (Valuation Hierarchy) for fair value measurements;
| | - |  | ----------------------------------------------------------------------------



| |  |  | Consideration of the Companys creditworthiness when valuing liabilities; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | Disclosures about instruments measured at fair value.
| | - |  | -----------------------------------------------------

The Valuation Hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instruments categorization within the Valuation
Hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of the Valuation Hierarchy and the distribution of the Companys financial assets within it are as follows:



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| |  |  | Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2 - Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair
value requires significant management judgment or estimation. This category generally includes goodwill and other items.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the fiscal year ended June 30, 2011, the Company has elected not to use the fair value option permitted under ASC 820 for any of its financial assets and financial liabilities that are not
already recorded at fair value.

Loss Per Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

For the fiscal year ended June 30, 2011, a total of 8,269,964 share-equivalents of potentially dilutive securities were excluded
from the calculation of diluted earnings per share. These securities were comprised of 2,373,620 warrants issued to Lorne Weil in conjunction with the LW Air transactions; 455,887 warrants issued to EarlyBirdCapital (EBC), of which
437,887 remained outstanding as of June 30, 2011 in consideration for services rendered as placement agent for the Companys June, September and October 2009 private placements; 951,100 options to purchase shares of common stock were
outstanding during the periods but were not included in the computation of diluted earnings per common share because the options exercise prices were greater than the average market price of the common shares, and therefore, their effect would
be anti-dilutive as calculated under the treasury method promulgated by ASC 260Earnings Per Share; and 4,251,857 shares of common stock reserved for issuance upon the conversion of the outstanding Series A Preferred
Shares. In accordance with ASC 260s contingently issuable shares provision, 255,500 shares of unvested common stock awards (restricted stock) granted were not included in the calculation because all the necessary conditions
for vesting had not been satisfied.

For the fiscal year ended June 30, 2010, a total of 3,732,214 share-equivalents of
potentially dilutive securities were excluded from the calculation of diluted earnings per share. These securities were comprised of 2,373,620 warrants issued in conjunction with the LW Air transactions to Lorne Weil, 455,887 warrants issued to EBC
in consideration for services rendered as placement agent for the Companys June, September and October 2009 private placements and 776,100 options to purchase shares of common stock were outstanding during the periods but were not included in
the computation of diluted earnings per share because the options exercise prices were greater than the average market price of the common shares, and therefore, their effect would be anti-dilutive as calculated under the treasury method
promulgated by ASC 260Earnings Per Share. In accordance with ASC 260s contingently issuable shares provision, 126,607 shares of performance-based, unvested common stock awards (restricted stock) granted were not
included in the calculation because all the necessary conditions for vesting had not been satisfied.

Property and Equipment

Property and equipment is recorded at cost and consists principally of aircraft purchased which are not fractionalized and
depreciated using the straight-line method over the estimated useful lives of the respective assets. Improvements to leased premises are amortized over the shorter of the related lease term or the estimated useful lives of the improvements. Cost and
related accumulated depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are credited or charged to income. Depreciation and amortization is computed using the straight-line method over the
following useful lives:



|                                            |  |                                                         
|------------------------------------------- |  | --------------------------------------------------------
|Aircraft                                    |  | 7 - 20 years                                            
|Office equipment and furniture and fixtures |  | 5 - 7 years                                             
|Flight management software/hardware         |  | 5 years                                                 
|Vehicles                                    |  | 5 years                                                 
|Improvements                                |  | Lesser of estimated useful life or the term of the lease

Expenditures for maintenance and repairs of property and equipment are expensed as incurred. Major
improvements and interest costs relating to borrowings made for the acquisition of aircraft are capitalized.

The carrying
value of property and equipment to be held and used is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360 Property, Plant and
Equipment. For purposes of recognition and measurement of an impairment loss, assets are grouped at the lowest levels for which there are identifiable cash flows (the reporting unit). An asset is considered to be impaired when
the sum of the undiscounted future



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net cash flows expected to result from the use of the asset and its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is measured as the amount
by which the carrying value of the asset exceeds its estimated fair value, which is generally determined based on appraisals or sales prices of comparable assets. The Company, due to the age of property and equipment assets, determined that its
property and equipment was not impaired as of June 30, 2011.

Comprehensive Income

The Company adheres to the provisions of ASC 220, Comprehensive Income. This pronouncement establishes standards for reporting
and display of comprehensive income or loss and its components (revenues, expenses, gains and losses). The statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be
classified by their nature. Furthermore, the Company is required to display the accumulated balances of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. For the
years ended June 30, 2011 and 2010, there were no items that gave rise to other comprehensive income or loss and net income equaled comprehensive income.

Reclassifications

Certain prior year amounts in the accompanying
consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications have no effect on the Companys net income or financial position as previously reported.

Recently Issued Pronouncements

In December 2010, the Financial Accounting Standards Board (FASB) issued additional guidance related to intangibles - goodwill and other Accounting Standards Update (ASU) 2010-28,
Intangibles - Goodwill and Other (ASC 350): when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts. The guidance is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2011. The intangibles guidance modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform
step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse
qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company has evaluated the adoption of this guidance and believes there will not be an impact on its consolidated financial
condition, results of operations and cash flows.

In May 2011, the FASB issued additional guidance within ASU 2011-06,
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs related to ASC 820 Fair Value Measurement. The guidance is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011. The fair value measurement guidance consolidates guidance of the FASB and the IASB on fair value measurement, resulting in common requirements for measuring fair value and for
disclosing information about fair value measurements, including a consistent meaning of the term fair value. The Company has evaluated the adoption of this guidance and believes there will not be an impact on its consolidated financial
condition, results of operations and cash flows.

The Company does not believe that any other recently issued, but not yet
effective, accounting standards if currently adopted would have a material effect on the Companys consolidated financial statements.

NOTE 3  CONCENTRATIONS OF RISK

The Company acquires all of its aircraft and a large portion of its aircraft parts from one supplier and is dependent on that supplier for timely delivery of its airplanes and parts. Any disruption in the
delivery of these airplanes and related parts would cause the Company to incur significant costs without the benefit and the cash flow it receives from its customers.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains its cash and cash equivalents in bank
deposits, the balances of which, at times, may exceed federally insured limits. Exposure to credit risk is reduced by placing such deposits in high credit quality financial institutions. At June 30, 2011, the Company had cash and cash
equivalents in excess of federally insured limits of approximately $2.2 million.

NOTE 4  PROPERTY AND EQUIPMENT

Property and equipment, stated at cost as of June 30, 2011 and 2010, consisted of the following:



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|                                                |  |      |             |   |      |   |             |  
|----------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                |  | 2011 |             |   | 2010 |  
|Aircraft                                        |  | $    | 47,258,614  |   |      | $ | 29,744,110  |  
|Leasehold improvements                          |  |      | 5,312,374   |   |      |   | 5,120,475   |  
|Furniture, fixtures and equipment               |  |      | 1,715,221   |   |      |   | 1,441,880   |  
|Flight management software/hardware             |  |      | 2,070,563   |   |      |   | 1,895,618   |  
|Vehicles                                        |  |      | 216,081     |   |      |   | 202,581     |  
|                                                |  |      |             |   |      |   |             |  
|Total                                           |  |      | 56,572,853  |   |      |   | 38,404,664  |  
|Less: accumulated depreciation and amortization |  |      | (19,838,924 | ) |      |   | (15,821,591 | )
|                                                |  |      |             |   |      |   |             |  
|                                                |  | $    | 36,733,929  |   |      | $ | 22,583,073  |  
|                                                |  |      |             |   |      |   |             |  

Depreciation expense was approximately $4.2 million and $5.5 million as of June 30, 2011 and 2010,
respectively.

The Company capitalizes interest costs relating to borrowings or required deposits made in connection with the
acquisition of aircraft. No amounts were capitalized for the years ended June 30, 2011 or 2010.

NOTE 5  GOODWILL AND LONG-LIVED
ASSETS

The Company performed its annual evaluation during September 2011 by comparing the product of the trading price as
of June 30, 2011 and the Companys outstanding shares of common stock on that date to the Companys book value.

In accordance with ASC 350, the Company reviews long-lived assets to be held-and-used for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, the asset is considered to be impaired. Impairment losses are measured as
the amount by which the carrying amount of the asset exceeds the fair value of the asset.

