**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 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,
              2008**




** ̈**
            **Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
                of 1934****For
              the
              transition period fromto**





**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, and two
      Warrants**


**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





*Note* —
      Checking the box above will not relieve any registrant required to file reports
      pursuant to Section 13 or 15(d) of the Exchange Act from their obligations
      under those Sections.





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 if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and 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.  ̈





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
      second fiscal quarter, the aggregate market value of the common stock held
      by
      non-affiliates of the Registrant was $29,528,384. 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
      June 30, 2008 there were 15,286,792 shares of Common Stock, $.0001 par value
      per
      share, outstanding.





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,” “intents,” “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 acquire additional inventory of
                aircraft;**(4)*
            *the
                loss of key personnel;*


*(5)*
            *our
                inability to effectively manage our growth;**(6)*
            *our
                inability to generate sufficient cash flows to meet our debt service
                obligations;*


*(7)*
            *competitive
                conditions in the fractional aircraft industry;**(8)*
            *extensive
                government regulation;*


*(9)*
            *the
                failure or disruption of our computer, communications or other technology
                systems;**(10)*
            *increases
                in fuel costs;*


*(11)*
            *changing
                economic conditions; and**(12)*
            *our
                failure to attract and retain qualified pilots and other operations
                personnel.*




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 and elsewhere in this document could have a material adverse
      effect on Avantair.









Table
      of
      Contents





PART
                  I
              1Item
                1. BusinessItem
                  1A. Risk Factors
              7Item
                  1B. Unresolved Staff Comments
              14Item
                  2. Facilities
              14Item
                  3. Legal Proceedings
              14Item
                  4. Submission of Matters to a Vote of Security Holders
              14PART
                  IIItem
                5. Market for Registrant's Common Equity, Related Stockholder Matters
                and
                Issuer Purchases of Equity Securities
              15Item
                  6. Selected Financial Data
              16Item
                  7. Management's Discussion And Analysis Of Financial Condition
                  And Results
                  Of Operations
              18Item
                  7A. Quantitative and Qualitative Disclosures about Market Risk
              26Item
                  8. Financial Statements and Supplementary Data
              27Item
                  9. Changes in and Disagreements with Accountants on Accounting
                  and
                  Financial Disclosure
              27Item
                  9A(T). Controls and Procedures
              27Item
                  9B. Other Information
              28PART
                  IIIItem
                10. Directors,
                Executive Officers and Corporate Governance
              29Item
                  11. Executive Compensation
              32Item
                  12. Security Ownership of Certain Beneficial Owners and Management
                  and
                  Related Stockholder Matters
              40Item
                  13. Certain Relationships and Related Transactions and Directors
                  Independence
              43Item
                  14. Principal Accountant Fees and Services
              43PART
                  IVItem
                15. Exhibits
                and Financial Statement Schedules
              44




i




**PART
      I**





**Item 1.
      BUSINESS**





**Overview**





Avantair
      is engaged in the sale and management of fractional ownerships of professionally
      piloted aircraft for personal and business use. According to AvData, Avantair
      is
      the fifth largest company in the North American fractional aircraft industry.
      As
      of June 30, 2008, Avantair operated 49 aircraft (which includes 5 company owned
      “core” aircraft) with 60 additional Piaggio Avanti II aircraft on order.
      Avantair operates fixed flight based operations (FBO) in Camarillo, California
      and, effective August 1, 2008, in Caldwell, New Jersey. The Company also
      provides aircraft maintenance, concierge and other services to customers and
      services to the Avantair fleet from hangars and office locations in Clearwater,
      Florida, Camarillo, California and Caldwell, New Jersey.




Avantair
      generates revenues primarily through the sale of fractional ownership shares
      of
      aircraft, by providing operations, maintenance and management services related
      to these aircraft, and from the sale of time cards providing 25 hours of flight
      time per year of access to its aircraft fleet without the requirement of
      purchasing fractional ownership shares. The Company markets and sells fractional
      ownership interests to individuals and businesses with a minimum share size
      of a
      1/16 th ownership interest. Under maintenance and management agreements with fractional
      owners, Avantair provides pilots, maintenance, fuel and hangar space for the
      aircraft.





Avantair
      presently sources all of its aircraft from a single manufacturer, Piaggio
      America, Inc. As of June 30, 2008, Avantair had contractual commitments to
      purchase 60 additional Piaggio aircraft through 2013 at wholesale pricing for
      an
      aggregate of approximately $349 million from this manufacturer. The
      Company has been able to defer aircraft deliveries to bring them in
      line with sales expectations based upon existing economic conditions and the
      contract provides flexibility to defer aircraft deliveries in the future. At
      June 30, 2008, the Company had 26 fractional aircraft shares available for
      sale.
      In addition to the cost of acquiring aircraft, Avantair’s primary expenses have
      been related to fuel, aircraft repositioning (i.e., moving an aircraft to
      another location to accommodate a customer’s need and demonstration flights for
      sales purposes), maintenance, charters and insurance.





As
      a
      relatively new Company, Avantair has expended funds necessary to establish
      the
      operations and business infrastructure required of a fractional airline and
      has
      not generated sufficient cash from operations to fund its growth. Therefore,
      the
      Company raised additional funds through equity offerings, debt financing and
      the
      sale of assets to fund operations. In connection with future financing of
      growth, and depending upon the Company’s generation of cash from operations, the
      Company may obtain additional funds through equity financing, including the
      sale
      of additional shares of common stock, assets sales, accelerated payments of
      maintenance and management fees, debt financing, or a combination thereof.





In
      order
      to achieve profitable income from operations before depreciation and
      amortization, management currently estimates that the Company will need to
      have
      45 fully fractionalized aircraft. At June 30, 2008, the Company had 41.3
      fractionalized aircraft. Therefore, Avantair’s primary growth strategy is to
      continue to increase the number of fractional share owners and aircraft under
      management. The Company believes income from operations before depreciation
      and
      amortization is useful to investors as it excludes certain non-cash expenses
      that do not directly relate to the operation of fractionalized aircraft. This
      measure is a supplement to generally accepted accounting principles (GAAP)
      used
      to prepare the Company’s financial statements and should not be viewed as a
      substitute for GAAP measures. In addition, the Company’s non-GAAP measure may
      not be comparable to non-GAAP measures of other companies. Income from
      operations according to GAAP would include depreciation and amortization
      expense, estimated to be approximately $330,000 per month at the time of fully
      fractionalizing the 45 th aircraft.




*Recent
      Developments*




On
      June
      17, 2008, the Company filed with the Securities and Exchange Commission a
      post-effective amendment on Form S-3 to the Company’s Registration Statement on
      Form S-1 (No. 333-121028). Upon effectiveness of the amendment, the registration
      statement will be available for the issuance of shares of common stock upon
      exercise of the Company’s outstanding publicly traded warrants. The Company also
      approved a warrant retirement program, pursuant to which it will offer the
      holders of its 13,800,000 publicly traded warrants the opportunity to exercise
      those warrants on amended terms for a limited time. The Company is modifying
      the
      13,800,000 warrants to reduce the per-share exercise price from $5.00 to $3.00.
      In addition, for each warrant exercised by a holder at the reduced exercise
      price, the holder will have the option to engage in a cashless exercise by
      exchanging ten additional warrants for one additional share of common stock.
      Warrants tendered for cashless exercise may only be tendered in groups of ten
      and no fractional shares will be issued for odd lots of nine or less. The
      Company has filed a Tender Offer Statement on Schedule TO and related materials
      as a pre-commencement communication. The Tender Offer has not commenced and
      the
      Company and its agents are not currently accepting tenders at this time. The
      Company will issue a press release announcing the commencement of the tender
      offer once it has begun.




On
      June
      20, 2008, Avantair assigned its rights and obligations to purchase twenty
      Embraer 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 payments due in connection with these aircraft. EAS paid
      Share 100 approximately $2.5 million in connection with these transactions
      and
      will make an additional $750,000 capital contribution to Share 100 on or before
      December 1, 2008, all of which has or will be, respectively, immediately
      distributed to Avantair. Avantair, as Class B member, has the rights and
      obligations to purchase aircraft take out nineteen and twenty and to
      fund payment due in connection with these aircraft. EAS has the option to
      purchase aircraft nineteen and twenty, which must be exercised by October 1,
      2010; if exercised, EAS shall reimburse Avantair for all payments made relative
      to these aircraft and provide all remaining funds required. In the event that
      EAS does not exercise the option to purchase aircraft nineteen and twenty by
      October 1, 2010, Avantair will have the right and obligation to purchase the
      nineteenth and twentieth aircraft.  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.





In
      July
      2008, the Company repaid the Promissory Note (“Note”) with Century Bank F.S.B.
      (“Lender”), which provided financing to the Company in the amount of $5,200,000
      to be used towards the purchase of a new Piaggio P-180 aircraft. The Company
      paid the following fees for the Note: (1) $37,500 on the effective date of
      the
      Note and (2) $75,000 on the 30 th day of
      the each month thereafter until repayment in full of the principal amount of
      the
      Note (“Term”). The principal amount of the Note was to be paid in full within
      120 days from the effective date of the Note. The Company was to also make
      partial payments to the Lender in $325,000 increments upon the closing of each
      fractional interest and the Lender was to provide partial lien releases as
      to
      the respective fractional interests sold. Additionally, the Company would pay
      a
      fee of $52,000 at the time of repayment in full of the principal amount of
      the
      Note, constituting a fee of 1 % of the principal amount. Since the Company
      repaid the note in full in July 2008 (within 90 days after the effective date
      of
      the note), the fee was reduced to 0.5% of the principal amount or $26,000.




1





*Industry
      Overview*





Fractional
      aircraft ownership provides customers with the convenience and flexibility
      of
      private air service without the more significant costs associated with sole
      ownership of an aircraft. 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
      threats and security-related inconveniences. For businesses and high net worth
      individuals, fractional ownership often offers 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 100 flight hours
      (50 flight hours for each one-sixteenth share) for the term of the contract,
      which is typically five years. 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. The fractional shareowner contacts Avantair’s flight scheduling
      personnel to schedule use of the plane.




According
      to AvData and JetNet, the North American fractionally owned aircraft fleet
      has
      grown from 8 aircraft in 1986 to an aggregate of 1,073 aircraft as of April
      2008, and the number of fractional share owners has grown to 5,902 in that
      same
      period. According to AvData and JetNet, there are only five companies which
      have
      3% or more of the total market for fractional aircraft, based upon the units
      in
      operation - NetJets, Flight Options, FlexJet, CitationShares, and Avantair,
      with
      NetJets having a market share of approximately 50% and Avantair’s three largest
      competitors having a combined market share of over 80%. According to JetNet,
      as
      of April 2008, Avantair had an approximate market share of 7%.




The
      general aviation industry builds and sells aircraft ranging from single
      passenger, single engine propeller planes to multimillion dollar transoceanic
      jets costing $50 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 million to $50 million. 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;




•
            
            efficiency;




•
            
            maintenance
                cost;




•
            
            manufacturer;
                and




•
            
            runway
                requirements.





Some
      of
      Avantair’s principal competitors are owned by aircraft manufacturers, which have
      resulted in their fleets being largely comprised of aircraft built by their
      respective parent companies. Avantair, however, is not owned by any
      manufacturer, giving it a greater level of flexibility in future aircraft
      selections than most of its competitors.




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. As a result, fractional operators’ strategy is to place
      orders for aircraft in advance, and only sell shares within a few weeks prior
      to
      taking delivery of the aircraft. Fractional operators may also offer card
      programs, which provide a certain number of flight hours to be used during
      a
      specific period of time, generally one year.




The
      capital requirements of the fractional aviation business are less intensive
      than
      other segments of the aviation industry. Ordering aircraft requires 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. The
      fractional operator’s strategy is to sell the plane in advance, so that the
      title transfers to the fractional shareowner within hours or days after title
      transfers from the manufacturer to the fractional operator. As a consequence,
      the fractional operator would receive the funds from the share owners virtually
      at the same time as the bulk of the payments are paid to the
      manufacturer.




2




*How
      Avantair’s Fractional Ownership Program Works*





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 the list price of $425,000
      for a one-sixteenth share. Purchase prices for larger interests maybe 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 the
      Avantair program. A monthly maintenance and management fee, currently $9,650,
      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 efficiency of the
      Piaggio Avanti and the way Avantair calculates its management fee, Avantair’s
      surcharges are 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 using a
      calculation based on the current Consumer Price Index, but will not exceed
      the
      then-current published 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 interest. The owner may exceed the number of annual
      allocated hours by up to 20%, to the extent that the owner did not use all
      of
      their allocated 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.





*Aircraft
      Usage and Scheduling*





Attempting
      to divide the use of a plane among multiple parties to maximize its value can
      be
      logistically challenging. A fractional share 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
      of
      the impending year’s peak travel days, which will not exceed 25 days for each
      calendar year.




For
      all
      flights outside of the Primary Service Area (PSA), comprised of the continental
      United States, certain airports in the Bahamas and Cabo San Lucas, 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 filled on a first-come
      first-served basis, provided that, for each such request, the fractional owner
      has provided sufficient information regarding the trip to enable Avantair to
      schedule the trip.





*Chartering*





Whenever
      possible, Avantair will schedule an aircraft from its fleet for each request
      for
      use by a fractional owner. In the event that none of Avantair’s aircraft are
      available, 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.





*Expiration
      of the Program*





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 the owner’s interest and
      purchase an interest in a new aircraft that participates or will participate
      in
      the Avantair program or (iii) retain this interest and renew their participation
      in the program.





*Sales
      and Marketing*





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





Avantair
      targets customers based on demographic data, including net worth, household
      income, job title and age. Avantair has just recently focused its sales efforts
      on a national basis, whereas previously market efforts were focused
      regionally.





Avantair
      uses a variety of methods to market and advertise its fractional ownership
      program, including print advertising, direct mail, events, website and online
      and referral incentives. In fiscal 2008, approximately half of Avantair’s
      marketing budget was allocated to print advertising. Advertising placement
      is
      based on historical data and demographics.





Avantair’s
      direct mail advertising consists of several mailings and e-mailings per year
      to
      targeted prospective customers to coincide with promotions, price increases,
      etc. Avantair also participates in live events, including events at fixed base
      operators attended by owners and prospective owners. The events are targeted
      geographically.





As
      part
      of its marketing, Avantair maintains a web site at www.avantair.com. All of
      Avantair’s collateral and print marketing materials, direct mail, email and
      video materials direct prospective buyers to its web site along with the sales
      phone number.





Public
      relations efforts are driven by editorial opportunities and news pitches to
      key
      editors. Recent editorial placements include magazines such as Robb Report,
      Fortune, Forbes, as well as, travel and aircraft industry publications. An
      owner
      newsletter, Contrails, is published quarterly with pertinent news, purchase
      reinforcement and any new programs. Contrails is also sent to all competitive
      owners, distributed at events, placed in aircraft, and put in packages that
      are
      sent to prospects at first inquiry into the fractional program.




3





An
      important element of Avantair’s marketing strategy is referral incentives.
      Approximately 50% of new share sales during 2006, 2007 and 2008 have been
      generated from referrals from existing share owners. Under Avantair’s referral
      incentive program, a fractional owner who refers a customer to Avantair receives
      a total of two additional allocated hours of flight time.





One
      internal measurement used to assess future sales is leads generated by both
      the
      sales force and the other marketing methods described above. The number of
      Avantair’s sales leads has nearly doubled over the past year. While many leads
      do not turn into sales, they provide the basis for future sales. Another
      important indicator is demonstration flights. A very high 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 flights cost the potential buyer approximately $4,500
      per hour, with the owner receiving a credit towards the purchase price of the
      new aircraft interest at a rate of $4,500 per demo flight hour, not to
      exceed three (3) flight hours or $13,500. If at any time a previously owned
      share is purchased, a credit, not to exceed two (2) flight hours or $9,000
      is
      given. Avantair’s management believes that in excess of 80% of demonstration
      flights convert into sales of fractional shares.





*The
      Avantair Edge Card Program*





In
      2006,
      Avantair introduced a card program that allows a purchaser to access Avantair’s
      aircraft by purchasing either 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 option
      for
      individuals and businesses seeking to experience fractional ownership, without
      any long term commitment. Avantair’s management considers its card program to be
      an effective means of introducing potential purchasers to its fractional
      ownership program. In December, 2007, we discontinued sales of the 15 hour
      card.
      Avantair’s card program currently is priced at $115,000 for a 25 hour card
      (excluding Federal Excise Tax).





*Fleet*





As
      of
      June 30, 2008, Avantair’s fleet consisted of 49 aircraft, of which
      approximately 41.3 were fractionalized; 26 shares were available for sale,
      and 5 core aircraft operate to provide additional capacity. Currently, all
      of
      the fractional aircraft in Avantair’s fleet are Piaggio Avanti P-180 turboprops.





Avantair
      is the sole fractional operator in North America of the Piaggio Avanti P-180
      aircraft. 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 very attractive features to fractional shares
      owners:




•
            *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 P-180. 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.




The
      pricing structure afforded by utilizing the Piaggio Avanti allows Avantair
      to
      attract a customer desiring quality at a lower price point. Offering the cabin
      cross section of a mid-size aircraft and fuel efficiency of a turboprop, along
      with no hourly fees, allows Avantair to lower the cost of fractional ownership
      to a broader range of consumers.





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 very 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 the
      relative amount of repositioning should decline. As the size of Avantair’s fleet
      reaches a critical mass, 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, per diems, meals and hotel expenses. As Avantair’s fleet expands,
      crews will be domiciled in cities frequented by fractional owner flights. This
      presents an opportunity for Avantair to leverage more favorable discounts for
      air and hotel due to volume, as well as 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 15 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. In January
                  2007, Avantair contracted with “Flight Safety” for a period of 5 years for
                  pilot training on their Piaggio Avanti flight simulator.
  •
              *Rotable
                  Parts Inventory*—
                  Fewer parts need to be inventoried which reduces the overall cost
                  of
                  rotable parts 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.




4




*Flight
      Operations*





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


• Owner
        Services
  • Pilot
        Services
  • Flight
        Specialist
  • Flight
        Following.





After
      a
      fractional share is sold to a customer, a fractional owner is assigned an Owner
      Services team. This team assists the fractional 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 a fractional owner contacts the owner’s
      Owner Services team. When a fractional owner contacts Avantair to schedule
      a
      flight, an assigned Owner Services team member handles the request. The team
      member will ask for all details of the proposed trip, including airport of
      departure and arrival as well as FBO preference. This department also handles
      any ground transportation and/or catering orders.





The
      trip
      request is subject to an approval process with the Flight Specialist. After
      approval, the trip is entered into Avantair’s FlightOps computer system by Owner
      Services. The trip request is then delivered to the fractional owner for
      approval. This is used as a quality control so that Avantair is sure it has
      all
      the correct details of the fractional owner’s trip. After a signed confirmation
      is received from the fractional owner, Owner Services will confirm this trip
      reservation in FlightOps. 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
      fractional 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 FlightOps. 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
      Hiring 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




• 250
      flight hours within the previous 12 months.