In preparing its impairment
analysis, the Company derives fair value based on two approaches:

Market prices. At June 30, 2011, the quoted market for
Avantairs common stock was $1.88 per share with 26,418,246 shares outstanding giving the Company a total market capitalization of approximately $50.0 million.

Cash flow projections. Certain key assumptions used in preparing the cash flow projections, included:



| |  |  | The overall basis for managements cash flow assumptions and conclusions are based on the majority of the Companys revenue being
contractual. Therefore management can predict future management fee revenues with some certainty. The model is based on the premise that for every plane sold or leased the Company will increase management fees by an agreed upon amount per plane.
When the Company attains a certain fractionalized aircraft fleet size, management expects that the management fee income will then exceed all fixed and variable costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company has a commitment from its aircraft manufacturer for the delivery of 6 planes in the next 12 months and management believes that if it were
to take delivery of all or a portion of these aircraft, it will sell enough fractional shares, leases and flight hour time cards per month to produce sufficient cash flow to cover costs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of the analysis, no impairment charges were required for long-lived assets during the years ended June 30, 2011 and
2010.

NOTE 6  RELATED PARTY TRANSACTIONS

The following is a summary of transactions entered into since July 1, 2009, to which the Company has been a party in and in which any of the Companys executive officers, directors or beneficial
holders of more than 5.0% of its capital stock had or will have a direct or indirect material interest.

Annually, Avantair
participates as one of the sponsors of the Corporate Directors Group, an accredited educational organization of RiskMetric ISS Governance Services, of which A. Clinton Allen presides as its chairman. The sponsorship provides the Corporate Directors
Group with 23 hours of aircraft usage annually in lieu of compensation. In addition, the Company sponsors the Corporate Directors Group Piaggio Avanti Owners Club which provides the club with 15 hours of aircraft usage annually in lieu of
compensation. The total value of the sponsorship involves amounts totaling less than $120,000.

During fiscal year 2010, the
Company sold shares of common stock to investors through the September and October 2009 private placements. Investors who participated in the placements included certain of our non-employee directors and 5.0% shareholders.

During the second quarter of fiscal 2010, the Company, through an arms-length transaction, transferred its rights to purchase



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four Piaggio Avanti II aircraft to LW Air pursuant to the existing aircraft purchase agreement between the Company and Piaggio America, Inc. Upon delivery of the aircraft, Piaggio America
returned $2.6 million of deposits previously paid on the aircraft by the Company. Simultaneous with this transaction, the Company entered into an eight-year management agreement for those aircraft and the Company issued 2,373,620 warrants to
Lorne Weil, the Managing Member of LW Air. Mr. Weil is a Company director, and by virtue of his ownership of the warrants, Mr. Weil is also a significant beneficial owner of the Company. In addition, since the contractual relationships
under the agreements with LW Air were executed following the date that Mr. Weil became a significant beneficial owner, the Company recognizes the transaction as a related party transaction.

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

In January 2011, Avantair granted 10,000 shares of restricted stock to each of its seven non-employee directors of the Companys Board of Directors. The restricted shares granted to the
directors vest one third upon each of the next three successive annual meetings, subject to the grantees continued service on the Board of Directors.

NOTE 7  INCOME TAXES

The difference between income tax benefit
provided at the Companys effective rate and the statutory rate at June 30, 2011 and 2010 are as follows:



|                                                              |  |      |             |   |      |   |            |  
|------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ---------- | -
|                                                              |  | 2011 |             |   | 2010 |  
|Income tax benefit at statutory rate                          |  | $    | 3,723,252   |   |      | $ | 1,388,996  |  
|State tax benefit, net of Federal benefit                     |  |      | 319,136     |   |      |   | 119,057    |  
|Increase (decrease) in valuation allowance                    |  |      | 15,198,119  |   |      |   | (1,679,353 | )
|Reduction of net operating loss due to Section 382 limitation |  |      | (19,240,507 | ) |      |   |           |  
|Other                                                         |  |      |            |   |      |   | 171,300    |  
|                                                              |  |      |             |   |      |   |            |  
|Totals                                                        |  | $    |            |   |      | $ |           |  
|                                                              |  |      |             |   |      |   |            |  

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax assets (liabilities) at June 30, 2011 and 2010 are as follows:



|                                                                                     |  |      |             |   |      |   |             |  
|------------------------------------------------------------------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                     |  | 2011 |             |   | 2010 |  
|Deferred tax liabilities                                                             |  |      |             |   |      |   |             |  
|Goodwill                                                                             |  | $    | (231,275    | ) |      | $ | (202,366    | )
|Depreciation                                                                         |  |      | (4,038,791  | ) |      |   | (3,013,688  | )
|Deferred revenues, net of amortized aircraft costs related to fractional share sales |  |      | (1,016,922  | ) |      |   |             |  
|Other                                                                                |  |      | (150,230    | ) |      |   | (37,342     | )
|                                                                                     |  |      |             |   |      |   |             |  
|                                                                                     |  |      | (5,437,218  | ) |      |   | (3,253,396  | )
|                                                                                     |  |      |             |   |      |   |             |  
|Deferred tax assets                                                                  |  |      |             |   |      |   |             |  
|Deferred revenues, net of amortized aircraft costs related to fractional share sales |  |      |            |   |      |   | 248,047     |  
|Other                                                                                |  |      | 2,288,759   |   |      |   | 1,566,694   |  
|Net operating loss carryforwards                                                     |  |      | 20,315,498  |   |      |   | 33,803,813  |  
|                                                                                     |  |      |             |   |      |   |             |  
|                                                                                     |  |      | 22,604,247  |   |      |   | 35,618,554  |  
|Less valuation allowance                                                             |  |      | (17,167,039 | ) |      |   | (32,365,158 | )
|                                                                                     |  |      |             |   |      |   |             |  
|                                                                                     |  |      | 5,437,218   |   |      |   | 3,253,396   |  
|                                                                                     |  |      |             |   |      |   |             |  
|Net deferred tax assets                                                              |  | $    |            |   |      | $ |            |  
|                                                                                     |  |      |             |   |      |   |             |  

The Company considers that the cumulative losses incurred create a rebuttable presumption that a full
valuation allowance continues to be required for its deferred tax assets. Therefore, the Company has offset the deferred tax assets attributable to those potential benefits through a valuation allowance in 2011 and 2010 and, accordingly, the Company
did not recognize any benefit from income taxes in the accompanying consolidated statements of operations. At June 30, 2011, the Company had net operating loss carryforwards of approximately $53.5 million which begin to expire in 2031.

Upon the completion of the Reverse Merger, the Company became subject to Section 382 of the IRS Code relating to a
change in ownership. In addition, future changes in ownership could limit the utilization of the net operating loss carryforward and may be subject to substantial annual limitation due to the ownership change limitations provided by the IRS Code of
1986, as amended and similar state provisions. The annual limitation will result in the expiration of the net operating loss before utilization.

Effective July 1, 2007, the Company adopted the provisions of the ASC 740 Income Taxes. ASC 740-10 prescribes a recognition threshold and a measurement attribute for the financial
statement recognition and measurement of tax positions taken or



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expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company believes
that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its consolidated financial position. The Company recognizes accrued interest and penalties
related to unrecognized tax benefits as income tax expense. No interest and penalties were incurred at June 30, 2011 and 2010.

Information related to the activity of the valuation allowance is as follows:



|                                           |  |          |             |   |      |   |            | 
|------------------------------------------ |  | -------- | ----------- | - | ---- | - | ---------- | 
|                                           |  | June 30, |            
|                                           |  | 2011     |             |   | 2010 |  
|Beginning balance                          |  | $        | 32,365,158  |   |      | $ | 30,685,805 | 
|Increase (decrease) in valuation allowance |  |          | (15,198,119 | ) |      |   | 1,679,353  | 
|                                           |  |          |             |   |      |   |            | 
|                                           |  |         
|Ending balance                             |  | $        | 17,167,039  |   |      | $ | 32,365,158 | 
|                                           |  |          |             |   |      |   |            | 

NOTE 8  COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company conducts a major part of its
operations from leased facilities, which include airplane hangars and administrative offices. The 15 year hangar lease in Clearwater, Florida, which began in April 2006, expires in 2020 with an option to extend through September 2025 and is
classified as an operating lease. The Company also has a 15 year lease for its fixed based operation in Camarillo, California expiring in 2021 and a 10 year lease for its fixed based operation in Caldwell, New Jersey expiring in 2018, which are
classified as operating leases. The Company is in negotiations with its various landlords regarding reducing its monetary obligations under these leases. There can be no assurance that the Company will be successful in amending the terms of the
existing agreements. In January 2011, the Company entered into a 3 year operating lease agreement for a maintenance facility in Dallas, Texas.

Most of the Companys facilities operating leases contain an option to renew at the then fair rental value for periods of five to ten years. These options enable the Company to retain use of
facilities in desirable operating areas.

During the second quarter of fiscal 2010, the Company, through an arms-length
transaction, transferred its rights to purchase four Piaggio Avanti II aircraft to LW Air pursuant to the existing aircraft purchase agreement between the Company and Piaggio America, Inc. Simultaneous with this transaction, the Company entered into
an eight-year management agreement for those aircraft. Pursuant to the agreement between the parties, the Company will manage each aircraft for a monthly fee, which is variable based upon aircraft flight hours, but will not exceed $56,500 per month.
The agreement also allows the Company to enter into short-term leases for the use of the aircraft at a specified dry lease rate per flight hour. Effective July 1, 2010, the terms of the management agreement were amended to reduce the maximum
management fee to be charged to $44,000 per month for each aircraft for the eight months ended February 28, 2011, after which the maximum management fee to be charged will continue to be $56,500 per month for each aircraft. The Company accounts
for the management agreement as an operating lease. The Company accrued $375,000 for services rendered by a third party in connection with this transaction. The fee is being amortized to aircraft lease expense over the term of the agreement.

Effective December 2010, the Company entered into an Aircraft Rental Agreement with a third party to lease one Pilatus
aircraft to be used in the Companys maintenance operations. Pursuant to the agreement between the parties, the Company will pay $12,961 per month for 3 years, which provides 300 flight hours per year to the Company. The Company accounts for
the Aircraft Rental Agreement as an operating lease.

Effective July 2011, the Company entered into an Aircraft Lease
Agreement with three third parties to lease one Piaggio Avanti II aircraft. Pursuant to the agreement between the parties, the Company will pay a total of $50,000 per month for ten years, as well as provide a total of 125 flight hours per year to
the third parties. The Company accounts for the Aircraft Lease Agreement as an operating lease.

In addition, the Company
leases transportation equipment and data processing equipment under operating leases expiring during the next three years.

Total rent expense for the years ended June 30, 2011 and 2010 was approximately $3.0 million and $3.2 million respectively.

Future minimum lease payments on these operating leases are:



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|                    |  |   |            | 
|------------------- |  | - | ---------- | 
|Year Ended June 30, |  |   |           
|2012                |  | $ | 7,306,136  | 
|2013                |  |   | 7,377,487  | 
|2014                |  |   | 7,381,883  | 
|2015                |  |   | 7,387,209  | 
|2016                |  |   | 10,464,247 | 
|Thereafter          |  |   | 20,153,164 | 
|                    |  |   |            | 
|                    |  | $ | 60,070,126 | 
|                    |  |   |            | 

Purchase Commitments

On June 20, 2008, Avantair assigned its rights and obligations to purchase twenty Embraer Phenom 100 (Phenom 100) aircraft positions to Share 100 Holding Co., LLC (Share 100),
a wholly-owned subsidiary of Avantair. On the same date, Avantair entered into a membership interest purchase agreement with Executive Air Shares Corporation (EAS), in which EAS purchased the Class A membership of Share 100 and
Avantair retained the Class B membership. EAS, as Class A member, has the rights and obligations to purchase the Phenom 100 aircraft with positions one through eighteen and to fund payment due in connection with these aircraft. EAS paid Share
100 approximately $2.47 million in connection with these transactions and made an additional $750,000 capital contribution to Share 100 in December 2008, all of which was, immediately distributed to Avantair. Avantair, as Class B member, has the
rights and obligations to purchase the Phenom 100 aircraft with positions nineteen and twenty and to fund payment due in connection with these aircraft. EAS had the option to purchase aircraft nineteen and twenty which was to have been exercised by
October 1, 2010; if exercised, EAS would reimburse Avantair for all payments made relative to these aircraft and provide all remaining funds required. In the event that EAS did not exercise the option to purchase aircrafts nineteen and twenty
by October 1, 2010, Avantair would have the right and obligation to purchase the nineteenth and twentieth aircraft. During November 2010, the Company and EAS entered into an agreement to extend the exercise requirement date to
April 1, 2011. In April 2011, the Company further extended the exercise requirement date with EAS to December 1, 2011. If EAS defaults under its obligations to purchase the aircraft positions, EAS will forfeit all deposits paid for the
undelivered aircraft, including the funds distributed to Avantair. Avantair will then be responsible for the rights and obligations of the remaining undelivered aircraft. If Avantair defaults under its obligations to purchase the last two
aircraft positions, any deposits paid by Avantair in connection with the undelivered Class B aircraft will be forfeited.

As
of June 30, 2011, Avantair had contractual commitments to purchase 51 additional Piaggio Avanti II aircraft through 2013 with a mutual understanding that the aircraft delivery dates can be extended. The total commitment, including a proposed
price escalation, is valued at approximately $323 million.

Tax Assessments

The states of California and Minnesota have assessed taxes on flights into and out of their respective states. The Company is
contractually able to pass through the prorated portion of the tax to its owners who flew the relevant flights, but there can be no assurance that owners who have already exited the program will pay their relevant portion. As a result, the
Company has accrued non-cash reserves related to those amounts it believes will not be collected.

Legal Proceedings

From time to time, the Company is party to various legal proceedings in the normal course of business. It is expected that these claims
would be covered by insurance subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. As of June 30, 2011, there were no legal proceedings which
the Company would anticipate having a material adverse effect on its financial position, results of operations or cash flows.

NOTE 9
 CAPITAL LEASE TRANSACTIONS

Midsouth Services, Inc.(Midsouth)

The Company has three separate lease agreements with Midsouth.

On October 10, 2007, Avantair acquired a core aircraft under a capital lease obligation with Midsouth. Under the lease agreement, Midsouth provided funding for the $4.7 million purchase of a
pre-owned Piaggio P-180 aircraft and holds title to the aircraft. Midsouth leases the aircraft exclusively to Avantair on a five year lease at 15.0% interest per annum. The monthly lease payments for the term of the lease are $89,000. At
the end of the five year lease, Avantair shall purchase the aircraft from Midsouth at the guaranteed residual value in the amount of approximately $2.3 million. Avantair also has the option to purchase the aircraft anytime during the lease term
at the then current guaranteed residual value as set forth on the amortization schedule without penalty. The obligation outstanding at June 30, 2011 totaled approximately $3.2 million.

In April 2009, the Company entered into a lease agreement, effective April 6, 2009, pursuant to which Midsouth leases a



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Piaggio P-180 aircraft to the Company for a ten year lease term at $75,000 per month, at 15.0% interest per annum, plus taxes if applicable. The Company is required to provide Midsouth with 100
hours of flight time per year during the lease term. Hours have been accounted for at their fair value and are liquidated as hours are flown. Midsouth has the sole option to terminate the lease at the end of the fifth year of the lease term and
require the Company to purchase the leased aircraft for approximately $3.8 million within ninety days of that date. If this option is not exercised by Midsouth, the lease will continue for the remaining five years of the lease term and, at the
end of the ten year lease, the Company will be required to purchase the aircraft from Midsouth for $0.3 million. The obligation outstanding at June 30, 2011 totaled approximately $4.5 million.

In April 2009, the Company amended a lease agreement previously accounted for as an operating lease under ASC 840Leases, dated as of July 31, 2006 between the Company and Midsouth. Pursuant to the amendment, the Company was required to pay $74,900 per month, at 11.0% interest per annum until August 2011, the expiration of the lease
agreement. In addition, the Company agreed to purchase the leased aircraft for approximately $3.0 million from Midsouth within sixty days following the expiration of the lease agreement. The lease, as amended, had been classified as a capital lease
in the accompanying consolidated balance sheets. The obligation outstanding at June 30, 2011 totaled approximately $2.9 million, net of deferred interest of $0.1 million. In August 2011, the Company entered into a second amendment to the
aircraft lease agreement dated July 2006 to extend the lease term for five years, and decrease monthly payments to $62,500. Upon expiration of the five year term, the Company may purchase, at its sole discretion, the aircraft at a purchase price of
approximately $0.3 million.