All
      pilots must complete FAA required and approved ground and flight training prior
      to flying any aircraft in the Avantair fleet. Further, all of Avantair’s pilots
      must fulfill ongoing training requirements. Avantair’s pilots each have an
      average of over 6,200 hours of total flight time.





*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, Avantair’s Lead
      Technician’s receive training provided by Rockwell Collins as well as Pratt
& Whitney Powerplant (engine). Avantair’s main maintenance base and its
      Maintenance Control Center, which oversees and coordinates all maintenance
      activity on Avantair’s aircraft, is located in Clearwater, Florida and is
      staffed 24 hours a day and seven days a week. The average years of experience
      is
      over 17 years for Avantair’s maintenance technicians, 25 years for its
      maintenance controllers and over 25 years for its maintenance quality control
      staff.





From
      April 2006 through April 2008, there was an Airframe Maintenance contract and
      from June 2007 through the current date, an Engine Maintenance contract, both
      with JSSI. In connection with Avantair and JSSI entering into a payment
      arrangement and a $5.6 million promissory note in April 2008, the parties
      terminated the Airframe Maintenance contract, but continue their relationship
      pursuant to the existing Engine Maintenance contract. Avantair will manage
      the
      Airframe Maintenance Program on an internal basis.




5





*Competition*





Avantair
      faces competition from other fractional aircraft providers. Avantair’s primary
      competitors are NetJets, a subsidiary of Berkshire Hathaway, Flight Options,
      FlexJet, a Bombardier subsidiary, and CitationShares, which is 75% owned by
      Cessna Aircraft Company, a wholly-owned Textron subsidiary. None of these
      competitors are stand-alone, publicly traded entities like Avantair and all
      of
      these 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 and JetNet, there are only five
      companies which have 3% or more of the total market for fractional aircraft,
      based upon the units in operation - NetJets, Flight Options, FlexJet,
      CitationShares, and Avantair, with NetJets having a market share of
      approximately 50% and Avantair’s three largest competitors having a combined
      market share of over 80%. According to JetNet, as of April 2008, Avantair had
      an
      approximate market share of 7%.




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), 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.




Avantair’s
      management believes that fractional 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 fractional 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.





*Information
      Technology*





Avantair’s
      core software application, FlightOps, is designed, developed, and licensed
      by
      Bitwise Solutions, Inc. for use in Avantair’s Operations Control Center to plan,
      schedule and track fractional owner trips as well as manage its fleet. FlightOps
      uses Oracle as its database server. The Flight System consists of three
      components. The first component is the user interface called “Flight Ops.” The
      second component is the Oracle Database which is managed, monitored and backed
      up by Cintra. Cintra was founded in 1996 by former Oracle Executives. The third
      component is the optimizer, the core piece of which is the CPLEX engine designed
      by ILOG who is a leading provider of optimizers.




Avantair
      has invested in an efficient high-performance computing environment that
      includes Dell PowerEdge servers with the latest commercially available
      Windows-based operating system. In addition, Avantair has approximately 118
      Fujitsu Tablet PCs that are used as part of its pilots’ Electronic Flight Bag.
      These PCs are equipped with core software applications that include navigational
      aids, flight charts, and aircraft manuals.





Avantair
      currently has two agreements with Application Services Providers:




•
            
            Salesforce
                - Customer Relationship Management Sales Force Automation;
                and




•
            
            Corridor
                - Enterprise Resource Management Aviation Service Software (Maintenance,
                Inventory and FBOs).





**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% 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.




6





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 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, 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, 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, 2008, Avantair had approximately 403 full-time employees, 31 of
      whom were management and 372 of whom were operational. 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 to date has not been able to generate sufficient
      net
      revenue from its business to achieve or sustain
      profitability.**




Avantair
      has incurred losses since inception. To date, Avantair’s revenues have largely
      come from sales of fractional interests in aircraft and monthly management
      fees.
      Avantair’s primary expenses - cost of aircraft, cost of flight operations and
      overhead - have increased over the past several years and significantly exceeded
      revenues. 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. In order to achieve profitable income
      from operations before depreciation and amortization, management currently
      estimates that the Company will need to have 45 fully fractionalized aircraft.
      At June 30, 2008, the Company had 41.3 fractionalized aircraft. Therefore,
      Avantair’s primary growth strategy is to continue to increase the number of
      fractional share owners and aircraft under management. The Company’s recurring
      losses have resulted in an accumulated deficit of approximately $77 million
      and
      a working capital deficiency of approximately $30.2 million as of June 30,
      2008.
      Therefore, depending on the Company’s generation of cash from operations the
      Company may obtain additional funds through equity financing, including the
      sale
      of additional shares of common stock, asset sales, accelerated payments of
      maintenance and management fees, debt financing, or a combination thereof,
      in
      order to allow the Company to sustain operations for the foreseeable future.





**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,
      Richard A. Pytak Jr., its Chief Financial Officer and Kevin Beitzel, its Chief
      Operating Officer. 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 Santo, Pytak or Beitzel or
      any
      other of its executives. The loss of any of Santo, Pytak, Beitzel or other
      senior management employees, or an inability to attract or retain other key
      individuals, could materially adversely affect us. We seek to compensate and
      incentivize our 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 employees or hire new key employees. As a result,
      if Messrs. Santo, Pytak and/or Beitzel were to leave Avantair, we 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 29, 2006, Avantair entered into an employment agreement
      with Santo. However, there can be no assurance that the terms of this employment
      agreement will be sufficient to retain Santo.




7





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





Avantair’s
      growth strategy involves increasing the number of fractional share owners,
      aircraft under management and fixed base operations. 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 open
      additional fixed base operations in the future will constrain Avantair’s ability
      to grow. Acquiring additional aircraft, selling fractional shares and opening
      fixed base operations requires Avantair to commit a substantial amount of
      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 obtain the necessary regulatory approvals 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 will 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 (including pursuant to
      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.





**Material
      weaknesses in internal controls over financial reporting may adversely affect
      Avantair’s ability to comply with financial reporting laws and regulations and
      to publish accurate financial statements.**





Management
      has made its evaluation of our disclosure controls and procedures as of June
      30,
      2008. Avantair is aware of the existence of a material weakness in the design
      and operation of Avantair’s internal control over financial reporting that could
      adversely affect its ability to record, process, and summarize and report
      financial data consistent with the assertions of management in the financial
      statements. A material weakness is a deficiency, or a combination of
      deficiencies, in internal control over financial reporting, such that there
      is a
      reasonable possibility that a material misstatement of the company's annual
      or
      interim financial statements will not be prevented or detected on a timely
      basis.




The
      material weakness first began with the independent audit of the fiscal years
      June 2004, 2005 and 2006. The auditors’ letter on material weakness states the
      following:




·
            Avantair’s
                accounting files for fiscal 2004 were incomplete, which required
                significant modifications of accounting data for that
                period.





·
            Costs
                of fractional shares and revenue on certain contracts during the
                years
                ended June 30, 2006, 2005 and 2004 were not recognized properly due
                to
                errors made on the electronic worksheets for reporting this
                information.





·
            There
                was an insufficient number of accounting staff with the appropriate
                level
                of knowledge, which contributed to errors and deficiencies in financial
                reporting and disclosures.




Avantair
      is addressing the concerns stated in the auditor letter on internal controls
      and
      is making appropriate changes as an attempt to remedy concerns over internal
      controls and reduce the possibility of a misstatement of the Avantair’s
      financial statements. The actions taken include the hiring of a Chief Financial
      Officer, Assistant Controller, Senior Accountant and a Director of Financial
      Reporting and Sarbanes Oxley Compliance. In addition, Avantair has modified
      its
      business processes to include enhanced controls over its core processes, the
      more significant of which are described below. Avantair continues to educate
      the
      senior accounting staff on the requirements of Section 404 of the Sarbanes-Oxley
      Act.





During
      fiscal 2008, Avantair has taken action to address the recommendations contained
      in the auditors' letter. In fiscal 2008, Avantair implemented a new back-office
      accounting software package which we anticipate will further improve
      the accounting process and related internal controls. In addition, the Company
      has begun to review and document the processes of each department to implement
      internal controls over financial reporting in compliance with the Sarbanes
      Oxley
      Act of 2002.





Because
      Avantair has not completed our remediation plan, management has concluded that
      a
      material weakness in the operation of our disclosure controls and procedures
      continues to exist at June 30, 2008. Any failure to effectively address a
      material weakness or other control deficiency of Avantair or implement required
      new or improved controls, or difficulties encountered in their implementation,
      could disrupt Avantair’s ability to process key components of its result of
      operations and financial condition timely and accurately and cause Avantair
      to
      fail to meet its reporting obligations under rules of the Securities and
      Exchange Commission.




8





**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 we believe 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 its 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
        mergers and 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 lender in order for Avantair
      to
      engage in some corporate actions. Avantair’s lender’s interests may be different
      from those of Avantair, and no assurance can be given that Avantair will be
      able
      to obtain its lender’s permission when needed. This may prevent Avantair from
      taking actions that are in its best interest.





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





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, which would adversely affect
      its
      revenues and profitability and could jeopardize its ability to meet the demands
      of its customers. 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 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 sale of fractional interests in aircraft.





**Avantair’s
      reputation and financial results could be harmed in the event of an accident
      or
      incident involving its aircraft.**





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 is less safe or reliable than other competitors, which would harm
      Avantair’s business ***.***




9





**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 and JetNet, there are only five
      companies which have 3% or more of the total market for fractional aircraft,
      based upon the units in operation - NetJets, Flight Options, FlexJet,
      CitationShares, and Avantair, with NetJets having a market share of
      approximately 50% and Avantair’s three largest competitors having a combined
      market share of over 80%. According to JetNet, as of April 2008, Avantair had
      an
      approximate market share of 7%. 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 larger 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.**





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 air
      taxi
      operator. Therefore, to comply with restrictions imposed by U.S. aviation laws
      on foreign ownership of air carriers, our certificate of incorporation and
      bylaws have been amended to reflect that at least 75% of our 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%, 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, we 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 at a price at which the non-citizen acquired the voting stock, or at a price
      equal to the fair market value as determined by Avantair’s Board of Directors,
      plus the amounts of any dividends or other distributions which may be owed
      to
      the stockholder. If a non-citizen purchases the voting stock, there can be
      no
      assurance that his stock will not be redeemed, which redemption could result
      in
      a material loss, or that he 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.





**Future
      acquisitions of businesses or other assets by Avantair would subject Avantair
      to
      additional business, operating and industry risks, the impact of which cannot
      presently be evaluated, and could adversely impact Avantair’s capital
      structure.**





While
      Avantair is not presently pursuing any additional acquisitions, the Company
      may
      in the future consider acquisitions of businesses or other assets. Accordingly,
      there is no current basis to evaluate the possible merits or risks of the
      particular business or assets that Avantair may acquire, or of the industry
      in
      which such business operates. If Avantair acquires a business in an industry
      characterized by a high level of risk, it may be affected by the currently
      unascertainable risks of that industry. Although Avantair’s management will
      endeavor to evaluate the risks inherent in a particular industry or target
      business, there can be no assurance that Avantair will properly ascertain or
      assess all of the significant risk factors.




In
      addition, the financing of any acquisition could adversely impact Avantair’s
      capital structure as any such financing would likely include the issuance of
      additional equity securities and/or the borrowing of funds. The issuance of
      additional equity securities may significantly reduce the equity interest of
      existing stockholders and/or adversely affect prevailing market prices for
      Avantair’s common stock. If Avantair incurs indebtedness, it could increase the
      risk of a default that would entitle the holder to declare such indebtedness
      due
      and payable and/or to seize any collateral securing the indebtedness. In
      addition, default under one debt instrument 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 financing of future acquisitions could adversely impact the
      capital structure and equity interest in Avantair.




Except
      as
      required by law or the rules of any securities exchange on which Avantair’s
      securities might be listed at the time Avantair seeks to consummate an
      acquisition, shareholders will not be asked to vote on any proposed acquisition
      and will not be entitled to exercise conversion rights in connection with any
      such acquisition.




10





**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, from time to time
      the Federal Aviation Administration (FAA) 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 we can conduct our 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.




Also,
      Avantair is subject to various federal and state environmental
      statutes.




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.





**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 viruses and hackers.
      Further, the vendor of Avantair’s scheduling software is a small business and
      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.





**Avantair
      may not be able to obtain acceptable customer contracts covering all of the
      fractional interests of its new airplanes which could adversely affect our
      profitability.**





Avantair
      intends to substantially expand its fleet of airplanes and has contractual
      commitments to purchase 60 additional Piaggio aircraft through 2013. Although
      the contract provides flexibility to defer aircraft deliveries in the future,
      the fractional interests of Avantair’s new airplanes may not be fully sold when
      they are placed into service. As a result, Avantair’s financial performance
      could be adversely affected if Avantair is unable to sell all of the fractional
      interests in these aircraft. As of June 30, 2008, the Company had 26 fractional
      aircraft shares available for sale.





**Sales
      of fractional interests 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. An aircraft fleet provides a finite level of capacity, and the
      addition of significant additional share owners 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 in excess of its available
      capacity, its business could be adversely affected.




11





**Avantair’s
      business could be adversely affected by a failure to attract and retain
      qualified pilots and other operations personnel.**





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 our results.





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





Ownership
      of fractional shares 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
      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 via a fractionally owned
      aircraft.





**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 increased
      substantially since 2004. 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. 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 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  .





**Risks
      Related to Our Common Stock, Warrants, and Units**





**There
      will be a substantial number of shares of our common stock available for resale
      in the future that may be dilutive to our current stockholders and may cause
      a
      decrease in the market price of our common stock.**





At
      present we have 15,286,792 shares of common stock outstanding, all of which
      shares of common stock are freely tradable. In addition, 2,951,457 shares of
      common stock underlying the Company's Series A Convertible Preferred Stock
      were
      registered pursuant to the Company’s Registration Statement on Form S-1 (No.
      333-152036) declared effective on August 1, 2008. On June 17, 2008, the Company
      filed with the Securities and Exchange Commission a post-effective amendment
      on
      Form S-3 to the Company’s Registration Statement on Form S-1 (No.
      333-121028).Upon effectiveness of the amendment, the registration statement
      will
      be available for the issuance of shares of common stock upon exercise of the
      Company’s outstanding publically traded warrants. The Company also approved a
      warrant retirement program, pursuant to which it will offer the holders of
      its
      13,800,000 publically traded warrants the opportunity to exercise those warrants
      on an amended term for a limited time. The Company is modifying the 13,800,000
      warrants to reduce the per-share exercise price from $5.00 to $3.00. In
      addition, for each warrant exercised by a holder at the reduced exercise price,
      the holder will have the option to engage in a cashless exercise by exchanging
      ten additional warrants for one additional share of common stock. Warrants
      tendered for cashless exercise may only be tendered in groups of ten and no
      fractional shares will be issued for odd lots of nine or less. The Company
      filed
      a Tender Offer Statement on Schedule TO and related materials as a
      pre-commencement communication. The Tender Offer has not commenced and the
      Company and its agents are not currently accepting tenders at this time. The
      Company will issue a press release announcing the commencement of the tender
      offer once it has begun. In addition to the 13,800,000 warrants above, there
      are
      also 346,000 additional warrants outstanding which are not eligible to
      participate in the program indicated above. All of these warrants are presently
      exercisable, and all of our common stock issuable upon exercise of the warrants
      is available for resale upon exercise. There is also the possibility of the
      future issuance of up to an additional 4,774,873 shares of our common stock
      based upon the company’s financial performance and the trading price of our
      common stock. The Avantair stockholders who will receive the balance of the
      shares of our common stock issued in the acquisition have agreed that their
      shares cannot be sold until a specified period of time after the filing of
      this
      Annual Report on Form 10-K for the fiscal year ended June 30, 2008. Also,
      1,500,000 shares of our common stock was purchased by our initial stockholders
      prior to our initial public offering and were held in escrow until February
      24,
      2008, at which time they were released from escrow and be eligible for resale
      in
      the public market subject to compliance with applicable law. Our initial
      stockholders are entitled to demand that we register the resale of their shares
      of common stock at any time after the date on which their shares are released
      from escrow. The presence of these additional shares of common stock eligible
      for trading in the public market may have an adverse effect on the market price
      of our common stock.




12





**As
      a result of contingent deferred purchase price payments payable to Old Avantair
      stockholders, our stock price may be adversely affected.**




Under
      the
      terms of the Stock Purchase Agreement, Old Avantair’s stockholders are eligible
      to receive contingent deferred purchase price payments. If at any time after
      the
      closing of the acquisition, but prior to February 23, 2009, the closing trading
      price on the Over-the-Counter Bulletin Board (or on a national securities market
      on which our common stock is then quoted for trading) of our common stock for
      20
      trading days within any 30 trading day period equals or exceeds $8.50 per share,
      the Company will issue to Old Avantair’s stockholders an aggregate of 4,774,873
      additional shares of our common stock. If any of these deferred purchase price
      payments are made to Old Avantair’s stockholders, our stock price may be
      adversely affected.





**Our
      shares of common stock are subject to the SEC’s penny stock rules,
      broker-dealers may experience difficulty in completing customer transactions
      and
      trading activity in our securities may be adversely
      affected.**




We
      have
      net tangible assets of $5,000,000 or less and our ordinary shares have a market
      price per share of less than $5.00, transactions in our 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.





Shares
      of
      our common stock are subject to these rules, broker-dealers may find
      it difficult to effectuate customer transactions and trading activity in our
      securities may be adversely affected. As a result, the market price of our
      securities may be depressed, and you may find it more difficult to sell our
      securities.





**We
      have been unable to receive a listing of our securities on NASDAQ or another
      national securities exchange, and this may make it more difficult for our
      stockholders to sell their securities.**




Shares
      of
      our common stock, warrants and units are currently traded in the
      over-the-counter market and quoted on the OTCBB. Our common stock, warrants
      and
      units are not currently eligible for inclusion in The NASDAQ Stock Market.
      The
      listing of our common stock, warrants and units on The NASDAQ Stock Market
      or
      another national securities exchange was not a condition of the acquisition
      and
      there is no assurance that this listing will be obtained. If we are 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.