The capital lease obligations are included in long-term debt in the accompanying consolidated
balance sheets.

Future minimum lease payments on these capital leases are:



|                                        |  |   |            |  
|--------------------------------------- |  | - | ---------- | -
|Year Ended June 30,                     |  |   |           
|2012                                    |  | $ | 5,058,000  |  
|2013                                    |  |   | 3,636,693  |  
|2014                                    |  |   | 4,472,000  |  
|2015                                    |  |   |           |  
|2016                                    |  |   |           |  
|                                        |  |   |            |  
|Total minimum payments                  |  |   | 13,166,693 |  
|Less: amount representing interest      |  |   | (2,443,720 | )
|                                        |  |   |            |  
|Present value of minimum lease payments |  | $ | 10,722,973 |  
|                                        |  |   |            |  

NOTE 10  SHORT-TERM DEBT

Short-term debt consists of the following as of June 30, 2011 and 2010:



|                                                |  |      |            |  |      |   |            | 
|----------------------------------------------- |  | ---- | ---------- |  | ---- | - | ---------- | 
|                                                |  | 2011 |            |  | 2010 |  
|Midsouth Services, Inc                          |  | $    | 12,400,000 |  |      | $ | 11,000,000 | 
|Lear 60-208, LLC, Bolivar, LLC, and Alpine, LLC |  |      | 600,000    |  |      |   |           | 
|                                                |  |      |            |  |      |   |            | 
|Short-term debt                                 |  | $    | 13,000,000 |  |      | $ | 11,000,000 | 
|                                                |  |      |            |  |      |   |            | 

On April 2, 2009, Avantair entered into two Floor Plan Agreements with Midsouth Services, Inc. to
replace Midsouths existing Floor Plan Agreements dated July 31, 2008. The new Floor Plan Agreements extended credit to Avantair in an increased amount of $11.6 million to be used towards the purchase of new Piaggio P-180
aircraft. The Floor Plan Agreements cover an amount not to exceed $5.8 million for a term of twelve months. The Company has the sole option to terminate one of the Floor Plan Agreements during the term with ninety days written notice. The
Company agreed to pay Midsouth a monthly fee of $82,500 for the first Floor Plan Agreement during the term and $75,000 for a second Floor Plan Agreement. During December 2010, the Company repaid the first Floor Plan Agreements in the amount of $5.8
million. Borrowings outstanding under the second remaining Floor Plan Agreement at June 30, 2011 totaled $5.2 million.

In March 2011, the Company negotiated financing terms pursuant to a Floor Plan Financing Agreement with Midsouth which shall be used
towards the purchase of new Piaggio P-180 aircraft for resale in the fractional program. The most recent agreement is similar to the previous arrangements between Midsouth and Avantair in that Midsouth agrees to extend credit to
Avantair for the purchase of fractional aircraft for a term of the later of: (1) twelve months or (2) until the date on which the net purchase price for the aircraft financed pursuant to the Floor Plan Agreement is paid. The
Company has agreed to pay Midsouth a monthly fee of $65,000 following the commencement of the term pursuant to the Floor Plan Agreement. Borrowings outstanding under the Floor Plan Agreement at June 30, 2011 totaled $6.0 million.

In April 2011, the Company entered into a short-term note payable with Midsouth to finance $0.5 million deposits with interest of
12.0% per annum, for one new Piaggio Avanti II aircraft. The Company has agreed to pay Midsouth a monthly fee of $5,000 following the commencement of the term pursuant to the Aircraft Deposit Agreement. The term of the agreement, as extended



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in July 2011, is five months or until the Company takes delivery of the aircraft. Borrowings outstanding under the agreement at June 30, 2011 totaled $0.5 million.

In May 2011, the Company entered into a short-term note payable Midsouth to finance $0.7 million deposits with interest of 12.0% per
annum, for one new Piaggio Avanti II aircraft. The Company has agreed to pay Midsouth a monthly fee of $7,000 following the commencement of the term pursuant to the Aircraft Deposit Agreement. The term of the agreement, as extended in July 2011, is
four months or until the Company takes delivery of the aircraft. Borrowings outstanding under the agreement at June 30, 2011 totaled $0.7 million.

In addition, during May 2011, the Company entered into a short-term note payable with Lear 60-208, LLC, Bolivar, LLC, and Alpine Air, LLC to finance $0.6 million deposits for one new Piaggio Avanti II
aircraft. The short-term note bears interest of 9.7% following the commencement of the term pursuant to the Aircraft Deposit Agreement. The term of the agreement is four months or until the Company takes delivery of the aircraft. Borrowings
outstanding under the agreement at June 30, 2011 totaled $0.6 million, and were repaid in July 2011.

NOTE 11  LONG- TERM DEBT

Long-term debt consists of the following as of June 30, 2011 and 2010:



|                                    |  |      |            |   |      |   |            |  
|----------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                    |  | 2011 |            |   | 2010 |  
|Midsouth Services, Inc              |  | $    | 10,722,973 |   |      | $ | 11,506,490 |  
|Wells Fargo Equipment Finance, Inc. |  |      | 2,240,600  |   |      |   | 2,680,816  |  
|Iberia Bank                         |  |      | 1,567,595  |   |      |   | 1,753,803  |  
|Wells Fargo                         |  |      | 1,523,275  |   |      |   | 2,081,403  |  
|Jet Support Services, Inc.          |  |      |           |   |      |   | 1,769,176  |  
|Other long-term debt                |  |      |           |   |      |   | 31,517     |  
|                                    |  |      |            |   |      |   |            |  
|                                    |  |      | 16,054,443 |   |      |   | 19,823,205 |  
|Less current portion                |  |      | (7,856,117 | ) |      |   | (4,202,726 | )
|                                    |  |      |            |   |      |   |            |  
|Long-term debt                      |  | $    | 8,198,326  |   |      | $ | 15,620,479 |  
|                                    |  |      |            |   |      |   |            |  

Midsouth Services, Inc.

Avantair leases core aircraft under capital lease obligations with Midsouth Services, Inc (see Note 9).

Wells Fargo Equipment Finance, Inc.

In February 2005, the Company entered
into financing arrangements for the purchase of core aircraft under various notes payable with Wells Fargo Equipment Finance, Inc. The notes outstanding at June 30, 2011 totaled approximately $2.2 million and are payable in monthly installments
ranging from $10,644 to $38,480 with interest ranging from 5.96% to 6.12% per annum, through 2012. The notes are collateralized by the aircraft.

Iberia Bank

In August 2007, the Company and Iberia Bank, formerly Century
Bank F.S.B., executed a $2.2 million note agreement for the purchase of one aircraft. The note outstanding at June 30, 2011 totaled approximately $1.6 million and is payable in monthly installments of $27,175 with interest of 8.25% per
annum, through August 3, 2012. The note is collateralized by the aircraft.

Wells Fargo

On October 31, 2007, the Company and Wells Fargo, formerly Wachovia Bank, entered into a financing arrangement for the purchase of
one used aircraft at a total purchase price of approximately $4.5 million (inclusive of the value of a flight hour card of 100 hours). Financing was obtained from Wells Fargo through a note payable of $3.9 million. This debt will be repaid monthly
over 7 years at an interest rate of the LIBOR rate plus 4.0%. Borrowings outstanding under this arrangement at June 30, 2011 totaled approximately $1.5 million. As of June 30, 2011, the Company was not in compliance with certain financial
covenants and has requested, but has not yet received as of the date of this filing, a waiver of compliance from these financial covenants. As a result, long-term debt relating to this note payable balance outstanding as of June 30, 2011 has
been classified as a short-term obligation.

Jet Support Services, Inc.