**An
      effective registration statement may not be in place when an investor desires
      to
      exercise warrants, thus precluding such investor from being able to exercise
      his, her or its warrants and causing such warrants to be practically
      worthless.**





No
      warrant will be exercisable and we will not be obligated to issue shares of
      our
      common stock unless, at the time a holder seeks to exercise such warrant, a
      prospectus relating to the common stock issuable upon exercise of the warrant
      is
      current and the common stock has been registered or qualified or deemed to
      be
      exempt under the securities laws of the state of residence of the holder of
      the
      warrants. Under the terms of the warrant agreement, we have agreed to use our
      best efforts to meet these conditions and to maintain a current prospectus
      relating to the common stock issuable upon exercise of the warrants until the
      expiration of the warrants. However, we cannot assure you that we will be able
      to do so, and if we do not maintain a current prospectus related to the common
      stock issuable upon exercise of the warrants, holders will be unable to exercise
      their warrants and we will not be required to settle any such warrant exercise.
      If the prospectus relating to the common stock issuable upon the exercise of
      the
      warrants is not current or if the common stock is not qualified or exempt from
      qualification in the jurisdictions in which the holders of the warrants reside,
      the warrants may have no value, the market for the warrants may be limited
      and
      the warrants may expire worthless.




13





**Item 1B.
      Unresolved Staff Comments**





None.





**Item 2.
      Facilities**





Avantair
      currently leases the following principal properties:




·
            approximately
                125,000 square feet of office and hangar space at 4311 General Howard
                Drive, Clearwater, FL 33762, under a lease that expires April 30,
                2020.




·
            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;
                and




·
            effective
                August 1, 2008, approximately 17,752 square feet of hangar, shop
                and
                office space at Essex County Airport, in Caldwell, New Jersey under
                a
                lease that is month to month.





**Item 3.
      Legal Proceedings**





Avantair
      is not involved in any legal proceedings which it believes will have a
      significant effect on its business, financial position, results of operations
      or
      liquidity, nor are we aware of any proceedings that are pending or threatened
      which may have a significant effect on its business, financial position, results
      of operations or liquidity.




From
      time
      to time, Avantair may be subject to legal proceedings and claims in the ordinary
      course of business, involving principally commercial charter party disputes.
      It
      is expected that these claims would be covered by insurance if they involve
      liabilities such as arise from collision, other casualty, death or personal
      injuries to crew, subject to customary deductibles. Those claims, even if
      lacking merit, could result in the expenditure of significant financial and
      managerial resources.





**Item 4.
      Submission of Matters to a Vote of Security Holders**





No
      matters were submitted to a vote of our security holders through the
      solicitation of proxies or otherwise during the fourth quarter of fiscal year
      2008.




14





**PART
      II**





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





**MARKET
      PRICE OF AND DIVIDENDS ON COMMON STOCK**





Our
      units, common stock and warrants are traded on the Over-the-Counter Bulletin
      Board under the symbols AAIRU, AAIR and AAIRW, respectively. The following
      table
      sets forth the range of high and low closing bid prices for the units, common
      stock and warrants for the periods indicated since such common stock and
      warrants commenced public trading on March 8, 2005. 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.




**Common Stock(1)**
            
            **Warrants(1)**
            
            **Units(2)****High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low****2005**First
                Quarter
            
            
            5.20
            
            
            5.12
            
            
            0.70
            
            
            0.65
            
            
            6.60
            
            
            6.30Second
                Quarter
            
            
            5.20
            
            
            4.90
            
            
            0.64
            
            
            0.52
            
            
            6.35
            
            
            5.95Third
                Quarter
            
            
            5.15
            
            
            4.90
            
            
            0.64
            
            
            0.46
            
            
            6.30
            
            
            5.75Fourth
                Quarter
            
            
            5.23
            
            
            5.06
            
            
            0.59
            
            
            0.41
            
            
            6.27
            
            
            5.90**2006**First
                Quarter
            
            
            5.48
            
            
            5.19
            
            
            0.78
            
            
            0.50
            
            
            7.06
            
            
            6.13Second
                Quarter
            
            
            5.45
            
            
            5.30
            
            
            0.77
            
            
            0.43
            
            
            6.88
            
            
            6.20Third
                Quarter
            
            
            5.37
            
            
            5.29
            
            
            0.48
            
            
            0.36
            
            
            6.20
            
            
            6.00Fourth
                Quarter
            
            
            5.51
            
            
            5.31
            
            
            0.70
            
            
            0.35
            
            
            6.70
            
            
            6.02**2007
                (3)**Third
                Quarter (4)
            
            
            5.60
            
            
            4.30
            
            
            0.80
            
            
            0.53
            
            
            7.15
            
            
            6.38Fourth
                Quarter
            
            
            5.30
            
            
            4.31
            
            
            0.82
            
            
            0.53
            
            
            6.85
            
            
            5.45**2008**First
                Quarter
            
            
            5.25
            
            
            4.47
            
            
            0.75
            
            
            0.46
            
            
            6.85
            
            
            5.55Second
                Quarter
            
            
            5.30
            
            
            4.23
            
            
            0.84
            
            
            0.53
            
            
            6.50
            
            
            5.05Third
                Quarter
            
            
            5.15
            
            
            2.80
            
            
            0.81
            
            
            0.14
            
            
            6.25
            
            
            3.01Fourth
                Quarter
            
            
            3.00
            
            
            1.94
            
            
            0.18
            
            
            0.06
            
            
            2.98
            
            
            2.30





(1)
            Commencing
                March 8, 2005(2)
            Commencing
                February 25, 2005(3)
            On
                February 22, 2007, Avantair changed its fiscal
                year(4)
            Commencing
                February 22, 2007, date of Reverse
                Merger





**DIVIDEND
      POLICY**





We
      have
      never declared or paid cash dividends on our common stock. We currently expect
      to retain all future earnings for use in the operation and expansion of our
      business and do 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.




15





**EQUITY
      COMPENSATION PLANS**





The
      following table sets forth information regarding the Company’s Equity
      Compensation Plan as of June 30, 2008:




**Plan
                category**
            
            **Number of securities**
              **to
                be issued upon**
              **exercise
                of**
              **outstanding
                options,**
              **warrants
                and rights**
            
            **Weighted average**
              **exercise
                price of**
              **outstanding**
              **options,
                warrants**
              **and
                rights**
            
            **Number of securities**
              **remaining available for**
              **future
                issuance under**
              **equity
                compensation**
              **plans
                (excluding**
              **securities**
              **reflected
                in column (a))****(a)**
            
            **(b)**
            
            **(c)**Equity
                compensation plans approved by security holders
            
            
            150,000
            
            $
            5.34
            
            
            1,136,000Equity
                compensation plans not approved by security holders
            
            
            —
            
            
            —
            
            
            —Total
            
            
            150,000
            
            $
            5.34
            
            
            1,136,000





The
      maximum number of shares of Avantair’s common stock issuable in connection with
      the 2006 Long-Term Incentive Plan (which we sometimes refer to as the Plan)
      may
      not exceed 1,500,000 shares. There are 150,000 shares subject to issuance upon
      exercise of outstanding stock options; 200,834 shares have been issued with
      respect to awards of restricted stock; and 1,149,166 remain available for future
      issuance under the Plan.





**RECENT
      SALES OF UNREGISTERED SECURITIES**





On
      November 14, 2007, pursuant to the terms of the Preferred Stock Purchase
      Agreement, dated November 14, 2007, by and among Avantair, Hummingbird
      Microcap Value Fund, Hummingbird Concentrated Fund LP, Hummingbird Value Fund
      LP, Hound Partners, LP and Hound Partners Offshore Fund, LP, Avantair issued
      112,000 shares of its newly-created Series A Convertible Preferred Stock for
      an
      aggregate purchase price of $11,200,000. The shares of Series A Convertible
      Preferred Stock issued under the Preferred Stock Purchase Agreement were not
      registered under the Securities Act of 1933, as amended, and bear restrictive
      legends that reflect this status. 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. Avantair did not
      engage in any general solicitation or advertisement for the issuance of these
      securities. These securities were purchased by a total of five
      (5) investors, which are comprised of two groups of affiliated entities. In
      connection with this issuance, each of the investors represented that
      (i) it is an accredited investor as this term is defined in Regulation D
      under the Securities Act, (ii) the securities it is acquiring cannot be
      resold except pursuant to a effective registration under the Securities Act
      or
      in reliance on an exemption from the registration requirements of the Securities
      Act, and that the certificates representing such securities bear a restrictive
      legend to that effect and (iii) it intends to acquire the securities for
      investment only and not with a view to the resale thereof.




On
      December 5, 2007, pursuant to the terms of the Preferred Stock Purchase
      Agreement, dated December 5, 2007, by and among Avantair, Potomac Capital
      Partners LP, Pleiades Investment Partners R LP and Potomac Capital International
      Ltd., Avantair issued 40,000 shares of its newly-created Series A Convertible
      Preferred Stock for an aggregate purchase price of $4,000,000. The shares of
      Series A Convertible Preferred Stock issued under the Preferred Stock Purchase
      Agreement were not registered under the Securities Act of 1933, as amended,
      and
      bear restrictive legends that reflect this status. 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. Avantair did not
      engage in any general solicitation or advertisement for the issuance of these
      securities. These securities were purchased by a total of three
      (3) investors, which are comprised of one group of affiliated entities. In
      connection with this issuance, each of the investors represented that
      (i) it is an accredited investor as this term is defined in Regulation D
      under the Securities Act, (ii) the securities it is acquiring cannot be
      resold except pursuant to a effective registration under the Securities Act
      or
      in reliance on an exemption from the registration requirements of the Securities
      Act, and that the certificates representing such securities bear a restrictive
      legend to that effect and (iii) it intends to acquire the securities for
      investment only and not with a view to the resale thereof.





Effective
      August 1, 2008, 2,951,457 shares of common stock underlying the Company's Series
      A Convertible Preferred Stock were registered and are freely tradable pursuant
      to the declaration of the Company’s Registration Statement on Form S-1 (No.
      333-152036) filed by the Company on June 30, 2008.





In
      addition, on June 17, 2008, the Company filed with the Securities and Exchange
      Commission a post-effective amendment on Form S-3 to the Company’s Registration
      Statement on Form S-1 (No. 333-121028). Upon effectiveness of the amendment,
      the
      registration statement will be available for the issuance of shares of common
      stock upon exercise of the Company’s outstanding publically traded warrants. The
      Company also approved a warrant retirement program, pursuant to which it will
      offer the holders of its 13,800,000 publically traded warrants the opportunity
      to exercise those warrants on an amended term for a limited time. The Company
      is
      modifying the 13,800,000 warrants to reduce the per-share exercise price from
      $5.00 to $3.00. In addition, for each warrant exercised by a holder at the
      reduced exercise price, the holder will have the option to engage in a cashless
      exercise by exchanging ten additional warrants for one additional share of
      common stock. Warrants tendered for cashless exercise may only be tendered
      in
      groups of ten and no fractional shares will be issued for odd lots of nine
      or
      less. The Company filed a Tender Offer Statement on Schedule TO and related
      materials as a pre-commencement communication. The Tender Offer has not
      commenced and the Company and its agents are not currently accepting tenders
      at
      this time. The Company will issue a press release announcing the commencement
      of
      the tender offer once it has begun. In addition to the 13,800,000 warrants
      above, there are also 346,000 additional warrants outstanding which are not
      eligible to participate in the program indicated above. All of these warrants
      are presently exercisable, and all of our common stock issuable upon exercise
      of
      the warrants is available for resale upon exercise.





**Item 6.
      Selected Financial Data**





The
      following table presents our 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, 2008 and the consolidated
      balance sheet data as of June 30, 2008 and 2007 have been derived from our
      audited consolidated financial statements included elsewhere in this report.
      The
      consolidated statement of operations data for each of the fiscal years ended
      June 30, 2006, 2005, and 2004 and the consolidated balance sheet information
      as
      of June 30, 2006, 2005 and 2004 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.




16


**Avantair,
        Inc. and Subsidiaries**
 **(Formerly
        Ardent Acquisition Corporation)**
 **Consolidated
        Statement of Operations**
  **Years
                  Ended June 30,****2008**
              
              **2007**
              
              **2006**
              
              **2005**
              
              **2004****Revenue**Fractional
                  aircraft sold
              
              $
              43,426,696
              
              $
              29,695,175
              
              $
              23,756,070
              
              $
              10,580,859
              
              $
              3,226,890Maintenance
                  and management fees
              
              
              58,211,457
              
              
              38,787,596
              
              
              22,824,940
              
              
              11,645,999
              
              
              3,463,810Charter
                  card and demonstration revenue
              
              
              10,233,232
              
              
              6,420,336
              
              
              1,559,907
              
              
              984,243
              
              
              671,278FBO
                  and other revenues
              
              
              3,747,598
              
              
              1,490,124
              
              
              254,463
              
              
              183,277
              
              
              356,070**Total
                  revenue**
              
              
              115,618,983
              
              
              76,393,232
              
              
              48,395,380
              
              
              23,394,378
              
              
              7,718,048**Operating
                  expenses**Cost
                  of fractional aircraft shares sold
              
              
              36,637,959
              
              
              24,370,988
              
              
              19,166,722
              
              
              9,318,013
              
              
              2,925,978Cost
                  of flight operations
              
              
              50,058,692
              
              
              35,665,057
              
              
              25,362,985
              
              
              10,157,566
              
              
              3,875,815Cost
                  of fuel
              
              
              16,489,422
              
              
              10,192,406
              
              
              6,419,835
              
              
              4,226,802
              
              
              1,744,270Write-off
                  of aircraft deposit
              
              
              -
              
              
              300,000
              
              
              -
              
              
              -
              
              
              -General
                  and administrative expenses
              
              
              20,703,120
              
              
              18,540,610
              
              
              10,757,280
              
              
              4,952,472
              
              
              3,212,940Selling
                  expenses
              
              
              4,670,246
              
              
              4,333,268
              
              
              3,672,754
              
              
              976,164
              
              
              514,430Depreciation
                  and amortization
              
              
              3,624,710
              
              
              2,013,530
              
              
              2,649,096
              
              
              1,932,757
              
              
              1,011,464**Total
                  operating expenses**
              
              
              132,184,149
              
              
              95,415,859
              
              
              68,028,672
              
              
              31,563,774
              
              
              13,284,897**Loss
                  from operations**
              
              
              (16,565,166
              )
              
              (19,022,627
              )
              
              (19,633,292
              )
              
              (8,169,396
              )
              
              (5,566,849
              )**Other
                  income (expenses)**Interest
                  income
              
              
              482,666
              
              
              444,179
              
              
              557,508
              
              
              490,591
              
              
              237,927Other
                  income
              
              
              861,662
              
              
              284,723
              
              
              437,982
              
              
              167,329
              
              
              553,457Interest
                  expense
              
              
              (3,661,227
              )
              
              (3,406,181
              )
              
              (2,110,119
              )
              
              (1,194,723
              )
              
              (269,036
              )**Total
                  other expenses**
              
              
              (2,316,899
              )
              
              (2,677,279
              )
              
              (1,114,629
              )
              
              (536,803
              )
              
              522,348**Net
                  Loss**
              
              
              (18,882,065
              )
              
              (21,699,906
              )
              
              (20,747,921
              )
              
              (8,706,199
              )
              
              (5,044,501
              )Preferred
                  stock dividend
              
              
              (903,851
              )
              
              -
              
              
              -
              
              
              -
              
              
              -**Net
                  loss attributable to common stockholders**
              
              $
              (19,785,916
              )
              $
              (21,699,906
              )
              $
              (20,747,921
              )
              $
              (8,706,199
              )
              $
              (5,044,501
              )**Loss
                  per common share:**Basic
                  and diluted
              
              $
              (1.30
              )
              $
              (2.47
              )
              $
              (6.31
              )
              $
              (2.65
              )
              $
              (1.53
              )**Weighted-average
                  common shares outstanding:**Basic
                  and diluted
              
              
              15,230,482
              
              
              8,780,234
              
              
              3,288,590
              
              
              3,288,590
              
              
              3,288,590


17





**As
                of June 30,****2008**
            
            **2007**
            
            **2006**
            
            **2005**
            
            **2004****Consolidated
                Balance Sheet Data**Total
                Assets
            
            $
            204,477,455
            
            $
            160,490,260
            
            $
            105,154,683
            
            $
            93,640,621
            
            $
            53,186,447Long-Term
                Obligations
            
            $
            123,018,837
            
            $
            112,509,063
            
            $
            72,844,665
            
            $
            57,777,196
            
            $
            24,356,483Stockholders’
                Deficit
            
            $
            (31,651,546
            )
            $
            (11,959,024
            )
            $
            (35,030,607
            )
            $
            (13,748,700
            )
            $
            (5,042,501
            )





**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
      is engaged in the sale and management of fractional ownerships of professionally
      piloted aircraft for personal and business use. According to AvData, Avantair
      is
      the fifth largest company in the North American fractional aircraft industry.
      As
      of June 30, 2008, Avantair operated 49 aircraft (which includes 5 core aircraft)
      with 60 additional Piaggio Avanti II aircraft on order. Avantair operates fixed
      flight based operations (FBO) in Camarillo, California and, effective August
      1,
      2008 in Caldwell, New Jersey. The Company also provides aircraft maintenance,
      concierge and other services to customers and services to the Avantair fleet
      from hangars and office locations in Clearwater, Florida, Camarillo, California
      and Caldwell, New Jersey.




Avantair
      generates revenues primarily through the sale of fractional ownership shares
      of
      aircraft, by providing operations, maintenance and management services related
      to these aircraft, and from the sale of time cards providing 25 flight time
      hours per year of access to its aircraft fleet without the requirement of
      purchasing fractional ownership shares. The Company markets and sells fractional
      ownership interests to individuals and businesses with a minimum share size
      of a
      1/16 th ownership interest. Under maintenance and management agreements with fractional
      owners, Avantair provides pilots, maintenance, fuel and hangar space for the
      aircraft.





As
      a
      relatively new Company, Avantair has expended funds necessary to establish
      the
      operations and business infrastructure required of a fractional airline and
      has
      not generated sufficient cash from operations to fund its growth. Therefore,
      the
      Company raised additional funds through equity offerings, debt financing and
      the
      sale of assets to fund operations. In connection with future financing of
      growth, and depending upon the Company’s generation of cash from operations, the
      Company may obtain additional funds through equity financing, including the
      sale
      of additional shares of common stock, assets sales, accelerated payments of
      maintenance and management fees, debt financing, or a combination thereof.





Avantair
      presently sources all of its aircraft from a single manufacturer, Piaggio
      America, Inc. As of June 30, 2008, Avantair had contractual commitments to
      purchase 60 additional Piaggio Avanti II aircraft through 2013 at wholesale
      pricing for an aggregate of approximately $349 million from this manufacturer.
      The Company has been able to defer aircraft deliveries to bring them
      in line with sales expectations based upon existing economic conditions and
      the
      contract provides flexibility to defer aircraft deliveries in the future. At
      June 30, 2008, the Company had 26 fractional aircraft shares available for
      sale.
      In addition to the cost of acquiring aircraft, Avantair’s primary expenses have
      been related to fuel, aircraft repositioning (i.e., moving an aircraft to
      another location to accommodate a customer’s need and demonstration flights for
      sales purposes), maintenance, charters and insurance.