On April 24, 2006, Avantair financed an aircraft maintenance program contract with Jet Support Services, Inc. (JSSI) in
the amount of $3.4 million. The promissory note provided for seven monthly installments of $145,867 and 53 monthly installments of $45,867, respectively, including interest at 7.0% per year. On April 15, 2008, the Company entered into a
financing arrangement with JSSI by means of a $5.5 million promissory note. The new note matures on April 1, 2011 and bears interest at 10.0% per annum, with



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35 monthly payments of principal and interest in an amount of $185,127 beginning on June 2, 2008. The new note covered the remaining balance of $0.4 million of the aforementioned promissory
note, other costs and fees to be paid by the Company under service agreements with JSSI and related deferred financing costs of approximately $1.0 million which will be amortized over the life of the note using the effective interest method. Upon
entering into this payment arrangement and the $5.5 million promissory note, the parties terminated the aircraft maintenance program contract and agreed to apply the unamortized prepayment under the aircraft maintenance program contract to the
engine maintenance program and to amortize this amount over the remaining 35 month term of that program. During April 2011, the Company repaid the full amount of the promissory note of approximately $0.2 million.

Other long-term debt

In
October 2009, the Company and Kevco Aviation Inc. executed a $56,614 note agreement for the purchase of equipment. The note was payable in monthly installments of $2,912 with interest of 3.25% per annum through May 2011. During May 2011, the
Company repaid the full amount of the promissory note of $2,904.

Future minimum payments on long-term debt in fiscal years
subsequent to June 30, 2011 are as follows:



|                    |  |   |            | 
|------------------- |  | - | ---------- | 
|Year Ended June 30, |  |   |           
|2012                |  | $ | 7,778,987  | 
|2013                |  |   | 4,244,184  | 
|2014                |  |   | 4,031,272  | 
|2015                |  |   |           | 
|2016                |  |   |           | 
|                    |  |   |            | 
|                    |  | $ | 16,054,443 | 
|                    |  |   |            | 

NOTE 12  CAPITAL STOCK

General

The Companys authorized capital stock consists of 75 million shares of common stock, par value, $0.0001 per share, and
1 million shares of preferred stock, par value of $0.0001 per share.

Common Stock

The holders of shares of Avantairs common stock are entitled to one vote for each share on all matters submitted to a vote of
stockholders and do not have cumulative voting rights. Subject to the preferences and rights, if any, applicable to the shares of preferred stock, the holders of the shares of common stock are entitled to receive dividends if and when declared by
the Board of Directors. Subject to the prior rights of the holders, if any, of the preferred shares, the holders of the Companys shares of common stock are entitled to share ratably in any distribution of its assets upon liquidation,
dissolution or winding-up, after satisfaction of all debts and other liabilities.

Shares of Reserved Common Stock

Common Stock. As of June 30, 2011, the Company had 26,418,246 shares of its common stock outstanding and 2,069,066
shares of common stock available for future issuance under the Companys 2006 Long-Term Stock Incentive Plan. As of June 30, 2011, the Company has 152,000 shares of Series A Preferred Shares outstanding.The Company has
4,251,857 shares of common stock reserved on its books and records for issuance upon the conversion of the outstanding Series A Preferred Shares. As a result of the sales of shares consummated on June 30, September 25, and
October 16, 2009, the conversion price of the Series A Preferred Shares was reduced from $5.15 to $3.57. The remaining shares of authorized and unissued common stock will be available for future issuance without additional stockholder approval
(subject to applicable securities laws and the rules of any securities market or exchange on which our common stock is quoted at the time).

In January 2011, the Companys 2006 Long-Term Incentive Plan was amended to increase the number of shares available to be awarded thereunder by 2.0 million shares for a total of 3.5 million
shares of common stock reserved for issuance under the Plan.

Preferred Stock

Shares of preferred stock may be issued from time to time in one or more series and the Companys Board of Directors, without
approval of the stockholders, is authorized to designate series of preferred stock and to fix the rights, privileges, restrictions and conditions to be attached to each such series of shares of preferred stock. The issuance of shares of preferred
stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of holders of the Companys shares of common stock.



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There are 152,000 shares of Series A Convertible Preferred Stock outstanding. The terms of
the Series A Convertible Preferred Stock are set forth in a Certificate of Designations filed November 14, 2007 with the State of Delaware. Pursuant to such Certificate of Designations, the shares of Series A Convertible Preferred Stock
(a) will rank senior to all currently outstanding classes of stock of the Company with respect to liquidation and dividends, (b) will be entitled to receive a cash dividend at the annual rate of 9.0%, payable quarterly (with such rate
being subject to increase up to a maximum of 12.0% if such dividends are not timely paid), (c) will be convertible into shares of the Companys common stock at any time at the option of the Investors based on an adjusted conversion price
of $3.57 per share (subject to adjustment), (d) may be redeemed by the Company following the seventh anniversary of the issuance of the shares of Series A Convertible Preferred Stock, (e) may be redeemed by the Company in connection with
certain change of control or acquisition transactions, (f) will be redeemed by the Company following the ninth anniversary of the issuance of the shares of Series A Convertible Preferred Stock, upon receipt of the written consent of the holders
of a majority of the then outstanding shares of Series A Convertible Preferred Stock (g) will vote on an as-converted basis with the Companys Common Stock and (h) will have a separate vote over certain material transactions or
changes which the Company may wish to effect. The Company paid its investment adviser 5.0% of cash amount of this preferred financing.

NOTE 13  STOCK-BASED COMPENSATION

The Company has one stock-based compensation plan, the 2006 Long Term Incentive Plan, which the Companys shareholders approved, for employees, certain non-employees and non-employee directors.
Stock-based awards under this plan may consist of common stock, common stock units, stock options, cash-settled or stock-settled stock appreciation rights, restricted stock and other stock-based awards. The Company issues common stock to satisfy
stock option exercises or vesting of stock awards.

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

Stock Options

The term of stock options granted are determined by
the Compensation Committee not to exceed 10 years. Additionally, the term of the stock grants is limited to five years if the grantee owns in excess of 10.0% of the stock of the Company at the time of the grant. The vesting provisions of individual
options may vary but in each case will generally provide for vesting of at least 33.0% per year of the total number of shares subject to the option. The exercise price and other terms and conditions of stock options will be determined by the
Compensation Committee at the time of grant. The exercise price per share may not be less than 100 percent of the fair market value of a share of the Companys common stock on the date of the grant.

Upon adoption of the Plan in February 2007, the Company granted 150,000 stock options to certain non-employee members of the board of
directors and incurred no stock-based compensation expense during the fiscal year ended June 30, 2011 due to the options being fully vested and $94,361 of stock-based compensation expense during the year ended June 30, 2010. In April 2010,
Avantair granted a total of 626,100 stock options to Company employees (other than its three named executive officers) with each receiving a specified number of stock options which resulted in $307,447 and $62,164 of stock-based compensation expense
for the years ended June 30, 2011 and 2010, respectively. In addition, by recommendation of the Compensation Committee and approval by the Board of Directors, 175,000 stock options were granted to the Companys three named executive
officers, effective October 1, 2010, pursuant to the Companys 2006 Long-Term Incentive Plan, with each receiving a specified number of stock options, resulting in $60,641 of stock-based compensation expense during the year ended
June 30, 2011. One-third of the shares will vest one year following the grant date, and one-twelfth of the shares will vest every three months thereafter. All options granted under the 2006 Long-Term Incentive Plan are accounted for in
accordance with ASC 718 and have been included in general and administrative expenses in the accompanying consolidated statements of operations.

The Company estimated the fair value of each option award on the date of grant using the Black-Scholes option pricing model (BSM). Due to its limited history, the Company has estimated
expected volatility based on the historical volatility of certain companies as determined by management. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of the Companys employee
stock options. The dividend yield assumption is based on the Companys intent not to issue a dividend under its dividend policy. The expected term is based on the simplified method in accordance ASC 820.