In
      order
      to achieve profitable income from operations before depreciation and
      amortization, management currently estimates that the Company will need to
      have
      45 fully fractionalized aircraft. At June 30, 2008, the Company had 41.3
      fractionalized aircraft. Therefore, Avantair’s primary growth strategy is to
      continue to increase the number of fractional share owners and aircraft under
      management. The Company believes income from operations before depreciation
      and
      amortization is useful to investors as it excludes certain non-cash expenses
      that do not directly relate to the operation of fractionalized aircraft. This
      measure is a supplement to generally accepted accounting principles (GAAP)
      used
      to prepare the Company’s financial statements and should not be viewed as a
      substitute for GAAP measures. In addition, the Company’s non-GAAP measure may
      not be comparable to non-GAAP measures of other companies. Income from
      operations according to GAAP would include depreciation and amortization
      expense, estimated to be approximately $330,000 per month at the time of fully
      fractionalizing the 45 th aircraft.  See
      also
      further discussion at “Liquidity and Capital Resources” section following.




18


**Critical
      Accounting Policies**





Avantair’s
      discussion and analysis of its financial condition and results of operations
      for
      the purposes of this document are based upon its combined and consolidated
      financial statements, which have been prepared in accordance with accounting
      principles generally accepted in the United States of America.





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 report. 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.





*Revenue
      Recognition*





The
      Company sells fractional shares of aircraft and the related maintenance and
      management services that accompany aircraft ownership. The aircraft are sold
      in
      1/16th shares or multiples thereof. The purchase agreement grants the customer
      the right to the use of the aircraft for a specified number of hours each year
      the aircraft is in service. When a customer purchases a fractional share, they
      are also required to enter into a five-year management and maintenance
      agreement. Under the terms of the maintenance and management agreement, the
      Company agrees to manage, operate and maintain the aircraft on behalf of the
      customer in exchange for a fixed monthly fee.





*Fractional
      Aircraft Shares*





The
      Company does not have objective evidence to determine the fair value and locate
      fractional share revenue from that generated from the management and maintenance
      agreement, and, as a result, has adopted the provisions of the Emerging Issues
      Task Force (“EITF”) Issue No. 00-21 “Accounting for Revenue Arrangements with
      Multiple Deliverables” to account for the sale of fractional shares of aircraft.
      Accordingly, as the sales of the fractional shares cannot be separated from
      the
      underlying maintenance and management agreement, fractional share sale revenue
      is recognized ratably over the five-year life of the maintenance and management
      agreement. The period in which revenue is recognized will be evaluated on a
      periodic basis. Factors that impact management’s assessment of the most
      appropriate period of revenue recognition will include, but not be limited
      to,
      customer turnover, terms and conditions of the related fractional share sale,
      maintenance arrangements as well as any other factor that could impact
      revenue.





*Management
      and Maintenance Agreement*





Revenue
      earned in connection with the management and maintenance agreements is
      recognized ratably over the term of the agreement or 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.





*Aircraft
      Costs Related To Fractional Sales*





The
      Company reflects aircraft costs related to the sale of fractional aircraft
      shares. As a result of the adoption of EITF 00-21, the Company recognizes
      revenue from the sale of fractional shares as income over the five-year period.
      The aircraft costs related to sales of fractional shares consist of the cost
      of
      the aircraft and are recorded as an asset and recognized as the cost of aircraft
      shares sold over the five-year period.





*Charter
      Card and Demonstration Revenues*





*Demonstration
      revenues.* The
      Company charges prospective new aircraft 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.




*Charter
      Card revenues* .
      The
      Company sells access to its aircraft fleet through a 25 hour time 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 are flown.





*FBO
      and Other Revenue*





FBO
      and
      other revenue is comprised primarily of revenue from the sale of fuel at the
      Company’s FBO facilities and rental of hangar space at the Company’s operating
      locations. This revenue is recorded when goods are delivered or services have
      been rendered.


19





*Use
      of Estimates*





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America 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 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 reported
      results of operations; if material, the effects of changes in estimates are
      disclosed in the notes to the consolidated and combined 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 income taxes and related deferred tax
      accounts, certain accrued expenses and contingencies.





*Property
      and Equipment*





Property
      and equipment is recorded at cost and consists principally of aircraft purchased
      which are not fractionalized and which provide additional capacity to the
      Company to meet customer demand. Depreciation and amortization is computed
      using
      the straight-line method over the following useful lives:




Aircraft
            
            7
                yearsOffice
                equipment and furniture and fixtures
            
            5
                -
                7 yearsFlight
                management software/hardware
            
            5
                yearsVehicles
            
            5
                yearsImprovements
            
            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 are capitalized.




The
      Company’s capitalized interest costs relating to borrowings made for the
      acquisition of aircraft are as follows:




**2008**
            
            **2007**
            
            **2006**Total
                interest costs
            
            $
            3,661,227
            
            $
            3,952,087
            
            $
            2,610,119Less:
                amount capitalized
            
            
            —
            
            
            545,907
            
            
            500,000Interest
                expense
            
            $
            3,661,227
            
            $
            3,406,180
            
            $
            2,110,119





*Long-lived
      Assets*





In
      accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
“Accounting for Impairment or Disposal of Long-Lived Assets,” 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. Assets to be disposed of are reported
      at
      the lower of the carrying amount or fair value less costs to sell. As a result
      of the analyses, no impairment charges were required for long-lived assets
      during the year ended June 30, 2008.





*Income
      Taxes*





Income
      taxes are accounted for under the asset and liability method in accordance
      with
      SFAS No. 109, “Accounting for 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.





*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. Since the effect of outstanding options and warrants
      is
      antidilutive due to the losses incurred by the Company, they have been excluded
      from the Company’s computation of net loss per share for all years presented. A
      total of 14,496,834 of potentially dilutive securities were excluded from the
      calculation of diluted loss per share for the year ended June 30, 2008 and
      were
      comprised of 14,146,000 warrants to purchase one share of the Company’s common
      stock, 200,834 shares of restricted stock and 150,000 outstanding options.
      The
      total number of potentially dilutive securities excluded from the calculation
      of
      diluted loss per share for the year ended June 30, 2007 was 14,510,000 which
      were comprised of 14,146,000 warrants to purchase one share of the Company’s
      common stock, 214,000 shares of restricted stock and 150,000 outstanding
      options.


20


*Stock-Based
      Compensation*




The
      Company accounts for share-based compensation to employees and directors in
      accordance with SFAS 123(R) “Share-Based Payment,” which requires the
      recognition of compensation expense for employee stock options and other
      share-based payments. Under SFAS 123(R), 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. The stock option
      compensation expense was approximately $151,000 for the year ended June 30,
      2008. The Company issued 22,500 shares of restricted common stock to certain
      members of its Executive Officers in June 2008 and 15,000 shares of restricted
      common stock to the non-employee members of its Board of Directors in March
      2008. One-third (1/3) of the 22,500 shares awarded in June 2008 will vest on
      the
      first anniversary date of grant and then one-twelfth (1/12) on the date three
      months after the first anniversary date of the grant and on such date every
      three months thereafter, such that 100% of the shares will be vested on the
      third anniversary date so long as employment with the Company is continuous.
      One-third (1/3) of the 15,000 shares awarded in March 2008 will vest on each
      date of the next three annual shareholders meetings at which directors are
      elected and so long as the recipient remains a member of 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 $1.94 and $3.95 at June 30, 2008 and March 5, 2008, respectively. The
      compensation expense from restricted stock was approximately $333,000 for the
      year- ended June 30, 2008. The Company did not issue warrants during the year-
      ended June 30, 2008.





*Accounting
      for Derivative Instruments*





The
      Company accounts for derivative instruments in accordance with SFAS
      No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as
      amended, which establishes accounting and reporting standards for derivative
      instruments and hedging activities, including certain derivative instruments
      imbedded in other financial instruments or contracts. The Company also considers
      the EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to and
      Potentially Settled in, a Company’s Own Stock,” 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 SFAS No. 133. The Company
      evaluates the conversion feature embedded in its Series A Convertible Preferred
      Stock (see Note 11 to the audited consolidated financial statements) at each
      reporting period based on the criteria of SFAS No. 133 and EITF 00-19 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, 2008.





*Reclassifications*





Certain
      balances for the year ended June 30, 2007 were reclassified to conform to the
      classifications adopted in the current year.





*Recently
      Issued Pronouncements*




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This
      statement establishes a single authoritative definition of fair value, sets
      out
      a framework for measuring fair value, and requires additional disclosures about
      fair-value measurements. SFAS No. 157 defines fair value as “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”. For the
      Company, SFAS No. 157 is effective for the fiscal year beginning July 1, 2008.
      Management is currently evaluating this standard to determine its impact, if
      any, on our consolidated financial statements.




On
      February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an Amendment of FASB
      Statement No. 115.” This standard permits an entity to measure financial
      instruments and certain other items at estimated fair value. Most of the
      provisions of SFAS No. 159 are elective; however, the amendment to FASB No.
      115,
“Accounting for Certain Investments in Debt and Equity Securities,” applies to
      all entities that own trading and available-for-sale securities. The fair value
      option created by SFAS No. 159 permits an entity to measure eligible items
      at
      fair value as of specified election dates. The fair value option (a) may
      generally be applied instrument by instrument, (b) is irrevocable unless a
      new
      election date occurs, and (c) must be applied to the entire instrument and
      not
      to only a portion of the instrument. For the Company, SFAS No. 159 is effective
      for the fiscal year beginning July 1, 2008. Management is currently evaluating
      the impact of SFAS No. 159, if any, on our consolidated financial
      statements.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
      Combinations" (“SFAS 141”). SFAS 141 requires an acquirer to measure the
      identifiable assets acquired, the liabilities assumed and any non-controlling
      interest in the acquiree at their fair values on the acquisition date, with
      goodwill being the excess value over the net identifiable assets acquired.
      SFAS
      141 also requires the fair value measurement of certain other assets and
      liabilities related to the acquisition such as contingencies. SFAS 141 applies
      prospectively to business combinations and is effective for fiscal years
      beginning on or after December 15, 2008. Management is currently evaluating
      the
      impact that SFAS 141 will have on the accounting for future acquisitions and
      our
      consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
      Consolidated Financial Statements" (“SFAS 160”). SFAS 160 requires that a
      non-controlling interest in a subsidiary be reported as equity in the
      consolidated financial statements. Consolidated net income should include the
      net income for both the parent and the non-controlling interest with disclosure
      of both amounts on the consolidated statement of income. The presentation
      provisions of SFAS 160 are to be applied retrospectively, and SFAS 160 is
      effective for fiscal years beginning on or after December 15, 2008. Management
      is currently evaluating the impact that SFAS 160 will have on our consolidated
      financial statements.




No
      other
      pronouncements have been recently issued that Avantair believes will have a
      material impact on Avantair’s financial position and results of
      operations.


21





**Results
      of Operations**





*Fiscal
      year ended June 30, 2008 compared to the fiscal year ended June 30,
      2007.*





Revenues
      for the fiscal year ended June 30, 2008 were $115.6 million, an increase of
      51.3% from $76.4 million for the fiscal year ended June 30, 2007. This
      increase was the result of a 46.2% increase in the revenue generated from the
      sale of fractional aircraft shares to $43.4 million for the fiscal year ended
      June 30, 2008 from $29.7 million for the fiscal year ended June 30,
      2007, an increase of 50.1% in maintenance and management fees to $58.2 million
      for the fiscal year ended June 30, 2008 from $38.8 million for the fiscal
      year ended June 30, 2007, an increase of 59.4% in charter card and
      demonstration revenue to $10.2 million for the fiscal year ended June 30,
      2008 from $6.4 million for the fiscal year ended June 30, 2007, and an
      increase of 151.5% in FBO and other revenue to $3.7 million for the fiscal
      year
      ended June 30, 2008 from $1.5 million for the fiscal year ended June 30, 2007.





Revenue
      from the sale of fractional aircraft shares increased due to a 32% increase
      in
      the number of fractional shares sold to 659 through the fiscal year ended
      June 30, 2008 from 499.5 fractional shares sold through the fiscal year
      ended June 30, 2007. The sale of fractional shares during 2008 reflected
      the results of enhanced sales initiatives, including an emphasis on a national
      market and the marketing of the fuel efficiency of the Piaggio aircraft.





The
      increase in revenue from maintenance and management fees increased primarily
      due
      to:


•
              an
                  increase in the annual maintenance and management fee to $9,400
                  from
                  $8,900 for new and renewing fractional share owners;
                  and
 •
              an
                  increase in the number of fractional share
                  owners.


Charter
      card revenue and demonstration revenue increased $3.8 million primarily due
      to a 94% increase in charter card hours flown during the fiscal year ended
      June 30, 2008 over hours flown during the fiscal year ended June 30, 2007 due
      to
      increased marketing of charter cards in fiscal 2008.





FBO
      and
      other revenue increased $2.3 million primarily due to (i) an increase in
      fuel sales of $1.5 million due to an increase in fuel prices to match increased
      cost of fuel sold along with an increase in fuel volume sold; (ii) a $500,000
      increase in rent revenue and (iii) an increase of $300,000 in remarketing and
      other revenues.





Operating
      expenses for the fiscal year ended June 30, 2008 were 38.5% higher than
      during the fiscal year ended June 30, 2007, with total expenses of $132.2
      million compared to $95.4 million, respectively. The cost of fractional aircraft
      shares sold increased to $36.6 million for the fiscal year ended June 30,
      2008 from $24.4 million for the fiscal year ended June 30, 2007, due to an
      increase of 32 *%* in the
      number of fractional shares sold to 659 fractional shares sold through the
      fiscal year ended June 30, 2008 from 499.5 fractional shares sold through
      the fiscal year ended June 30, 2007. The cost of flight operations,
      together with the cost of fuel, increased 45.1% to $66.5 million for the fiscal
      year ended June 30, 2008 from $45.9 million for the fiscal year ended
      June 30, 2007, primarily due to:


•
              an
                  increase of $5.9 million in maintenance expenses, comprised primarily
                  of
                  an increase in maintenance salaries, parts expense and maintenance
                  insurance coverage due to an increase in fleet
                  size;
 •
              an
                  increase of $7.4 million in fuel prices and flight fees (which
                  includes
                  landing fees, airport fees and ground transportation fees) borne
                  by
                  Avantair for repositioning flights, demonstration flights and pilot
                  training flights; and
 •
              an
                  increase of $7.6 million in pilot expenses due to hiring an additional
                  80
                  pilots, including salaries and related pilot expenses, training,
                  hotel
                  expenses, pilot airfare and living
                  expenses.


General
      and administrative expenses increased 11.7% to $20.7 million for the fiscal
      year
      ended June 30, 2008 from $18.5 million for the fiscal year ended
      June 30, 2007, primarily due to:


•
              an
                  increase of $2.2 million in expenses related to fixed based
                  operations;
 •
              an
                  increase of $0.6 million in costs associated with being publicly
                  traded;
 •
              an
                  increase of $0.2 million in flight center expenses due to increased
                  in
                  salary and purchasing expenses;
 •
              an
                  increase of $0.4 million in pilot
                  training;
 •
              an
                  increase of $1.0 million in salary, payroll tax and employee benefit
                  expenses;
 •
              an
                  increase in computer expense of $.2 million;
                  and
 •
              the
                  above were partially offset by a decrease in share-based compensation
                  of
                  $2.4 million.


Selling
      expenses increased to $4.7 million for the fiscal year ended June 30, 2008
      from $4.3 million for the fiscal year ended June 30, 2007 due to an
      increase of $0.4 million in advertising expenses and aircraft
      shows.





Loss
      from
      operations was $16.6 million for the fiscal year ended June 30, 2008, a
      decrease of 12.9% from $19.0 million for the fiscal year ended June 30,
      2007 for the reasons set forth above.





Total
      other expense was $2.3 million for the fiscal year ended June 30, 2008
      compared to $2.7 million for the fiscal year ended June 30, 2007, primarily
      due to recognition of a $0.3 million gain on the sale of a non-fractionalized
      aircraft and a $0.5 million gain through the sale of its rights to purchase
      18
      Embraer Phenom 100 aircraft during the fiscal year ended June 30, 2008, which
      were offset by a 7.5% increase in interest expense to $3.7 million for the
      fiscal year ended June 30, 2008 from $3.4 million for the fiscal year ended
      June 30, 2007.





Net
      loss
      decreased to $18.9 million for the fiscal year ended June 30, 2008 compared
      to $21.7 million for the fiscal year ended June 30, 2007 due to the
      decrease in net loss is the decrease in loss from operations and the decrease
      in
      total other expense discussed above.


22




*Fiscal
      year ended June 30, 2007 compared to fiscal year ended June 30,
      2006.*





Revenues
      for the fiscal year ended June 30, 2007 were $76.4 million, an increase of
      57.9% from $48.4 million for the fiscal year ended June 30, 2006. This
      increase was the result of a 25% increase in the revenue generated from the
      sale
      of fractional aircraft shares to $29.7 million for the fiscal year ended
      June 30, 2007 from $23.8 million for the fiscal year ended June 30,
      2006, an increase of 70.0% in maintenance and management fees to $38.8 million
      for the fiscal year ended June 30, 2007 from $22.8 million for the fiscal
      year ended June 30, 2006 and an increase of 336% in demonstration and
      charter card revenue to $7.9 million for the fiscal year ended June 30,
      2007 from $1.8 million for the fiscal year ended June 30, 2006. Revenue
      from the sale of fractional aircraft shares increased due to a 48% increase
      in
      the number of fractional shares sold to 499.5 through the fiscal year ended
      June 30, 2007 from 337.5 fractional shares sold through the fiscal year
      ended June 30, 2006. The increase in revenue from maintenance and
      management fees increased due to several primary factors:


•
              a
                  price increase in the annual maintenance and management fees from
                  $7,900
                  to $8,900; and
 •
              an
                  increase in fleet size.




Demonstration
      and charter card revenue increased $4.9 million primarily due to (i) an
      increase in demonstration sales of $1.5 million or 108.5% due to a 20% increase
      in the cost charged for such demonstration flights and an increase in the number
      of demonstration flights; (ii) an increase in charter card revenue of $3.4
      million since charter cards were not sold during most of the fiscal year ended
      June 30, 2006, (iii) an increase in remarketing fees of $0.78 million,
      (iv) an increase in rent revenue of $0.28 million, and (v) fuel
      revenue of $0.4 million.