The fair value of share-based payment awards was estimated using the BSM option pricing model with the following assumptions and weighted
average fair values:



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|                        |  |                          |  |                 
|----------------------- |  | ------------------------ |  | ----------------
|                        |  | Year Ended June 30, 2011
|                        |  | Range                    |  | Weighted Average
|Volatility              |  | 60.68% - 61.58%          |  | 61.41%          
|Risk-free interest rate |  | 3.29% - 4.67%            |  | 3.56%           
|Expected term           |  | 6.00 years               |  | 6.00 years      
|Dividend rate           |  | 0.00% - 0.00%            |  | 0.00%           
|Fair values             |  | $1.55 - $3.23            |  | $1.87           
|                        | 
|                        |  | Year Ended June 30, 2010
|                        |  | Range                    |  | Weighted Average
|                        |  |                          |  |                 
|Volatility              |  | 60.68% - 61.58%          |  | 61.41%          
|Risk-free interest rate |  | 3.29% - 4.67%            |  | 3.56%           
|Expected term           |  | 6.00 years               |  | 6.00 years      
|Dividend rate           |  | 0.00% - 0.00%            |  | 0.00%           
|Fair values             |  | $1.51 - $3.23            |  | $1.84           

The following table summarizes the activity for the Companys stock options for the year ended
June 30, 2011:



|                                                          |  |        |         |   |                              |   |      |                                                 |  |  |                         |  |  |   |   | 
|--------------------------------------------------------- |  | ------ | ------- | - | ---------------------------- | - | ---- | ----------------------------------------------- |  |  | ----------------------- |  |  | - | - | 
|                                                          |  | Shares |         |   | WeightedAverageExercisePrice |   |      | WeightedAverageRemainingContractualLife (Years) |  |  | AggregateIntrinsicValue | 
|Outstanding, beginning of fiscal year                     |  |        | 776,100 |   |                              | $ | 3.17 |                                                 |  |  |                         |  |  | $ |  | 
|Grants                                                    |  |        | 175,000 |   |                              |   | 2.40 |                                                 |  |  |                         |  |  |   |   | 
|Exercises                                                 |  |        |        |   |                              |   |     |                                                 |  |  |                         |  |  |   |   | 
|Forfeitures                                               |  |        | (81,100 | ) |                              |   | 2.65 |                                                 |  |  |                         |  |  |   |   | 
|Expirations                                               |  |        |        |   |                              |   |     |                                                 |  |  |                         |  |  |   |   | 
|                                                          |  |        |         |   |                              |   |      |                                                 |  |  |                         |  |  |   |   | 
|Total outstanding, end of fiscal year                     |  |        | 870,000 |   |                              |   | 3.06 |                                                 |  |  | 8.34                    |  |  | $ |  | 
|                                                          |  |        |         |   |                              |   |      |                                                 |  |  |                         |  |  |   |   | 
|Total exercisable, end of fiscal year                     |  |        | 331,667 |   |                              |   | 3.87 |                                                 |  |  | 7.37                    |  |  |   |  | 
|                                                          |  |        |         |   |                              |   |      |                                                 |  |  |                         |  |  |   |   | 
|Total unvested, end of fiscal year                        |  |        | 538,333 |   |                              |   | 3.28 |                                                 |  |  | 7.51                    |  |  |   |  | 
|                                                          |  |        |         |   |                              |   |      |                                                 |  |  |                         |  |  |   |   | 
|Total vested or expected to vest as of end of fiscal year |  |        | 783,000 |   |                              |   | 3.06 |                                                 |  |  | 8.34                    |  |  |   |  | 
|                                                          |  |        |         |   |                              |   |      |                                                 |  |  |                         |  |  |   |   | 

As of June 30, 2011, approximately $0.2 million of total deferred compensation cost related to
options issued to its three named executive officers will be recognized in expense over the remaining vesting period of 2.25 years. As of June 30, 2011, approximately $0.5 million of total deferred compensation cost related to options issued to
employees (other than its executive officers) will be recognized in expense over the remaining vesting period of 1.78 years.

Restricted
Shares

The Company expenses restricted shares granted in accordance with the provisions of ASC 718. The fair value of
the restricted shares issued is amortized on a straight-line basis over the vesting period of three years. In January 2011, the Company issued 10,000 shares of restricted common stock to each of its non-employee members of its Board of Directors.
One-third of the 10,000 shares awarded in January 2011 will vest upon each of the next three successive annual meetings, subject to the grantees continued service on the Board of Directors. Compensation expense related to this restricted stock
is recognized ratably over the three years based on the fair value of the shares at date of grant, which was $2.35 per share. As of June 30, 2011, the Company had 255,500 shares of restricted stock and 150,000 stock options outstanding. The
expense associated with the awarding of restricted shares for the years ended June 30, 2011 and 2010 is $133,170 and $230,622, respectively, which is included in general and administrative expense on the accompanying consolidated statement of
operations. As of June 30, 2011, $366,162 of deferred compensation cost related to restricted stock will be charged to operations over the next three years.

The following table summarizes information concerning nonvested restricted shares:



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##### Table of Contents

|                                                   |  |        |         |   |                            |   |      | 
|-------------------------------------------------- |  | ------ | ------- | - | -------------------------- | - | ---- | 
|                                                   |  | Shares |         |   | Weighted AverageFair Value |  
|Restricted Shares balance beginning of fiscal year |  |        | 119,588 |   |                            | $ | 1.66 | 
|Granted                                            |  |        | 170,000 |   |                            |   | 2.33 | 
|Forfeited/cancelled                                |  |        |        |   |                            |   |     | 
|Vested                                             |  |        | (62,000 | ) |                            |   | 1.80 | 
|                                                   |  |        |         |   |                            |   |      | 
|Restricted Shares balance end of fiscal year       |  |        | 227,588 |   |                            |   |      | 
|                                                   |  |        |         |   |                            |   |      | 

NOTE 14  WARRANTS

On November 14, 2008, the Company commenced a warrant retirement program, which offered the holders of its publicly traded warrants the opportunity to purchase 14,146,000 shares of common stock on an
amended term for a limited time. Pursuant to a tender offer that expired on December 12, 2008, the Company announced the completion of the warrant retirement program. Under the tender offer, no warrants were exercised and the Company decided
not to extend the offer. The original terms of the warrants were reinstituted and the warrants expired on February 23, 2009.

In addition, options to purchase a total of 300,000 units at an exercise price of $9.90 per unit (with each unit consisting of one share of common stock and two warrants, each to purchase one share of
Company common stock at an exercise price of $6.25 per share) were sold in connection with the underwriting of its initial public offering and expired on February 23, 2010.

On June 30, 2009, Avantair sold 567,200 units at a price of $2.50 per unit to investors in a private placement, generating net
proceeds of approximately $1.3 million. Each unit consisted of two shares of common stock and one warrant to purchase one common share. The warrants had an exercise price of $4.00 per share and were exercisable until June 30, 2012. The sale was
consummated under the terms of a Securities Purchase Agreement between Avantair and each of the private placement investors. Pursuant to a registration rights agreement, Avantair agreed to use it best efforts to register the shares issued to the
private placement investors and the shares underlying the warrants issued to the private placement investors for sale under the Securities Act of 1933, as amended. By agreement between Avantair, the investors in the June 30, 2009 private
placement and that offerings placement agent, the period for additional sales of units was extended until October 15, 2009. On September 25, 2009, the Company sold an additional 250,000 units at a price of $2.50 per unit generating
net proceeds of approximately $0.6 million. On October 19, 2009, the Company sold 8,818,892 shares of common stock to new investors at a price per share of $0.95 for net proceeds of approximately $8.0 million pursuant to the October 16,
2009 Securities Purchase and Exchange Agreement. In addition, pursuant to the October 16, 2009 Securities Purchase and Exchange Agreement, on October 19, 2009 the Company exchanged the 817,200 outstanding warrants that had been issued to
existing investors in the June and September private placements for an aggregate of 516,127 shares of common stock. The October 2009 Securities Purchase and Exchange Agreement terminated the Securities Purchase and Registration Rights Agreements
entered into in connection with the June and September 2009 private placements.