Operating
      expenses for the fiscal year ended June 30, 2007 were 40.3% higher than
      during the fiscal year ended June 30, 2006, with total expenses of $95.4
      million compared to $68.0 million. The cost of fractional aircraft shares sold
      increased to $24.4 million for the fiscal year ended June 30, 2007 from
      $19.2 million for the fiscal year ended June 30, 2006, due to an increase
      of 48 *%* in the
      number of fractional shares sold to 499.5 fractional shares sold through the
      fiscal year ended June 30, 2007 from 337.5 fractional shares sold through
      the fiscal year ended June 30, 2006. The cost of flight operations
      increased 44.3% to $45.9 million for the fiscal year ended June 30, 2007
      from $31.8 million for the fiscal year ended June 30, 2006, primarily due
      to:


•
              an
                  increase of $2.4 million in maintenance expenses, comprised primarily
                  of
                  an increase in parts expense and maintenance insurance coverage
                  due to an
                  increase in fleet size;
 •
              an
                  increase of $4.1 million in fuel prices and flight fees (which
                  includes
                  landing fees, airport fees and ground transportation fees) borne
                  by
                  Avantair for repositioning flights, demonstration flights and pilot
                  training flights;
 •
              an
                  increase of $4.9 million in pilot expenses due to hiring an additional
                  21
                  pilots, including salaries and related pilot expenses, including
                  hotel
                  expenses, pilot airfare and living
                  expenses;
 •
              an
                  increase of $1.5 million in chartering expenses;
                  and
 •
              an
                  increase of $1.2 million in aircraft leasing
                  expenses.




Cost
      of
      flight operations (including maintenance expenses, costs related to
      repositioning, pilot-related costs and charter expenses) was negatively impacted
      in all areas by a delay at the FAA in approving a newly designed avionics
      package in the Piaggio Avanti II. This delay caused 6 planes originally
      scheduled for delivery during the last 6 months of fiscal year ended
      June 30, 2006 to be delivered, in part, in September 2006. The greater than
      anticipated use of Avantair’s existing fleet resulted in increased maintenance
      expenses due to accelerated mileage-based maintenance events and periodic
      refurbishment, and increased pilot-related costs due to the need to transport
      pilots to and from various locations in order for the aircraft to operate.
      Compensation expense increased primarily due to 474,000 shares of common stock
      issued to certain officers of Avantair for prior services rendered at a cost
      of
      $5.36 per share.




General
      and administrative expenses increased 58.4% to $18.5 million for the fiscal
      year
      ended June 30, 2007 from $10.8 million for the fiscal year ended
      June 30, 2006, primarily due to:


•
              an
                  increase of $2.4 million in expenses related to fixed based
                  operations;
 •
              an
                  increase of $0.5 million in legal and accounting salaries and expenses;
                  and
 •
              an
                  increase of $0.8 million in flight center expenses caused by an
                  increase
                  in salary and purchasing expenses.
 •
              an
                  increase of $0.4 million in pilot
                  training;
 •
              an
                  increase of $0.3 million in employee benefits;
                  and
 •
              an
                  increase in share-based compensation of $2.8
                  million.




Selling
      expenses increased to $4.3 million for the fiscal year ended June 30, 2007
      from $3.7 million for the fiscal year ended June 30, 2006 due to an
      increase of $0.6 million in advertising expenses and aircraft
      shows.





Loss
      from
      operations was $19.0 million for the fiscal year ended June 30, 2007, a
      decrease of 3.1% from $19.6 million for the fiscal year ended June 30, 2006
      for the reasons set forth above.





Total
      other expense was $2.7 million for the fiscal year ended June 30, 2007
      compared to $1.1 million for the fiscal year ended June 30, 2006, primarily
      due to a 61.4% increase in interest expense to $3.4 million for the fiscal
      year
      ended June 30, 2007 from $2.1 million for the fiscal year ended
      June 30, 2006. Interest expense increased due to an increase in the
      interest rate on Avantair’s line of credit and an increase in the balance
      outstanding on the Avantair’s line of credit during most of the
      year.





Net
      loss
      increased to $21.7 million for the fiscal year ended June 30, 2007 compared
      to $20.8 million for the fiscal year ended June 30, 2006. The primary
      reason for the increase in the net loss is the loss from operations and the
      increase in total other expense discussed above.


23




**Liquidity
      and Capital Resources**





Avantair’s
      primary sources of liquidity have been cash provided by operations, cash raised
      from its equity offering with Ardent Acquisition Corp., cash provided from
      its
      debt facility with CNM, Inc., cash raised in the recent preferred stock
      offering, and other asset based borrowing (see Notes 7 and 10 to the Company’s
      consolidated financial statements). The Company uses its cash primarily to
      fund
      losses from operations, deposits made on fractional aircraft, leasehold
      improvements, and to fund the purchase of core aircraft and aircraft which
      are
      to be fractionalized but which have not yet been pre-sold. Cash generated from
      operations has not been sufficient to provide for all the working capital needed
      to meet Avantair’s present requirements. At June 30, 2008 and June 30, 2007,
      Avantair had a working capital deficit of approximately $30.2 and $8.4 million,
      respectively, and an accumulated deficit of approximately $77 million and $58
      million, respectively. Certain components of working capital which are comprised
      of cash and amounts readily convertible into rights to receive or obligations
      to
      pay cash including accounts receivable, accounts payable and accrued expenses
      increased to $14.6 million at June 30, 2008 from $8.8 million at June 30, 2007.
      As of June 30, 2008, cash and cash equivalents amounted to approximately $19
      million and total assets of $204.5 million. The cash and cash equivalent balance
      increased $6.6 million from June 30, 2007 while total assets increased $44
      million. The increase in cash and cash equivalents occurred primarily as a
      result of the Company taking possession of eleven aircraft during the fiscal
      year ending June 30, 2008 and selling 139 shares in fiscal year 2008 out of
      176
      available shares relating to these eleven aircraft. At June 30, 2007, the
      Company had presold eleven fractional shares.




As
      of
      June 30, 2008, the Company’s recurring losses resulting in an accumulated
      deficit of $76,967,468 and a working capital deficiency of $30,152,512. In
      order
      to achieve profitable income from operations before depreciation and
      amortization, management currently estimates that the Company will need to
      have
      45 fully fractionalized aircraft. At June 30, 2008, the Company had 41.3
      fractionalized aircraft. Therefore, Avantair’s primary growth strategy is to
      continue to increase the number of fractional share owners and aircraft under
      management. The Company believes income from operations before depreciation
      and
      amortization is useful to investors as it excludes non-cash expenses that do
      not
      directly relate to the operation of fractionalized aircraft. This measure is
      a
      supplement to generally accepted accounting principles (GAAP) used to prepare
      the Company’s consolidated financial statements and should not be viewed as a
      substitute for GAAP measures. In addition, the Company’s non-GAAP measure may
      not be comparable to non-GAAP measures of other companies. Income from
      operations according to GAAP would include depreciation and amortization
      expense, estimated to be approximately $330,000 per month at the time of fully
      fractionalizing the 45 th aircraft. In connection with future financing of growth, the Company may obtain
      additional funds through equity financing, including the sale of additional
      shares of common stock, assets sales, accelerated payments of maintenance and
      management fees, debt financing, or a combination thereof. During the fiscal
      year ended June 30, 2008, the Company raised net proceeds of $14.4 million
      through an equity offering detailed in Note 11, $2.5 million from the sale
      of
      the Company’s rights to purchase eighteen Embraer Phenom 100 aircraft, and
      approximately $6.9 million of cash through accelerated payments of management
      fees through our incentivization program. With this capital, the Company has
      sufficient cash to continue its operations for the forseeable future.





*Fiscal
      year ended June 30, 2008 compared to fiscal year ended June 30,
      2007* ***.***





Net
      cash
      used in operating activities was $15.5 million for the year ended June 30,
      2008
      compared to cash used in operating activities of $17.2 million for the same
      period last year. The decrease in net cash used in operating activities is
      primarily attributable to a decrease in cash due to the eleven planes delivered
      to the Company during the year ended June 30, 2008, since a portion of such
      planes were not fully fractionalized upon the Company taking possession,
      partially offset by approximately $2.5 million in cash received from the sale
      of
      the Company’s rights to purchase eighteen Embraer Phenom 100 aircraft and
      approximately $6.9 million cash received from shareholders prepaying their
      maintenance and management fee on an annual basis. At June 30, 2008, the Company
      held 26 unsold fractional aircraft shares. For the year ended June 30, 2007,
      the
      Company took possession of twelve aircraft and at June 30, 2007 had presold
      eleven fractional shares.




Net
      cash
      used in investing activities was $2.7 million for the year ended June 30, 2008
      compared to cash provided by investing activities of $2.5 million for the same
      period last year. The cash provided by investing activities during the year
      ended June 30, 2008 resulted from $2.5 million in proceeds from rights to
      purchase 18 Embraer Phenom 100 Positions, net of capital expenditures on
      leasehold improvements and computer systems at the Florida and California
      facilities. Cash provided by investing activities for the year ended June 30,
      2007 resulted from the sale of property and equipment.




Net
      cash
      used by financing activities for the year ended June 30, 2008 results primarily
      from net proceeds from the issuance of a new class of convertible preferred
      stock of $14.4 million and additional borrowings. On November 14, 2007 and
      December 5, 2007, the Company entered into a Preferred Stock Purchase Agreement
      (the “Preferred Stock Agreement”) with certain investors. Under the Preferred
      Stock Agreement, the Company agreed to issue 152,000 shares of its newly-created
      Series A Convertible Preferred Stock to certain investors for an aggregate
      purchase price of $15.2 million. During the fiscal year ended June 30, 2008,
      the
      Company had additional net borrowings under short-term notes payable, comprised
      of floor plan agreements, of $15.8 million and a net decrease of long-term
      notes
      payable of $4.4 million.





*Fiscal
      year ended June 30, 2007 compared to fiscal year ended June 30,
      2006.*





Net
      cash
      used in operating activities totaled $17.2 million for the fiscal year ended
      June 30, 2007 compared to net cash provided by operating activities of $3.6
      million for the fiscal year ended June 30, 2006. The increase in net cash
      used in operating activities during the fiscal year ended June 30,
      2007 is primarily due to the fact that the Company paid
      approximately $10 million for two aircraft received in fiscal year 2007, for
      which the shares were presold in fiscal year 2006. In addition, the Company
      paid
      approximately $3.7 million to vendors, as well as, deposits of approximately
      $2.9 million for letters of credit to secure fuel purchases and credit card
      chargeback’s in fiscal year 2007.





Net
      cash
      provided by investing activities was $2.5 million for the fiscal year ended
      June 30, 2007 compared to $0.7 million for the fiscal year ended
      June 30, 2006. The cash provided by investing activities during the fiscal
      year ended June 30, 2007 resulted from the sale of one of the aircraft held
      for sale.





Net
      cash
      provided by financing activities was $25.0 million for the fiscal year ended
      June 30, 2007 compared to net cash used of $4.2 million for the fiscal year
      ended June 30, 2006. During the fiscal year ended June 30, 2007,
      Avantair received an increase of $43.3 million in proceeds from the issuance
      of
      stock, an increase of $11.3 million in borrowings under long-term notes payable,
      an increase of $7.6 million in proceeds from borrowings under the line of
      credit, an increase in principal payments made on long-term notes payable of
      $13.0 million and an increase in the principal payments made on the line of
      credit of $22.8 million.


24




*Financing
      Arrangements*





Avantair’s
      financing commitments as of June 30, 2008, are described below:




·
            Wells
                Fargo Equipment Finance, Inc.: In February 2005, the Company entered
                into
                financing arrangements for the purchase of three aircraft under various
                notes payable with Wells Fargo Equipment Finance, Inc. In January
                2008,
                the Company sold one of these aircraft and repaid the outstanding
                balance
                on the related note payable. The notes outstanding at June 30, 2008
                in the
                amount of $3,486,167 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.




·
            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% per year. On April 15, 2008,
                the
                balance of this note was rolled into a new payment arrangement with
                JSSI
                in the amount of a $5.6 million promissory note. The note matures
                on
                April 1, 2011 and bears interest at the rate of 10% per annum,
                with 35 monthly payments of principal and interest in an amount of
                $185,127 beginning on June 2, 2008. The note covers the balance of
                the aforementioned $3.4 million promissory note as well as other
                costs and
                fees to be paid by the Company under service agreements with
                JSSI.




·
            CNM,
                Inc.: In August 2007, the Company and CNM, Inc. (“CNM”) executed a new
                note agreement which converted an outstanding note obligation of
                approximately $7 million into a term loan payable monthly over three
                years
                and bearing interest at 10% per annum. CNM also assumed a promissory
                note due to Wells Fargo Bank for $2,900,000 which was included as
                part of
                this new note agreement.




·
            Midsouth
                Services, Inc.: On October 3, 2007, the Company entered into a floor
                plan
                agreement with Midsouth Services, Inc. (“Midsouth”) which provides for up
                to approximately $5.1 million of financing for aircraft to be acquired
                from Piaggio America, Inc. extended on a month-to-month basis from
                April
                2008 and repaid on July 2008.   Effective March 3, 2008, the Company
                entered into a second floor plan agreement with Midsouth that provides
                for
                up to $5.3 million of financing for aircraft to be acquired from
                Piaggio
                America, Inc. for the six month period commencing with the first
                delivery
                of aircraft under the plan. Each agreement requires a $75,000 monthly
                facility fee with payment of any outstanding borrowings due in full
                prior
                to taking delivery of additional aircraft. Midsouth also agreed,
                at the
                option of the Company, to provide an additional loan in the amount
                of $5.3
                million, with terms and conditions of the additional loan substantially
                similar to the terms of the March 2008 loan, upon expiration of the
                October 3, 2007 floor plan agreement. Borrowings outstanding under
                these
                arrangements at June 30, 2008 totaled approximately $10.5 million.
              
              Subsequently,
                on July 31, 2008, Avantair, Inc. (the "Company") entered into two
                new
                Floor Plan Finance Agreements (each, an “Agreement” and collectively "the
                Agreements"), pursuant to which MidSouth Services, Inc. (the “Lender”) has
                agreed to extend credit to the Company in an amount not to exceed
                $5,345,000 under each Agreement ($10,690,000 in total for the Agreements),
                for an initial term of three (3) months for each Agreement. Indebtedness
                under the Agreements will be used by the Company to fund the purchase
                of
                new Piaggio P-180 aircraft. The Company shall have the sole option
                to
                renew the Agreements for three (3) consecutive additional one (1)
                month
                terms at the expiration of the initial term. The effective dates
                of the
                two Agreements are July 31, 2008, and August 1, 2008, respectively. 
                The Company has agreed to pay to the Lender a monthly fee of $75,000
                under
                each Agreement.
              
              In
                connection with the entry into the Agreements, on July 31, 2008,
                the
                Company terminated the prior Floor Plan Finance Agreements dated
                March 3,
                2008 and October 3, 2007 between the Company and the Lender.


·
                Century
                    Bank, F.S.B.: The Company entered into a Promissory Note (“Note”) with
                    Century Bank, F.S.B. (“Lender”), effective May 29, 2008, pursuant to which
                    Lender agreed to provide financing to the company in the amount
                    of
                    $5,200,000 to be used towards the purchase of a new Piaggio P-180
                    aircraft. The Company was to pay the following fees for the
                    Note: (1) $37,500 on the effective date of the Note and (2) $75,000
                    on the
                    30th day of the each month thereafter until repayment in full
                    of the
                    principal amount of the Note (“Term”). The Principal amount of the Note
                    was to be paid in full within 120 days from the Effective Date of the
                    Note. The Company was to make partial payments to Lender in $325,000
                    increments upon the closing of each fractional interest and Lender
                    shall
                    provide partial lien releases as to the respective fractional
                    interests
                    sold. Additionally, the Company was to pay a fee of $52,000 at
                    the time of repayment in full of the principal amount of the
                    Note,
                    constituting a fee a 1% of the principal amount. If repayment
                    was made in
                    full within 90 days after the effective date of this Note, the
                    fee would
                    be reduced to $26,000, constituting a fee of 0.5% of the principal
                    amount.
                  
                  In
                    July 2008, the Company repaid the full amount of the Promissory
                    Note
                    (“Note”) with Century Bank , F.S.B. (“Lender”), which became effective on
                    May 29, 2008.The Company paid the following fees for the Note:
                    (1) $37,500
                    on the effective date of the Note and (2) $75,000 on the 30 th
                    day of the
                    each month thereafter until repayment in full of the principal
                    amount of
                    the Note (“Term”). Additionally, the Company was to also pay a fee of
                    $52,000 at the time of repayment in full of the principal amount
                    of the
                    Note, constituting a fee of 1 % of the principal amount. However,
                    as the
                    Company repaid the note in full in July 2008 (within 90 days
                    after the
                    effective date of the note), the fee was reduced to 0.5% of the
                    principal
                    amount or $26,000.


25




·
            Midsouth
                Services, Inc.: On October 10, 2007, the Company entered into a five
                year
                lease agreement for one Piaggio Avanti P-180 aircraft. The aircraft
                will
                be used as a core aircraft and not fractionalized. The obligation
                is
                accounted for as a capital lease with lease payments of $89,000 per
                month.
                Upon expiration of the term, the Company will be required to purchase
                the
                aircraft from the lessor for $2.3
                million.




·
            Wachovia
                Bank: On October 31, 2007, the Company entered into a financing
                arrangement for the purchase of one used Piaggio Avanti P-180 aircraft
                at
                a total purchase price of approximately $4.5 million (inclusive of
                the
                value of a charter card of 100 hours). Financing was obtained from
                a
                lending institution 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%.




For
      additional information regarding these financing arrangements, see Notes 7
      and
      10 to the Company’s consolidated financial statements.




The
      following table represents long-term debt obligations, contractual obligations
      and aircraft purchase commitments, each as of June 30, 2008:


**Obligations as of June 30, 2008**
                **(In U.S. currency) (1)**
              
              **Long-Term**
                **Debt**
                **Obligations**
              
              **Operating**
                **Leases(2)**
              
              **Aircraft**
                **Purchase**
                **Commitments(3)**2009
              
              $
              6,648,093
              
              $
              3,216,974
              
              $
              39,509,3852010
              
              
              7,210,997
              
              
              3,245,430
              
              
              50,670,4952011
              
              
              3,536,173
              
              
              3,240,259
              
              
              50,670,4952012
              
              
              7,826,962
              
              
              2,508,376
              
              
              50,670,4952013
              
              
              4,538,018
              
              
              2,419,858
              
              
              53,167,995After
                  2013
              
              
              744,172
              
              
              20,445,019
              
              
              104,202,435Total
                  minimum payment
              
              $
              30,504,415
              
              $
              35,075,916
              
              $
              348,891,300Less
                  Obligation Prepayment as of June 30, 2008
              
              
              —
              
              
              —
              
              
              8,000,000$
              30,504,415
              
              $
              35,075,916
              
              $
              340,891,300





(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, 2008.(2)
            Includes
                hangar, office and auto leases.(3)
            Includes
                purchase commitments for 60 Piaggio aircraft




**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 Bank and its debt facility with Wachovia
      Bank. The current liability, pursuant to which Avantair is obligated to pay
      Wells Fargo Bank, has an interest rate that is 1.0% above prime. The current
      liability, pursuant to which Avantair is obligated to pay Wachovia Bank, has
      an
      interest rate that is equal to the LIBOR rate plus 4.0%. At June 30, 2008,
      the
      liabilities of Avantair with exposure to interest rate risk were approximately
      $3.5 million.


**June 30, 2008****Expected Maturity Date**2009
                
                2010
                
                2011
                
                2012
                
                2013
                
                Thereafter
                
                Total**Liabilities**Long
                    term debt:Fixed
                    Rate
                
                $
                6,088,090
                
                $
                6,652,868
                
                $
                2,978,045
                
                $
                7,268,833
                
                $
                3,979,889
                
                
                -
                
                $
                26,967,725Average
                    interest rate
                
                
                8.4
                %
                
                8.4
                %
                
                8.4
                %
                
                8.4
                %
                
                8.4
                %
                
                8.4
                %Variable
                    Rate
                
                $
                560,004
                
                $
                558,129
                
                $
                558,129
                
                $
                558,129
                
                $
                558,129
                
                $
                744,172
                
                $
                3,536,690Averate
                    interest rate
                
                
                7.3
                %
                
                7.3
                %
                
                7.3
                %
                
                7.3
                %
                
                7.3
                %
                
                7.3
                %


26





*Off-Balance
      Sheet Arrangements*





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





**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**





Management
      has made its evaluation of our disclosure controls and procedures as of June
      30,
      2008. Avantair is aware of the existence of a material weakness in the design
      and operation of Avantair’s internal controls over financial reporting that
      could adversely affect its ability to record, process, and report financial
      information consistent with the assertions of management in the financial
      statements and concludes that the internal controls are ineffective as of June
      30, 2008. A material weakness is defined as a
      deficiency, or a combination of deficiencies, in internal control over financial
      reporting, such that there is a reasonable possibility **** that
      a
      material misstatement of the company's annual or interim financial statements
      will not be prevented or detected on a timely basis.





The
      material weakness evaluation first began with the independent audit of the
      fiscal years ended June 30, 2004, 2005, 2006 and 2007. The auditors' letter
      on
      material weakness states the following:


·
              Avantair’s
                  accounting files for fiscal 2004 were incomplete, which required
                  significant modifications of accounting data for that
                  period.
 
 ·
              Costs
                  of fractional shares and revenue on certain contracts during the
                  years
                  ended June 30, 2006, 2005 and 2004 were not recognized properly
                  due to
                  errors made on the electronic worksheets for reporting this
                  information.
 
 ·
              There
                  was an insufficient number of accounting staff with the appropriate
                  level
                  of knowledge, which contributed to errors and deficiencies in financial
                  reporting and disclosures.




Avantair
      is addressing the concerns stated in the auditor’s letter on internal controls
      and making appropriate changes in an attempt to remedy concerns over internal
      controls and reduce the possibility of a misstatement of Avantair’s financial
      statements. The actions taken to date include the hiring of a Chief Financial
      Officer, Assistant Controller, Senior Accountant and a Director of Financial
      Reporting and Sarbanes Oxley Compliance. In addition, Avantair has modified
      its
      business processes to include enhanced controls over its core processes, the
      more significant of which are described below. Avantair continues to educate
      the
      senior accounting staff on the requirements of Section 404 of the Sarbanes-Oxley
      Act.





During
      fiscal 2008, Avantair:


·
              hired
                  additional accounting personnel with the appropriate level of knowledge
                  to
                  properly record transactions in the general ledger and prepare
                  financial
                  statements in accordance with accounting principles generally accepted
                  in
                  the United States of America.
 ·
              and
                  has engaged consultants who are assisting the Company in implementation
                  of
                  a new back-office accounting software package which will further
                  improve
                  the accounting process and related internal
                  controls.




In
      fiscal
      2009, Avantair intends to achieve sustainable compliance by building an
      efficient infrastructure that enables repeatable and reliable actions. The
      compliance infrastructure will entail a control framework which:


·
            will
                ensure that relevant information is identified and communicated in
                a
                timely manner.





·
            will
                develop policies and procedures that help ensure that actions identified
                to manage risk are executed and
                timely.





·
            will
                determine whether internal controls are adequately designed, executed,
                effective and adaptive.





·
            will
                perform evaluations of internal and external factors that impact
                the
                organization’s performance.




27





The
      control conscience of the Company is a priority, and management intends to
      increase due diligence in all areas. This due diligence will include a review
      of
      internal controls, conduct a formal cultural and environmental assessment of
      the
      company, and provide training regarding the COSO framework and the internal
      control requirements in Sarbanes-Oxley. The Company has taken steps beginning
      in
      fiscal year 2009 by hiring a Director of Financial Reporting and Sarbanes Oxley
      Compliance. The initial roles and responsibilities of the position
      include:





·
              assisting
                  department management in understanding and documenting its existing
                  business processes, risks and
                  controls.





·
              assisting
                  management with the development and documentation of its control
                  objectives and related control
                  activities.




·
              assisting
                  management in assessing the effectiveness of its controls and provide
                  recommendation for improvement.





·
              assisting
                  management in deploying an internal control self-assessment process.





·
              assisting
                  management with the adoption of technologies to support its documentation,
                  evaluation and monitoring of controls.





Because
      Avantair has not completed its remediation plan, management has concluded that
      a
      material weakness in the operation of our disclosure controls and procedures
      exists and that controls are ineffective at June 30, 2008. Any failure to
      effectively address a material weakness or other control deficiency of Avantair
      or implement required new or improved controls, or difficulties encountered
      in
      their implementation, could disrupt Avantair’s ability to process key components
      of its results of operations and financial condition timely and accurately
      and
      cause Avantair to fail to meet its reporting obligations under rules of the
      Securities and Exchange Commission.




There
        has
        been no change in the our internal control over financial reporting during
        the
        fourth quarter of the fiscal year ended June 30, 2008 that has materially
        affected, or is reasonably likely to materially affect, our internal control
        over financial reporting.
 
 Further,
        this annual report does not include an attestation report of the company's
        registered public accounting firm regarding internal control over financial
        reporting. Management's report was not subject to attestation by the company's
        registered public accounting firm pursuant to temporary rules of the Securities
        and Exchange Commission that permit the company to provide only management's
        report in this annual report.





**Item 9B.
      Other Information**





Not
      applicable.


28





**PART
      III**





**Item 10.
      Directors, Executive Officers and Corporate Governance**





**Executive
      Officers and Directors**





Our
      current directors and executive officers are as follows:




**Name**
            
            **Age**
            
            **Position**Barry
                J. Gordon
            
            63
            
            Chairman
                of the BoardArthur
                H. Goldberg
            
            66
            
            DirectorSteven
                Santo
            
            41
            
            Chief
                Executive Officer and DirectorRichard
                A. Pytak Jr.
            
            46
            
            Chief
                Financial OfficerKevin
                L. Beitzel
            
            39
            
            Chief
                Operating OfficerStephanie
                A. Cuskley
            
            48
            
            DirectorA.
                Clinton Allen
            
            64
            
            DirectorRobert
                J. Lepofsky
            
            63
            
            Director





Barry
      J.
      Gordon has been Avantair’s (formerly known as Ardent Acquisition Corporation)
      Chairman of the Board and Chief Executive Officer since its inception.
      Mr. Gordon has nearly 40 years of experience in evaluating aviation
      industry securities, including membership for 25 years in the Society of Airline
      Analysts (with 5 years as its president), and over 30 years experience in the
      senior management of a mutual fund specializing in the airline, aerospace and
      technology industries. Mr. Gordon served as executive vice president of
      American Fund Advisors, Inc. from September 1978 until December 1980, as its
      president from December 1980 until May 1987 and has been its chairman of the
      board since May 1987. American Fund Advisors is a private money management
      firm
      that manages money for high net worth individuals, pension and profit sharing
      plans. Mr. Gordon has been a director of American Fund Advisors since
      December 1980. From December 1991 to March 2005, he was president, and from
      December 1991 to December 1993, he was director, of the John Hancock Technology
      Series, Inc., an investment company. Since September 1999, Mr. Gordon has
      been President, Chief Executive Officer and a director of BlueStone AFA
      Management, LLC, the general partner of the AFA Private Equity Fund 1 (formerly
      BlueStone AFA Fund), a venture capital fund providing equity capital for public
      and private companies primarily in the technology sector, and since January
      2000, he has been a director of the AFA Private Equity Fund. Mr. Gordon has
      been Chairman of the Board and Chief Executive Officer of North Shore
      Acquisition Corp., a blank check company formed in June 2007 for the purpose
      of
      effecting a business combination with an operating business, since its inception
      in June 2007. Mr. Gordon has also been chairman of the board and Chief
      Executive Officer of the New Jersey Cardinals, a Class A affiliate of the
      St. Louis Cardinals, from February 1990 until April 2006 and the Norwich
      Navigators, a Class AA affiliate of the San Francisco Giants, from March 1991
      until April 2005. He also served as a director of Winfield Capital Corp., an
      Over The Counter Bulletin Board listed small business investment company, from
      October 1995 to October 2005. In 1992, Mr. Gordon was awarded Entrepreneur
      of the Year for Long Island in financial services. Mr. Gordon received a
      B.B.A. from the University of Miami and an M.B.A. from Hofstra
      University.




Arthur
      H.
      Goldberg has been a member of Avantair’s (formerly known as Ardent Acquisition
      Corporation) Board of Directors since inception. Mr. Goldberg has served as
      a member of Corporate Solutions Group since January 2000. From February 1994
      to
      December 1999, Mr. Goldberg served president of Manhattan Associates, an
      investment and merchant banking firm. Mr. Goldberg has been a trustee of
      Ramco-Gershenson Properties Trust (formerly named RPS Realty Trust), a New
      York
      Stock Exchange listed real estate investment trust, since 1998. Mr. Goldberg
      has
      been a director of North Shore Acquisition Corp., a blank check company formed
      in June 2007 for the purpose of effecting a business combination with an
      operating business, since its inception in June 2007. Mr. Goldberg received
      a B.S. (cum laude) from New York University Stern School and a J.D. from the
      New
      York University School of Law.





Steven
      Santo has served as Chief Executive Officer, President and a Director of
      Avantair since its inception in June 2003 and Skyline Aviation Services, Inc.
      since June 2002. Mr. Santo is a licensed, commercially-rated pilot who has
      been
      flying for approximately 15 years. From 1995 through 2001, Mr. Santo practiced
      law as an attorney in private practice, concluding his law practice in 2001
      as a
      name partner at the firm of Fields, Silver & Santo. From 1992 to 1995, Mr.
      Santo served as an Assistant District Attorney in New York working in the
      office’s major crimes unit. Mr. Santo received a J.D. from St. Johns University
      School of Law and a bachelor’s degree from Villanova University.




Richard
      Pytak has been the Chief Financial Officer since April 14, 2008. Mr. Pytak
      has been serving as the Company’s Vice President of Finance since February
      2008. Prior to joining Avantair, Mr. Pytak served as Group Controller of
      Gibraltar Industries, Inc., from August 2003 to January 2008 and
      as Treasurer from July 1998 to July 2003. Gibraltar Industries, Inc.
      is a leading manufacturer, processor, and distributor of products for the
      building, industrial, and vehicular markets, with annual sales of over $1
      billion dollars in 2007.




Kevin
      Beitzel has been the Chief Operating Officer since February 8, 2008.
      Mr. Beitzel served as the Company’s Executive Vice President of
      Maintenance and Operations from September 2007 to February 8, 2008. From
      December 2005 through August 2007, Mr. Beitzel served as the Company’s Vice
      President of Maintenance. Prior to joining Avantair, Mr. Beitzel served as
      Director of Vendor Maintenance at US Airways from February 2005 to December
      2005. From July 1999 to February 2005 Mr. Beitzel served as
      Maintenance Operations Manager at US Airways.


29





Stephanie
      A. Cuskley has been on the Board of Directors of Insituform Technologies Inc.
      (NASDAQ:INSU) since 2005 and is chair of its audit committee. Until her
      retirement in May 2005, Ms. Cuskley was a managing director with JPMorgan
      Chase where she most recently (2003-2005) headed Investment Banking Coverage
      for
      the firm’s mid-cap clients located in the eastern US. Ms. Cuskley joined
      JPMorgan Chase in 1994 and spent 7 years in high yield origination.
      Subsequently, from 2001 to 2003, she led a global culture and leadership
      development initiative (LeadershipMorganChase) sponsored by the firm’s CEO and
      Executive Committee. Prior to joining JPMorgan Chase, Ms. Cuskley was an
      Executive VP with Integrated Resources, a large NY-based financial services
      company, and advised on their financial restructuring. She started her
      investment banking career in 1985 at Drexel Burnham Lambert as a corporate
      finance generalist. She is also a commissioner and co-head of the Economic
      Development committee of the NYC Mayor’s Commission on Women’s Issues and a
      member of the Resources Development Committee for United Way of New York City.
      Ms. Cuskley received her MBA from Cornell and her BA from the University of
      Toronto.




A.
      Clinton Allen has been the Chairman and Chief Executive Officer of A.C.
      Allen & Company, a holding company and consulting firm, since 1987. In
      2002, Mr. Allen became, and is currently, Non-Executive Chairman and
      Director of Collectors Universe, a provider of value added services to dealers
      and collectors. From 1989 to 2002, Mr. Allen served as Vice Chairman of the
      Board of Psychemedics Corporation, Inc., a biotechnology company with a
      proprietary drug testing product, and as Chairman of the Board of Psychemedics
      from 2002 to 2003. Mr. Allen was Vice Chairman and a director of the
      DeWolfe Companies, a real estate firm, from 1991 until it was acquired by
      Cendant Corporation in 2002. Additionally, he was a director and member of
      the
      executive committee of Swiss Army Brands, world’s leading distributor of Swiss
      Army products from 1994 until it was acquired by Victorinox Corporation in
      2002.
      Mr. Allen also provided the original financing for Blockbuster
      Entertainment, was their founding director, and served on the Board until
      Blockbuster was acquired by Viacom/Paramount in 1994. Mr. Allen also served
      as a director of Steinway Musical Instruments Company, a manufacturer of musical
      instruments, since 1999 and, since 2003, as its lead director; since 2003,
      as a
      director and member of the executive committee of LKQ Corporation, a supplier
      of
      recycled OEM automotive parts; and since 2003, as a director of Brooks
      Automation, a provider of integrated tool and factory automation solutions
      for
      the global semiconductor and related industries. Mr. Allen received his
      undergraduate degree from Harvard University.





Robert
      J.
      Lepofsky has been the President, Chief Executive Officer and Director of Brooks
      Automation, Inc., a publicly held producer of factory automation solutions
      for
      the global semiconductor and related industries, since October 2007. Mr.
      Lepofsky has been Chairman of Westcliff Capital Group, a private holding company
      since November 2006. After serving for ten years on the Board of Directors
      of
      Ensign-Bickford Industries, Inc., a broadly diversified, privately-held
      corporation with business interests ranging from food flavorings, industrial
      manufacturing, aerospace defense products and real estate development,
      Mr. Lepofsky became President and Chief Executive Officer of
      Ensign-Bickford in January 2005, a position he held until his retirement in
      November, 2006. From January 1989 to December 2004, Mr. Lepofsky was
      President and Chief Executive Officer of Helix Technology Corporation, a
      publicly-held producer of innovative vacuum systems for the semiconductor
      industry and Mr. Lepofsky previously served as its Senior Vice President
      and Chief Operating Officer from 1979 through 1988. In January 2005
      Mr. Lepofsky was named non-executive Chairman of the Board of Helix, a
      position he held until October 2005 when Helix merged with Brooks Automation,
      Inc. Mr. Lepofsky is a director of Moldflow Corporation, a publicly-held
      provider of software products and services for the plastics industry and chair
      of its Corporate Governance and Nominating committee. In the not-for-profit
      sector Mr. Lepofsky is Vice-Chairman of the CareGroup Health System, a
      major Harvard-affiliated healthcare system in Boston and a member of the Board
      of Overseers of the Boston Symphony Orchestra. Mr. Lepofsky received his
      B.S. degree from Drexel Institute of Technology.




**Compliance
      With Section 16(a) of the Exchange Act**





Section 16(a)
      of the Exchange Act requires our directors, executive officers and persons
      who
      own more than ten percent of a registered class of our equity securities, to
      file with the SEC initial reports of ownership and reports of changes in
      ownership of the common stock and other equity securities of our Company.
      Officers, directors, and greater than ten percent beneficial owners are required
      by SEC regulation to furnish us with copies of all Section 16(a) reports
      they file.





Based
      solely upon information furnished to us and contained in reports filed with
      the
      SEC, as well as any written representations that no other reports were required,
      we believe that all SEC filings of our directors, executive officers and
      beneficial owners of greater than ten percent complied with Section 16 of
      the Exchange Act.





**Corporate
      Governance and Board Composition**





Our
      board
      of directors is comprised of at least a majority of independent
      directors.




*Independent
      Directors*




Each
      of
      our directors other than Messrs. Gordon and Santo qualifies as an
      independent director in accordance with the published listing requirements
      of
      the Nasdaq Global Market and the other national securities exchanges. In
      addition, our board of directors has made a subjective determination as to
      each
      independent director that no relationships exist which, in the opinion of our
      board of directors, would interfere with the exercise of independent judgment
      in
      carrying out the responsibilities of a director. In making these determinations,
      our directors reviewed and discussed information provided by the directors
      and
      us with regard to each director’s business and personal activities as they may
      relate to us and our management.


30





*Board
      Structure and Committees*




Our
      board
      of directors has established an audit committee, a compensation committee and
      a
      nominating and governance committee. The charter for each of these committees
      is
      available on our website, www.avantair.com .
      Our
      board of directors and its committees set schedules to meet throughout the
      year
      and also can hold special meetings and act by written consent from time to
      time
      as appropriate. The independent directors on our board of directors also hold
      separate regularly scheduled executive session meetings at which only
      independent directors are present. Our board of directors has delegated various
      responsibilities and authority to its committees as generally described below.
      The committees regularly report on their activities and actions to the full
      board of directors. Each member of each committee of our board of directors
      qualifies as an independent director. Each committee of our board of directors
      has a written charter approved by our board of directors. Copies of each charter
      are posted on our web site at www.avantair.com under
      the Corporate Governance section. The inclusion of our web site address in
      this
      Annual Report on Form 10-K does not include or incorporate by reference the
      information on our web site into this Annual Report on Form 10-K.