In connection with the transactions
contemplated by the Securities Purchase and Exchange Agreement, Avantair entered into a Registration Rights Agreement with the parties to the Securities Purchase and Exchange Agreement. The Registration Rights Agreement required the Company
promptly, but not later than November 18, 2009, to file a registration statement registering for sale the shares issued to the investors and to cause the registration statement to be declared effective prior to the earlier of (i) five
business days after the Securities and Exchange Commission (SEC) has informed the Company that no review of the registration statement will be made or that it has no further comments on the registration statement or
(ii) January 17, 2010 (March 18, 2010, if the registration statement is reviewed by the SEC). Under the terms of the Registration Rights Agreement, the Company was obligated to maintain the effectiveness of the sale registration statement,
subject to certain exceptions, until all securities registered thereunder are sold or otherwise can be sold pursuant to Rule 144, without restriction and to promptly register the securities covered thereby on a short-form registration
statement once the Company becomes eligible to do so. The Company would have been required to pay to each investor an amount in cash, as liquidated damages, 1.5% of the aggregate amount invested by such investor for each 30-day period or pro rata
for any portion thereof, that the Company failed to be in compliance with the requirements of the Registration Rights Agreement. As the registration statement was declared effective by the SEC by the stipulated date, the Company incurred no
liquidated damages under these provisions of the Registration Rights Agreement. The investors in the June, September and October 2009 private placements included certain of our directors and 5.0% shareholders.

On October 16, 2009, pursuant to an agreement between EBC and the Company, in consideration for services rendered as placement agent
for the Companys June, September and October 2009 private placements, the Company issued to EBC and its affiliates 455,887 fully vested warrants which expire on June 30, 2012. Each warrant permits the holder to purchase one share of the
Companys common stock at an exercise price of $1.05 per share. The shares issuable upon exercise of the warrants are entitled to registration rights under the October 2009 Registration Rights Agreement. The Company may redeem the warrants at
any time on or after October 16, 2011 at the price of $0.01 per warrant, provided that the volume weighted average price of the Companys common stock has been at least 200.0% of the exercise price of a warrant for any twenty trading days
during any consecutive thirty trading day



F-26



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##### Table of Contents

period ending on the third trading day preceding the date of the notice of redemption. [In November 2010, the Company, as part of a cashless transaction, exchanged 18,000 outstanding warrants
that had been issued to EBC for an aggregate of 10,687 shares of common stock.] The fair value of the warrants calculated in accordance with ASC 820 estimated at $0.46 per warrant was charged to additional paid-in capital. The fair values of the
warrants issued were estimated on the date of grant. A Lattice option-pricing model, applying the following assumptions, was used to estimate the fair value for the warrants issued:



|                     |  |   |            |       
|-------------------- |  | - | ---------- | ------
|Stock Price (1)      |  | $ | 1.15       |       
|Exercise Price (2)   |  | $ | 1.05       |       
|Interest Rate (1)    |  |   | 1.34       | %  (4)
|Volatility           |  |   | 79.93      | %     
|Time to Maturity (2) |  |   | 2.71 years |       
|Number of Steps (3)  |  |   | 12         |       
|Exercise Factor      |  |   | 2.00       |       
|Minimum Market Price |  | $ | 2.10       |       



|(1) | As of the Valuation Date
|--- | ------------------------

|(2) | Per warrant agreement
|--- | ---------------------

|(3) | Number of quarterly periods in the 2.71 year term.
|--- | --------------------------------------------------

|(4) | Based on vesting period on date of grant.
|--- | -----------------------------------------

During the second quarter of fiscal 2010, the Company, through an arms-length transaction, transferred its rights to purchase four Piaggio Avanti II aircraft to LW Air pursuant to the existing aircraft
purchase agreement between the Company and Piaggio America, Inc. Upon delivery of the aircraft, Piaggio America returned $2.6 million of deposits previously paid on the aircraft by the Company. Simultaneous with this transaction, the Company
entered into an eight-year management agreement for those aircraft and the Company issued 2,373,620 warrants to Lorne Weil, the Managing Member of LW Air. By virtue of his ownership of the warrants, Mr. Weil is now a significant beneficial
owner of the Company. In addition, since the contractual relationships under the agreements with LW Air were executed following the date that Mr. Weil became a significant beneficial owner, the Company recognizes the transaction as a related
party transaction. Pursuant to the agreement between the parties, the Company will manage each aircraft for a monthly fee which is variable based upon aircraft flight hours but will not exceed $56,500 per month. The agreement also allows the Company
to enter into short-term leases for the use of the aircraft at a specified dry lease rate per flight hour. Effective July 1, 2010, the terms of the management agreement were amended to reduce the maximum management fee to be charged for
the Companys management of each of these aircraft to not exceed $44,000, for the eight months ending February 28, 2011, after which the maximum management fee will continue to not exceed $56,500 per month for each aircraft.

The warrants issued in conjunction with the LW Air transactions to Lorne Weil, Managing Member of LW Air, provide for the purchase of
2,373,620 shares of the Companys common stock at an exercise price of $1.25 per share. The warrants expire on October 16, 2012, and the warrants and any underlying shares purchased upon exercise of the warrants may not be sold,
transferred, assigned or hypothecated, in whole or in part, at any time on or prior to October 16, 2011, other than to an affiliate of the warrant holder. The Company may redeem the warrants held by Lorne Weil at any time on and after
October 16, 2011 at the price of $0.01 per warrant, provided that the volume weighted average price of the Companys common stock has been at least 300.0% of the exercise price of a warrant for any twenty trading days during any
consecutive thirty trading day period ending on the third trading day preceding the date of the notice of redemption. On December 15, 2009, LW Air took delivery of the fourth aircraft and, as such, has satisfied the conditions for vesting of
all the warrants. The Company accounted for the LW Air transaction and the issuance of the warrants by recording the charges paid to the owner (including the fair value of the warrants calculated in accordance with ASC 820 estimated at $0.34 per
warrant) to the Cost of Flight Operations on a straight-line basis ratably over the initial term of the agreement. The fair values of the warrants issued were estimated on the date of grant. A Lattice option-pricing model, applying the following
assumptions, was used to estimate the fair value for the warrants issued:



|                           |  |   |                  |       
|-------------------------- |  | - | ---------------- | ------
|Stock Price (1)            |  | $ | 1.15             |       
|Exercise Price (2)         |  | $ | 1.25             |       
|Interest Rate (1)          |  |   | 0.015% and 0.066 | %  (4)
|Volatility                 |  |   | 78.89            | %     
|Time to Maturity (2)       |  |   | 3 years          |       
|Number of Steps (3)        |  |   | 156              |       
|Suboptimal Exercise Factor |  |   | 3.00             |       
|Minimum Market Price       |  | $ | 3.75             |       



|(1) | As of the Valuation Date
|--- | ------------------------

|(2) | Per warrant agreement
|--- | ---------------------

|(3) | Number of weeks in a 52 week year over a 3 year period.
|--- | -------------------------------------------------------

|(4) | Based on vesting period of one and nine weeks.
|--- | ----------------------------------------------

Due to its limited history as a public company, the Company has estimated expected volatility for the EBC and Lorne Weil



F-27



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##### Table of Contents

warrant valuations based on the historical volatility of certain similar companies. The risk-free interest rate assumptions are based upon observed interest rates appropriate for the expected
term of the warrants.

NOTE 15  RETIREMENT PLAN

Defined Contribution Plan

The Company has a 401(k) Profit Sharing Plan
(the 401(k) Plan) available for substantially all employees. Employees may contribute up to the annual Internal Revenue Service dollar limit. Company contributions to the 401(k) Plan are up to 50% of the first 6% of employee
contributions. Amounts charged to operations were $0.3 million and $0.2 million for the years ended June 30, 2011 and 2010, respectively. The Company has not made any discretionary profit sharing employer contributions to the 401(k) Plan to
date.

NOTE 16  SUBSEQUENT EVENTS

During July 2011, the Company entered into an Aircraft Lease Agreement with three third parties for the Company to lease one Piaggio Avanti II aircraft. Pursuant to the agreement between the parties, the
Company will pay a total of $50,000 per month for ten years, as well as provide a total of 125 flight hours per year to the three third parties. The Company accounts for the Aircraft Lease Agreement as an operating lease.

In September 2011, simultaneous with the termination of the Floor Plan Finance Renewal Agreement and Renewal Guaranteed Aircraft Purchase
Agreement for a Piaggio P-180 aircraft, the Company entered into a Lease Agreement, pursuant to which Midsouth leases a Piaggio P-180 aircraft to the Company for a five year lease term at $75,000 per month, at 15.0% interest per annum, plus taxes if
applicable. Following the expiration of the term of the Lease Agreement, the Company has agreed to purchase the leased aircraft for approximately $3.4 million from Midsouth. The Company will account for the lease as a capital lease.

In September 2011, the Company took delivery of a new Piaggio Avanti P-180 aircraft, for resale in the Fractional Ownership program,
financed through a Floor Plan Financing Agreement with Midsouth. The financing agreement is similar to the previous arrangements between Midsouth and Avantair with a term of the later of: (1) twelve months or (2) until the date on
which the net purchase price for the aircraft financed pursuant to the Floor Plan Agreement is paid. The Company has agreed to pay Midsouth a monthly fee of $72,500 following the commencement of the term pursuant to the Floor Plan Agreement.
Borrowings outstanding under the Floor Plan Agreement totaled $6.0 million.



F-28



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##### Table of Contents

EXHIBIT INDEX



|               |  |                                                                                                                                                                              
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Description                                                                                                                                                                  
|               | 
|2.1            |  | Stock Purchase Agreement, dated as of October 2, 2006 between Ardent Acquisition Corporation and the Stockholders of Avantair, Inc. (1)                                      
|               | 
|2.2            |  | Letter Agreement, entered into as of October 2, 2006 between Avantair, Inc., certain equity investors and Ardent Acquisition Corporation. (1)                                
|               | 
|2.3            |  | Amendment to Stock Purchase Agreement, dated as of December 15, 2006 between Ardent Acquisition Corporation and the Stockholders of Avantair, Inc. (2)                       
|               | 
|2.4            |  | Securities Purchase and Exchange Agreement, dated as of October 16, 2009 by and among Avantair, Inc. and certain investors. (6)                                              
|               | 
|3.1            |  | Amended and Restated Certificate of Incorporation. (3)                                                                                                                       
|               | 
|3.2            |  | By-laws. (4)                                                                                                                                                                 
|               | 
|3.3            |  | Second Amended and Restated By-laws. (5)                                                                                                                                     
|               | 
|3.4            |  | Third Amended and Restated By-laws. (16)                                                                                                                                     
|               | 
|3.5            |  | Certificate of Designations, filed with the Secretary of State of the State of Delaware on November 14, 2007. (9)                                                            
|               | 
|4.1            |  | Specimen Unit Certificate. (4)                                                                                                                                               
|               | 
|4.2            |  | Specimen Common Stock Certificate. (4)                                                                                                                                       
|               | 
|4.3            |  | Specimen Warrant Certificate. (4)                                                                                                                                            
|               | 
|4.4            |  | Form of Unit Purchase Option to be granted to Representative. (4)                                                                                                            
|               | 
|4.5            |  | Form of Warrant Agreement between Continental Stock Transfer & Trust Company and the Registrant. (4)                                                                         
|               | 
|4.6            |  | Form of Warrant Agreement issued by the Registrant dated as of October 16, 2009. (12)                                                                                        
|               | 
|10.1*          |  | Avantair Leadership Deferred Compensation Plan Adoption Agreement, dated December 18, 2008. (11)                                                                             
|               | 
|10.2*          |  | Avantair Leadership Deferred Compensation Plan Basic Plan Document, dated December 18, 2008. (11)                                                                            
|               | 
|10.3           |  | Registration Rights Agreement among the Registrant and the Initial Stockholders. (4)                                                                                         
|               | 
|10.4           |  | Form of Warrant Purchase Agreement among EarlyBirdCapital, Inc. and each of the Initial Stockholders. (4)                                                                    
|               | 
|10.5           |  | Investors Rights Agreement, entered into as of October 2, 2006, between Avantair, Inc. and certain equity investors. (1)                                                     
|               | 
|10.6           |  | Loan Agreement, entered into as of October 2, 2006 by and among Avantair, Inc., CNM, Inc. and Ardent Acquisition Corporation. (1)                                            
|               | 
|10.7           |  | Amended and Restated Promissory Note, dated June 1, 2007, made by Avantair, Inc. to CNM, Inc. (8)                                                                            
|               | 
|10.8*          |  | 2006 Long- Term Incentive Plan. (15)                                                                                                                                         
|               | 
|10.9*          |  | Employment Agreement dated September 24, 2009, between the Registrant and Steven F. Santo. (6)                                                                               
|               | 
|10.10*         |  | Employment Agreement dated July 19, 2011, between the Registrant and Stephen M. Wagman. (19)                                                                                 
|               | 
|10.11          |  | Floor Plan Finance Agreement, dated April 2, 2009, between the Registrant and MidSouth Services, Inc. with the term commencing on April 3, 2009. (7)                         
|               | 
|10.12          |  | Floor Plan Finance Agreement, dated April 2, 2009, between the Registrant and MidSouth Services, Inc. with the term commencing on a date that is yet to be determined.
(7)   
|               | 
|10.13          |  | Floor Plan Finance Agreement, dated March 14, 2011, between the Registrant and MidSouth Services, Inc. with the term commencing on a March 14, 2011 (18)                     
|               | 
|10.14          |  | Registration Rights Agreement, dated as of October 16, 2009 among the Registrant and certain investors. (10)                                                                 
|               | 
|10.15          |  | Piaggio America, INC. P180 Avanti II Aircraft Purchase Agreement, dated November 10, 2005. (14)(X)                                                                           
|               | 
|10.16          |  | Piaggio America, INC. P180 Avanti II Aircraft Purchase Agreement, dated September 24, 2007. (14)(X)                                                                          
|               | 
|10.17          |  | Amendment of Aircraft Purchase Agreements dated November 10, 2005 and September 24, 2007 between Piaggio America, Inc. and Avantair, Inc. (dated September 15, 2008).
(13)(X)
|               | 
|10.18          |  | Aircraft Management Agreement between LW Air I LLC and Avantair, Inc. dated October 19, 2009. (13)(X)                                                                        
|               | 
|10.19          |  | Aircraft Lease Agreement between LW Air I LLC and Avantair, Inc. dated October 19, 2009. (13)(X)                                                                             
|               | 
|10.20          |  | Cross Lease Exchange Agreement dated October 19, 2009.(13) (X)                                                                                                               
|               | 
|14.1           |  | Code of Conduct and Professional Ethics for directors, officers and employees, including our Chief Executive Officer and Chief Financial Officer. (20)                       
|               | 
|14.2           |  | Amended Avantair Code of Conduct and Professional Ethics, dated as of March 30, 2011. (17)                                                                                   
|               | 
|23.2           |  | Consent of AvData. (8)                                                                                                                                                       
|               | 
|31.1           |  | Chief Executive Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1934()                                                      



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##### Table of Contents

|     |  |                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------
|     | 
|31.2 |  | Chief Financial Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934()
|     | 
|32.1 |  | Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350()                                            
|     | 
|32.2 |  | Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350()                                            
|     | 
|99.1 |  | Charter for the Audit Committee of the Board. (8)                                                                      
|     | 
|99.2 |  | Charter for the Corporate Governance and Nominating Committee of the Board. (9)                                        
|     | 
|99.3 |  | Charter for the Compensation Committee of the Board.(8)                                                                



|() | Filed herewith
|--- | --------------

|* | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------

|(X) | Portions of the exhibit have been omitted pursuant to a request for confidential treatment.
|--- | -------------------------------------------------------------------------------------------

|(1) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 4, 2006.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 20, 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to Registrants current report on Form 8-K, filed with the Securities and Exchange commission on March 15, 2007.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the Registrants Registration Statement on Form S-1 (SEC File No. 333-121028).
|--- | -----------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 3, 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 15, 2009.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 7, 2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to the Registrants Registration Statement on Form S-1 (SEC File No. 333-142312).
|--- | -----------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 20, 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 22, 2009.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 22, 2008.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference to the Registrants Registration Statement on Form S-1 (SEC File No. 333-163152), filed with the Securities and Exchange Commission
on November 17, 2009.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference to the Registrants Registration Statement on Form S-1/A (SEC File No. 333-163152), filed with the Securities and Exchange
Commission on January 26, 2010.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference to the Registrants Registration Statement on Form S-1/A (SEC File No. 333-163152), filed with the Securities and Exchange
Commission on March 8, 2010.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 20, 2011.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(16) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 8, 2011.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(17) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 5, 2011.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 17, 2011.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(19) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 19, 2011.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(20) | Incorporated by reference to the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 28, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------