*Audit
      Committee*




The
      functions of the audit committee and its activities during fiscal 2008 are
      described in the “Charter of the Audit Committee.” **** From
      July
      1, 2007 through June 30, 2008, the audit committee consisted of three
      independent directors, Ms. Cuskley and Messrs. Goldberg and Lepofsky.
      During such period, the audit committee held four meetings. Ms. Cuskley
      serves as chairperson of the audit committee.





*Compensation
      Committee*




The
      compensation committee of our board of directors reviews, makes recommendations
      to the board and approves our compensation policies and all forms of
      compensation to be provided to our executive officers and directors, including,
      among other things, annual salaries, bonuses, stock options and other incentive
      compensation arrangements. In addition, our compensation committee administers
      our stock option plans, including reviewing and granting stock options, with
      respect to our executive officers and directors, and may from time to time
      assist our board of directors in administering our stock option plans with
      respect to all of our other employees. Our compensation committee also reviews
      and approves other aspects of our compensation policies and matters. The current
      members of our compensation committee are Messrs. Allen, Goldberg and Lepofsky.
      Mr. Allen serves as chairman of the compensation committee. From July 1,
      2007 through June 30, 2008 the compensation committee held one formal meeting
      and also met informally periodically over the course of the year.




*Nominating
      and Governance Committee*




The
      nominating and governance committee of our board of directors’ reviews and
      reports to our board of directors on a periodic basis with regard to matters
      of
      corporate governance, and reviews, assesses and makes recommendations on the
      effectiveness of our corporate governance policies. In addition, our nominating
      and governance committee reviews and makes recommendations to our board of
      directors regarding the size and composition of our board of directors and
      the
      appropriate qualities and skills required of our directors in the context of
      the
      then current make-up of our board of directors. This includes an assessment
      of
      each candidate’s independence, personal and professional integrity, financial
      literacy or other professional or business experience relevant to an
      understanding of our business, ability to think and act independently and with
      sound judgment and ability to serve our stockholders’ long-term interests. These
      factors, and others as considered useful by our nominating and governance
      committee, are reviewed in the context of an assessment of the perceived needs
      of our board of directors at a particular point in time. As a result, the
      priorities and emphasis of our nominating and governance committee and of our
      board of directors may change from time to time to take into account changes
      in
      business and other trends, and the portfolio of skills and experience of current
      and prospective directors.





Our
      nominating and governance committee establishes procedures for the nomination
      process and leads the search for, select and recommend candidates for election
      to our board of directors, subject to legal rights, if any, of third parties
      to
      nominate or appoint directors. Consideration of new director candidates
      typically will involve a series of committee discussions, review of information
      concerning candidates and interviews with selected candidates. Candidates for
      nomination to our board of directors typically have been suggested by other
      members of our board of directors or by our executive officers. From time to
      time, our nominating and governance committee may engage the services of a
      third-party search firm to identify director candidates. Our nominating and
      governance committee selects the candidates for election to our board of
      directors. Candidates proposed by stockholders will be evaluated by our
      nominating and governance committee using the same criteria as for all other
      candidates. The members of our nominating and governance committee are
      Ms. Cuskley and Messrs. Goldberg and Lepofsky. Mr. Lepofsky serves as
      chairman of the nominating and governance committee. From July 1, 2007 through
      June 30, 2008 the nominating and governance committee held two
      meetings.




*Policy
      Regarding Director Attendance*




The
      Company encourages members of its board of directors to attend annual
      stockholders meetings.





*Stockholder
      Communications with the Board of Directors*




The
      board
      of directors will give appropriate attention to written communications on issues
      that are submitted by stockholders and other interested parties, and will
      respond if and as appropriate. The chairman of the nominating and governance
      committee will be primarily responsible for monitoring communications from
      stockholders and other interested parties and will provide copies or
      summaries of such communications to the other directors as he considers
      appropriate.




Communications
      will be forwarded to all directors if they relate to substantive matters and
      include suggestions or comments that the chairman of the nominating and
      governance committee considers to be important for the directors to
      know.




Stockholders
      and other interested parties who wish to send communications on any topic to
      the
      board of directors should address such communications to chairman of the
      nominating and governance committee at the address provided on the first page
      of
      this Annual Report on Form 10K.


31




*Code
      of Conduct and Professional Ethics*




Our
      board
      of directors has adopted a code of conduct and professional ethics that applies
      to all of our directors, employees and officers, including our principal
      executive officer, principal financial officer, and principal accounting officer
      or controller, or persons performing similar functions. The full text of our
      code of conduct and professional ethics is posted on our Web site at www.avantair.com under
      the Corporate Governance section. We intend to disclose future amendments,
      if
      any, to certain provisions of our code of conduct and professional ethics,
      or
      waivers of such provisions, applicable to our directors and executive officers,
      including our principal executive officer, principal financial officer,
      principal accounting officer or controller, or persons performing similar
      functions, at the same location on our Web site identified above and also in
      a
      Current Report on Form 8-K within four business days following the date of
      such
      amendment or waiver. The inclusion of our Web site address in this Annual Report
      on Form 10K does not include or incorporate by reference the information on
      our
      Web site into this Annual Report on Form 10K.





*Audit
      Committee Financial Expert*




Our
      audit
      committee includes at least one member who has been determined by our board
      of
      directors to meet the qualifications of an “audit committee financial expert”
(as that term is defined in the rules promulgated by the SEC pursuant to the
      Sarbanes-Oxley Act of 2002). Ms. Cuskley is the independent director who
      has been determined to be an audit committee financial expert.




*Compensation
      Committee Interlocks and Insider Participation*




No
      member
      of the compensation committee of the board of directors was an officer or
      employee of us during fiscal year 2008 or was formerly our officer or employee.
      In addition, none of our executive officers served as a member of another
      entity’s board of directors or as a member of the compensation committee of
      another entity (or other board committee performing equivalent functions) during
      fiscal year 2008, which entity had an executive officer serving on the board
      of
      directors.




**Item 11.
      Executive Compensation**





**COMPENSATION
      DISCUSSION AND ANALYSIS**





The
      primary goals of the compensation committee of our board of directors with
      respect to executive compensation are to attract and retain the most talented
      and dedicated executives possible, to tie annual and long-term cash and stock
      incentives to achievement of specified performance objectives, and to align
      executives’ incentives with stockholder value creation.





To
      achieve these goals, our compensation committee recommends executive
      compensation packages to our board of directors that are generally based on
      a
      mix of salary, discretionary bonus and equity awards. Although our compensation
      committee has not adopted any formal guidelines for allocating total
      compensation between equity compensation and cash compensation, we intend to
      implement and maintain compensation plans that tie a substantial portion of
      our
      executives’ overall compensation to achievement of corporate goals and
      value-creating milestones such as the development of our products, the
      establishment and maintenance of key strategic relationships, reaching sales
      and
      marketing targets and the growth of our customer base as well as our financial
      and operational performance, as measured by metrics such as revenues and
      profitability.




We
      have
      recently retained compensation consultants to review our policies and procedures
      with respect to executive compensation. They intend to conduct an annual
      benchmark review of the aggregate level of our executive compensation, as well
      as the mix of elements used to compensate our executive officers.




Our
      compensation committee intends to perform a review based on a survey of
      executive compensation paid by peer companies in the fractional aircraft
      industry as well as review other industries of similar age and size, as it
      sees
      fit, in connection with the establishment of cash and equity compensation and
      related policies.





**Elements
      of Compensation**





Our
      compensation committee evaluates individual executive performance with a goal
      of
      setting compensation at levels the committee believes are comparable with
      executives in other companies of similar size and stage of development operating
      in our industry while taking into account our relative performance and our
      own
      strategic goals. The compensation received by our executive officers consists
      of
      the following elements:




Base
      Salary. Base salaries for our executives are established based on the scope
      of
      their responsibilities and individual experience, taking into account
      competitive market compensation paid by other companies for similar positions
      within the fractional aircraft industry. Base salaries are reviewed annually,
      and adjusted from time to time to realign salaries with market levels after
      taking into account individual responsibilities, performance and experience.
      Since February 2007, the base salary of our Chief Executive Officer has been
      $400,000. The annual base salary for our other executive officers range from
      $150,000 to $250,000.




Our
      compensation committee believes that these base salary levels are commensurate
      with the general salary levels for similar positions in companies in a similar
      stage of development in our industry.




Discretionary
      Annual Bonus.    In addition to base salaries, our
      compensation committee has the authority to award discretionary annual bonuses
      to our executive officers. The annual incentive bonuses are intended to
      compensate officers for achieving corporate goals and for achieving what the
      committee believes to be value-creating milestones.


32





**2006
      Long-Term Incentive Plan**





In
      February 2007, Avantair’s Board of Directors and stockholders approved
      Avantair’s 2006 Long Term Incentive Plan (which we sometimes refer to as the
      Plan).





*Purpose*





The
      purpose of the Plan is to further and promote the interests of Avantair, its
      subsidiaries and its stockholders by enabling Avantair and its subsidiaries
      to
      attract, retain and motivate employees, non-employee directors and consultants
      or those who will become employees, non-employee directors or consultants,
      and
      to align the interests of those individuals and Avantair’s
      stockholders.





*Number
      of Shares*





The
      maximum number of shares of Avantair common stock as to which awards may be
      granted under the Plan may not exceed 1,500,000 shares. Shares of Avantair
      common stock subject to issuance upon exercise or settlement of awards with
      respect to stock options, stock appreciation rights, restricted stock and
      restricted stock units shall count against this limit. Awards of performance
      units which are paid in cash, are not subject to this limit and will not count
      against the number of shares of Avantair common stock available under the Plan.
      With respect to awards intending to be “qualified performance-based
      compensation” under Section 162(m) of the Internal Revenue Code (which is
      referred to as the Code) the maximum amount that can be awarded in any calendar
      year to any participant is (i) in respect of performance units,
      performance-based restricted shares and restricted stock units and other awards
      (other than options and stock appreciation rights), 150,000 shares of Avantair
      common stock (or the then equivalent fair market value of such shares), and
      (ii) in the case of stock options and stock appreciation rights, 150,000
      underlying shares of Avantair common stock. Avantair may grant awards that
      exceed the 150,000-share limit so long as the amount in excess of such limit
      is
      not intended to be “qualified performance-based compensation” under Code
      Section 162(m). The limits on the numbers of shares described in this
      paragraph and the number of shares subject to any award under the Plan are
      subject to proportional adjustment as determined by Avantair’s Board to reflect
      certain stock changes, such as stock dividends and stock splits (see
“Recapitalization Adjustments” below).





If
      any
      awards under the Plan expire or terminate unexercised, the shares of common
      stock allocable to the unexercised or terminated portion of such award shall
      return to Avantair’s treasury and again be available for award under the
      Plan.





*Administration*





The
      administration, interpretation and operation of the Plan will be vested in
      the
      Compensation Committee of Avantair’s Board of Directors. The Compensation
      Committee may designate persons other than members of the Compensation Committee
      to carry out the day-to-day administration of the Plan.





*Eligibility*





The
      Plan
      permits awards to employees and non-employee directors and consultants
      ofAvantair and its subsidiary.





No
      determination has been made as to future awards which may be granted under
      the
      Plan, although it is anticipated that recipients of awards will include the
      current executive officers of Avantair. It is not determinable what awards
      under
      the Plan would have been received by the executive officers and directors of
      Avantair and its subsidiaries during the fiscal year ended December 31,
      2005 had the Plan then been in effect.





**Awards
      Under the Plan**





Awards
      under the Plan may consist of stock options, stock appreciation rights (which
      are sometimes referred to as SARs), restricted shares, restricted stock units
      or
      performance unit awards, each of which is described below. All awards will
      be
      evidenced by an award agreement between Avantair and the individual participant
      and approved by the Compensation Committee. At the discretion of the
      Compensation Committee, an eligible employee may receive awards from one or
      more
      of the categories described below, and more than one award may be granted to
      an
      eligible employee.




*Stock
      Options and Stock Appreciation Rights*





A
      stock
      option is an award that entitles a participant to purchase shares of Avantair
      common stock at a price fixed at the time the option is granted. Stock options
      granted under the Plan may be in the form of incentive stock options (which
      qualify for special tax treatment) or non-qualified stock options, and may
      be
      granted alone or in addition to other awards under the Plan.




An
      SAR
      entitles a participant to receive, upon exercise, an amount equal to the excess
      of:




the
      fair
      market value on the exercise date of a share of Avantair common stock,
      over




the
      fair
      market value of a share of Avantair common stock on the date the SAR was
      granted,




multiplied
      by the number of shares of Avantair common stock for which the SAR has been
      exercised.


33





The
      exercise price and other terms and conditions of stock options and the terms
      and
      conditions of SARs will be determined by the Compensation Committee at the
      time
      of grant, and in the case of stock options, the exercise price per share may
      not
      be less than 100 percent of the fair market value of a share of Avantair common
      stock on the date of the grant. In addition, the term of any incentive stock
      options granted under the Plan may not exceed ten years. An option or SAR grant
      under the Plan does not provide the recipient of the option any rights as a
      shareholder and such rights will accrue only as to shares actually purchased
      through the exercise of an option or the settlement of an SAR.




If
      stock
      options and SARs are granted together in tandem, the exercise of such stock
      option or the related SAR will result in the cancellation of the related stock
      option or SAR to the extent of the number of shares in respect of which such
      option or SAR has been exercised.




Stock
      options and SARs granted under the Plan shall become exercisable at such time
      as
      designated by the Compensation Committee at the time of grant.




Payment
      for shares issuable pursuant to the exercise of a stock option may be made
      either in cash, by certified check, bank draft or money order payable to the
      order of Avantair, or by payment through any other mechanism permitted by the
      Compensation Committee, including, if the Compensation Committee so determines,
      by delivery of shares of Avantair common stock.




In
      addition, the Compensation Committee, in its sole discretion, may provide in
      any
      stock option or SAR award agreement that the recipient of the stock option
      or
      SAR will be entitled to dividend equivalents with respect to such award. In
      such
      instance, in respect of any such award which is outstanding on a dividend record
      date for Avantair common stock, the participant would be entitled to an amount
      equal to the amount of cash or stock dividends that would have paid on the
      shares of Avantair common stock covered by such stock option or SAR award had
      such shares of Avantair common stock been outstanding on the dividend record
      date.





*Restricted
      Share Awards and Restricted Stock Units*





Restricted
      share awards are grants of Avantair common stock made to a participant subject
      to conditions established by the Compensation Committee in the relevant award
      agreement on the date of grant. Restricted stock units are similar to restricted
      shares except that no shares of common stock are actually awarded to a
      participant on the date of grant and the common stock underlying the award
      will
      generally be provided to the participant after the vesting conditions have
      been
      satisfied.





Restricted
      shares and restricted stock units will vest in accordance with the conditions
      and vesting schedule, if any, provided in the relevant award agreement. A
      participant may not sell or otherwise dispose of restricted shares or restricted
      stock units until the conditions imposed by the Compensation Committee with
      respect to such shares and/or units have been satisfied. Restricted share awards
      and restricted stock units under the Plan may be granted alone or in addition
      to
      any other awards under the Plan. Restricted shares which vest will be reissued
      as unrestricted shares of Avantair common stock.





Each
      participant who receives a grant of restricted shares will have the right to
      receive all dividends and vote or execute proxies for such shares. Any stock
      dividends granted with respect to such restricted shares will be treated as
      additional restricted shares. Participants receiving grants of restricted stock
      units will not be stockholders until the common stock underlying the award
      is
      provided to them and they will not enjoy the rights of stockholders (such as
      receiving dividends and voting or executing proxies) until that
      time.





*Performance
      Units*





Performance
      units (with each unit representing a monetary amount designated in advance
      by
      the Compensation Committee) are awards which may be granted to participants
      alone or in addition to any other awards granted under the Plan. Generally,
      participants receiving performance unit grants will only earn such units if
      certain performance goals are satisfied during a designated performance period.
      The Compensation Committee will establish such performance goals and may use
      measures such as level of sales, earnings per share, income before income taxes
      and cumulative effect of accounting changes, income before cumulative effect
      of
      accounting changes, net income, earnings before interest and taxes, return
      on
      assets, return on equity, return on capital employed, total stockholder return,
      market valuation, cash flow, Cash EBITDA, completion of acquisitions and/or
      divestitures, comparisons to peer companies, individual or aggregate participant
      performance or such other measure or measures of performance as the Compensation
      Committee determines. The participant may forfeit such units in the event the
      performance goals are not met. If all or a portion of a performance unit is
      earned, payment of the designated value thereof will be made in cash,
      unrestricted shares of Avantair common stock, in restricted shares or in any
      combination thereof, as provided in the relevant award agreement.





*Performance
      Goals for Qualified Performance-Based Compensation*





Section 162(m)
      of the Code limits Avantair’s ability to deduct compensation paid to its senior
      executive officers, unless the compensation qualifies as “qualified
      performance-based compensation,” as defined in that section and the regulations
      promulgated under that section. In order to qualify as “qualified
      performance-based compensation,” the material terms of the performance goals
      must be disclosed to Avantair’s stockholders and approved by the stockholders.
      Among the material terms of the performance goals are descriptions of the
      business criteria on which the performance goals will be based.


34





To
      the
      extent possible Avantair intends to have the Plan satisfy the requirements
      of
      Section 162(m) so that the Compensation Committee is able to grant awards
      satisfying the requirements of “qualified performance-based compensation.”
Consequently, Avantair must disclose the following business criteria in
      establishing performance goals under the plan:


•
              level
                  of sales,
 
 •
                  earnings
                      per share,
  •
                  income
                      before income taxes and cumulative effect of accounting
                      changes,
  •
                  income
                      before cumulative effect of accounting
                      changes,
  •
                  net
                      income,
  •
                  earnings
                      before interest and taxes,
  •
                  return
                      on assets,
  •
                          return
                              on
                              equity,
  •
                  return
                      on capital employed,
  •
                  total
                      stockholder return,
  •
                  market
                      valuation,
  •
                  cash
                      flow,
  •
                  cash
                      EBITDA,
  •
                  comparisons
                      to peer companies, and
  •
                  completion
                      of acquisitions and/or
                      divestitures.





These
      performance goals will be based on any of the above business criteria, either
      alone or in any combination, on either a consolidated or business unit or
      divisional level, as the Compensation Committee may determine. Such business
      criteria will have any reasonable definitions that the Compensation Committee
      may specify, which may include or exclude any or all of the following items:
      extraordinary, unusual or non-recurring items; effects of accounting changes;
      effects of currency fluctuations; effects of financing activities (e.g., effect
      on earnings per share of issuing convertible debt securities); expenses for
      restructuring or productivity initiatives; non-operating items; acquisition
      expenses; and effects of divestitures. Any such performance criterion or
      combination of such criteria may apply to a participant’s award opportunity in
      its entirety or to any designated portion or portions of the award opportunity,
      as the Compensation Committee may specify.





*Recapitalization
      Adjustments*





Awards
      granted under the Plan, any agreements evidencing such awards and the maximum
      number of shares of Avantair common stock subject to all awards, as well as
      the
      per participant per calendar year limitations described above, shall be subject
      to adjustment or substitution, as determined by Avantair’s Board of Directors,
      as to the number, price or kind of a security or other consideration subject
      to
      such awards or as otherwise determined by the Board to be equitable (i) in
      the event of changes in the outstanding stock or in the capital structure of
      Avantair by reason of stock or extraordinary cash dividends, stock splits,
      reverse stock splits, recapitalization, reorganizations, mergers,
      consolidations, combinations, exchanges, or other relevant changes in
      capitalization occurring after the date of grant of any such award or
      (ii) in the event of any change in applicable laws or any change in
      circumstances which results in or would result in any substantial dilution
      or
      enlargement of the rights granted to, or available for, participants, or which
      otherwise warrants equitable adjustment because it interferes with the intended
      operation of the Plan. Avantair shall give each participant notice of an
      adjustment hereunder and, upon notice, such adjustment shall be conclusive
      and
      binding for all purposes.





*Mergers
      and Other Similar Events*





In
      the
      event of any of the following:





A.
      Avantair is merged into or consolidated with another corporation or
      entity;





B.
      All or
      substantially all of the assets of Avantair are acquired by another person;
      or





C.
      The
      reorganization or liquidation of Avantair





Avantair’s
      Board of Directors may cancel any outstanding awards and cause the holders
      thereof to be paid, in cash, securities or other property (including any
      securities or other property of a successor or acquirer), or any combination
      thereof, the value of such awards as determined by Avantair Board of Directors,
      in its sole discretion (e.g., in the case of Stock Options, based upon the
      excess of the value of a share of Avantair common stock over the exercise price
      per share). Avantair’s Board of Directors may provide that such cash, securities
      or other property is subject to vesting and/or exercisability terms similar
      to
      the award being cancelled.




35





**Amendment,
      Suspension or Termination of the Plan**





Unless
      earlier terminated by Avantair’s Board of Directors, the Plan shall terminate on
      the date 10 years after the date the first award is granted thereunder. The
      Board may amend, suspend or terminate the Plan (or any portion thereof) at
      any
      time. However, no amendment shall (a) materially and adversely affect the
      rights of any participant under any outstanding award, without the consent
      of
      such participant (except as described below) or (b) increase the number of
      shares available for awards under the Plan without shareholder
      approval.





Section 409A
      of the Code provides substantial penalties to persons deferring taxable income,
      unless the requirements of Section 409A have been satisfied. Many awards
      provided under the Plan could be viewed as deferring income for participants
      and
      may, therefore, be subject to Section 409A. As of the date this report is
      being prepared, the Internal Revenue Service has not yet issued final
      regulations interpreting Section 409A, but they are expected to be issued
      in the near future. These final regulations, when issued, may require amendments
      to be made to the Plan. Consequently, the Plan explicitly provides that
      Avantair’s Board of Directors may amend the Plan, without participant consent,
      in any way it deems appropriate, even if such amendment would materially and
      adversely affect the rights of participants to satisfy Section 409A and the
      regulations that will be issued thereunder.





**401(k)
      Plan**





We
      have a
      tax-qualified employee savings and retirement plan, or 401(k) plan, which
      generally covers our employees. The plan is intended to qualify under Sections
      401(a), 401(k) and 401(m) of the Internal Revenue Code of 1986, as amended,
      so
      that contributions, and income earned thereon, are not taxable to employees
      until withdrawn from the plan. Under the plan, employees may elect to reduce
      their current compensation by up to the statutorily prescribed annual limit
      ($15,500 in calendar year 2008) and have the amount of the reduction contributed
      to the plan. The plan also permits, but does not require, us to make matching
      contributions and profit-sharing contributions to the plan on behalf of
      participants. In addition, eligible employees may elect to contribute an
      additional amount of their eligible compensation as a catch-up contribution
      to
      the 401(k) plan, provided that such employees are age 50 or older ($5,000 in
      calendar year 2008). To date, we have not made any discretionary or
      profit-sharing contributions to the 401(k) plan. As a tax-qualified plan, we
      can
      generally deduct contributions from the participants pre-tax
      compensation when made, and such contributions  and their
      earnings are not taxable to participants until distributed from the plan.
      Pursuant to the terms of the plan, participants may direct the trustees to
      invest their accounts in selected investment options.




**Summary
      Compensation Table**





The
      following table summarizes the compensation paid to our Chief Executive Officer,
      Chief Financial Officer, and to our other two most highly compensated executive
      officers whose total annual salary and bonus exceeded $100,000, for services
      rendered in all capacities to us during our fiscal year 2008. We refer to these
      officers as our named executive officers.




**All Other****Salary**
            
            **Bonus**
            
            **Stock**
            
            **Compensation**
            
            **Total****Name and Principal Position**
            
            **Year**
            
            **($)**
            
            **($)**
            
            **Awards ($)(1)**
            
            **($)(2)**
            
            **($)**Steven
                Santo
            
            
            2008
            
            $
            400,000
            
            $
            100,000
            
            $
            94,173
            
            $
            74,450
            
            $
            668,623Chief
                Executive Officer
            
            
            2007
            
            
            343,750
            
            
            200,000
            
            
            16,190
            
            
            55,670
            
            
            615,610Richard
                A. Pytak Jr. (3)
            
            
            2008
            
            
            59,077
            
            
            50,000
            
            
            -
            
            
            37,539
            
            
            146,616Chief
                Financial Officer
            
            
            2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -(As
                of April 14, 2008)John
                Waters
            
            
            2008
            
            
            222,115
            
            
            12,500
            
            
            134,921
            
            
            183,333
            
            
            552,869Chief
                Financial Officer and Director
            
            
            2007
            
            
            195,673
            
            
            150,000
            
            
            12,082
            
            
            22,500
            
            
            380,255(October
                1, 2006 - April 11, 2008 )Kevin
                L. Beitzel
            
            
            2008
            
            
            179,006
            
            
            50,000
            
            
            14,933
            
            
            6,468
            
            
            250,407Chief
                Operating Officer
            
            
            2007
            
            
            97,308
            
            
            -
            
            
            1,539
            
            
            528
            
            
            99,375(As
                of February 8, 2008)Tracy
                Chaplin
            
            
            2008
            
            
            149,870
            
            
            5,000
            
            
            -
            
            
            69,791
            
            
            224,661Chief
                Operating Officer
            
            
            2007
            
            
            180,709
            
            
            53,651
            
            
            8,216
            
            
            -
            
            
            242,576(January
                30, 2006 - February 7, 2008)




(1)
            The
                amounts shown reflect the dollar amount recognized for financial
                statement
                reporting purposes, in accordance with Statement of Financial Accounting
                Standards No. 123(R).(2)
            The
                following are comprised of automobile allowances to Messrs. Santo
                and
                Beitzel and Ms. Chaplin of $25,958, $6,000 and $5,600, respectively;
                housing allowances to Messrs. Santo and Pytak of $44,543 and $4,526,
                respectively; reimbursed moving expenses to Mr. Pytak of $33,013;
                a
                payment to Mr. Waters of $183,333 with respect to his separation
                agreement
                with the Company; a payment to Ms. Chaplin of $63,902 in connection
                with
                her departure from the Company; and 401K employer match contributions
                for
                Messrs. Santo and Beitzel and Ms. Chaplin of $4,038, $468 and $288,
                respectively.(3)
            Mr.
                Pytak was not compensated by the Company in 2007 as his employment
                commenced in February 2008.


36





**Grants
      of Plan - Based Awards for the Fiscal Year Ended June 30,
      2008**





We
      have
      granted shares of restricted stock or other plan-based awards and plan to
      continue to grant shares of restricted stock or other plan-based awards to
      executive officers, employees and other service providers. The following table
      provides information, as of June 30, 2008, concerning restricted stock
      granted to our named executive officers during the fiscal year ended
      June 30, 2008:





**2008
      Grants of Plan-Based Awards**




**Name**
            
            **Grant Date**
            
            **All Other Stock Awards: Number of**
              **Shares of Stock or Units (#)(1)**Richard
                A. Pytak Jr.
            
            
            6/30/2008
            
            
            7,500Kevin
                Beitzel
            
            
            6/30/2008
            
            
            15,000





(1)
            Awards
                of restricted stock granted under the 2006 Long-Term Incentive Plan.
                One-third of the shares granted to each executive officer vest on
                June 30,
                2009, and one-twelfth of the shares vest every three months
                thereafter.





The
      Plan
      was approved on February 22, 2007. Since the approval, Avantair granted an
      aggregate of 22,500 and 214,000 shares of restricted stock to its executive
      officers and employees in fiscal years 2008 and 2007, respectively.





**Outstanding
      Equity Awards for the Fiscal Year Ended June 30, 2008**





The
      following table provides information concerning outstanding equity awards as
      of
      June 30, 2008, by each of our named executive officers:





**Stock
      Awards**




**Name**
            
            **Date Granted**
            
            **Number of Shares or Units of Stock**
              **That Have Not Vested (#)**
            
            **Market Value of Shares or Units of Stock**
              **That Have Not Vested ($)(1)**Steven
                Santo
            
            
            5/18/07
            
            
            44,667
            
            
            218,868John
                Waters
            
            
            5/18/07
            
            
            —
            (2)
            
            —Tracy
                Chaplin
            
            
            5/18/07
            
            
            —
            (3)
            
            —Richard
                A. Pytak Jr.
            
            
            6/30/08
            
            
            7,500
            
            
            14,550Kevin
                Beitzel
            
            
            6/30/08
            
            
            21,667
            (4)
            
            61,768




(1)
            Awards
                of restricted stock granted under the 2006 Long-Term Incentive Plan.
                One-third of the share granted to each executive officer vested one
                year
                following the grant date, and one-twelfth of the shares vest every
                three
                months thereafter.(2)
            Effective
                April 11, 2008, Mr. Waters employment ended and in connection therewith,
                Mr. Waters forfeited 16,666 of these shares.(3)
            Effective
                February 7, 2008, Ms. Chaplin’s employment ended and in connection
                therewith, these shares were forfeited.(4)
            Mr.
                Kevin Beitzel was granted 10,000 shares on May 18, 2007 as well as
                another
                15,000 shares on June 30, 2008. Each grant award contained vesting
                terms
                of one-third of the shares granted to vest one year following the
                grant
                date, and one-twelfth of the shares vest every three months thereafter.
                Therefore, as of June 30, 2008, approximately two-thirds of the shares
                granted in 2007 and all of the 2008 shares had not yet vested and
                are
                included in the calculation above.





**Option
      Exercises and Stock Vested**





No
      named
      executive officer was granted any stock options and there were no options
      exercised during the fiscal year ended June 30, 2008. In addition, there
      were 76,663 shares of restricted stock that vested and 10,668 that were
      exercised during the fiscal year ended June 30, 2008.




37


**COMPENSATION
      OF DIRECTORS**





Upon
      the
      recommendation of the compensation committee, the full board of directors
      approved an annual compensation arrangement for our independent directors
      effective February 23, 2007. Such arrangement is comprised as
      follows:




Annual
      Fee. Each director, other than those directors serving as employees, receives
      an
      annual cash retainer in the amount of $40,000, paid quarterly in arrears. Each
      director has the option to receive, in whole or in part, such amount in cash
      or
      hours flown in Company aircraft. The hours flown in Company aircraft will be
      valued at estimated fair market value. Mr. Gordon will receive an
      additional $35,000 in annual cash compensation for service as our non-Executive
      Chairman.




Audit
      Committee Chair. The chair of the audit committee, Ms. Cuskley, receives an
      additional annual cash compensation of $20,000 as our audit committee
      chair.




On
      March
      5, 2008 Avantair granted 3,000 shares of restricted stock to each of Barry
      Gordon, Arthur Goldberg, Stephanie Cuskley, Robert Lepofsky and A. Clinton
      Allen. The restricted shares granted to the directors vest one third upon each
      of the next three (3) successive annual meetings, subject to the grantee’s
      continued service on the Board of Directors.





The
      following director compensation table shows the compensation we paid in 2008
      to
      our non-employee directors:





**Director
      Compensation Table**




**Name**
            
            **Fees Earned or**
              **Paid in Cash ($)(1)**
            
            **Restricted**
              **Stock Awards**
              **($)(2)**
            
            **Total ($)**A.
                Clinton Allen
            
            
            40,000
            
            
            1,140
            
            
            41,140Barry
                Gordon
            
            
            75,000
            
            
            1,140
            
            
            76,140Arthur
                Goldberg
            
            
            40,000
            
            
            1,140
            
            
            41,140Robert
                Lepofsky
            
            
            40,000
            
            
            1,140
            
            
            41,140Stephanie
                Cuskley
            
            
            60,000
            
            
            1,140
            
            
            61,140





(1)
            The
                fees earned by the directors may be paid, at the director’s option, in
                cash and/or in hours flown in Company aircraft at estimated fair
                market
                value per hour. Messrs. Allen, Goldberg and Lepofsky have chosen
                to be
                paid in hours flown in company aircraft.Mr.
                Gordon and Ms. Cuskley have chosen to be paid in
                cash.


(2)
            The
                amounts shown reflect the dollar amount recognized for financial
                statement
                reporting purposes for the fiscal year ended June 30, 2008, in
                accordance with Statement of Financial Accounting Standards
                No. 123(R). The balance remaining to be recognized over the remaining
                vesting period of the award is
                $47,627.





**Pension
      Benefits**





Our
      named
      executive officers did not participate in, or otherwise receive any benefits
      under, any pension or retirement plan sponsored by us during the fiscal year
      ended June 30, 2008.





**Nonqualified
      Deferred Compensation**





Our
      named
      executive officers did not earn any nonqualified deferred compensation benefits
      from us during the fiscal year ended June 30, 2008.





**Employment
      Arrangements with Named Executive Officers**





***Steven
      Santo***





On
      September 29, 2006, we entered into an employment agreement with
      Mr. Santo, our Chief Executive Officer and a director. The agreement
      provides that Mr. Santo will receive an annual base salary of $400,000
      after the closing of the sale of the company to Ardent Acquisition Corporation
      and will be eligible to receive an annual performance bonus, which for 2007
      may
      be 60% of his base salary. Future annual base salary will not be less than
      $400,000, with increases approved by the Compensation Committee and/or the
      Board
      of Directors. Mr. Santo is entitled, among other things, to:


•
              participate
                  in all benefit programs, including the registered retirement savings
                  plan,
                  established and made available to its
                  employees;
 •
              monthly
                  living expenses in the amount of $2,800 through December 31,
                  2008;
 •
              monthly
                  automobile lease reimbursement of $1,500;
                  and
 •
              reimbursement
                  for any reasonable out-of-pocket expenses incurred in the course
                  of
                  employment.




The
      term
      of the employment agreement is three years.





We
      do not
      have an employment agreement with the other named executive
      officers.


38





**Termination
      Benefits**





If
      the
      agreement is terminated by Mr. Santo voluntarily without good reason, Avantair
      shall have no further obligations following the effective date of termination
      other than to pay the employee for any accrued but unpaid salary and
      reimbursable expenses.





If
      the
      agreements are terminated by Avantair without cause or by the executive for
      good
      reason or for disability, then Mr. Santo is respectively entitled
      to:


•
                any
                    then accrued but unpaid base salary and performance bonus as
                    of the date
                    of termination; and
  •
              payment
                  of the base salary in effect at the time of termination and continuation
                  of health insurance for a period of 12
                  months.


In
      each
      agreement, “cause” means:


•
                  employee’s
                      fraud or breach of fiduciary obligations in connection with
                      performance of
                      his duties with Avantair (including but not limited to any
                      acts of
                      embezzlement or misappropriation of
                      funds);
  •
                  employee’s
                      indictment for a felony or plea of guilty or nolo contendere
                      to a felony
                      charge or any criminal act involving moral
                      turpitude;  •
                  employee’s
                      being under the influence of any drugs (other than prescription
                      medicine
                      or other medically-related drugs to the extent that they are
                      taken in
                      accordance with their directions) or repeatedly being under
                      the influence
                      of alcohol, during the performance of his duties under his
                      employment
                      agreement, or, while under the influence of such drugs or alcohol,
                      engaging in grossly inappropriate conduct during the performance
                      of his
                      duties under his employment
                      agreement;
  •
              employee’s
                  refusal to substantially perform his duties under his employment
                  agreement, except in the event that the employee becomes permanently
                  disabled;
  •
                  employee’s
                      willful misconduct or gross negligence in connection with his
                      employment;  •
                  employee’s
                      material violation of any Avantair policies or procedures relating
                      to
                      harassment, discrimination or insider trading; or employee’s material
                      breach of any provision of his employment
                      agreement.





In
      each
      agreement, “good reason” means:


•
                  Avantair’s
                      willful material breach of any provision of his employment
                      agreement;
 •
                  any
                      material adverse change in employee’s position, authority, duties or
                      responsibilities (other than a change due to employee’s permanent
                      disability or as an accommodation under the Americans With
                      Disabilities
                      Act) which results in: (A) a diminution in any material respect in
                      employee’s position, authority, duties, responsibilities or compensation,
                      which diminution continues in time over at least thirty (30) days,
                      such that it constitutes an effective demotion; or (B) a material
                      diversion from employee’s performance of the functions of employee’s
                      position, excluding for this purpose material adverse changes
                      made with
                      employee’s written consent or due to employee’s termination for cause or
                      termination by employee without good reason;
                      or
 •
                  relocation
                      of Avantair’s headquarters and/or employee’s regular work address to a
                      location which requires the employee to travel more than forty
                      (40) miles from employee’s place of employment on the date of his
                      employment
                      agreement.





In
      addition, Mr. Santo’s interest in any stock options or restricted stock will
      fully vest on the effective date of a termination without cause.





Under
      the
      employment agreement with Mr. Santo, if the employment agreement had been
      terminated by the Company without cause or by Mr. Santo for good reason or
      for disability, effective June 30, 2008 (the last business day of our
      fiscal year of 2008), he would have been paid a total of $497,454, including:
      (i) $400,000 representing his base salary then in effect, (ii) $10,800
      representing the continuation of health insurance for a period of 12 months;
      and
      (iii) $86,654 representing the acceleration of the vesting of 44,667 shares
      of restricted stock from the 2006 Long-term Incentive Plan (based on the closing
      price of $1.94 per share as of June 30, 2008).


39





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





The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of September 18, 2008.




•
              
              each
                  person who, to our knowledge, beneficially owns of more than 5%
                  of our
                  outstanding shares of common stock;•
              
              each
                  of our directors and names executive officers; and•
              
              all
                  of our executive officers and directors as a
                  group.




Information
      with respect to beneficial ownership has been furnished by each director,
      officer or beneficial owner of more than 5% of our common stock. Beneficial
      ownership is determined in accordance with the rules of the SEC and generally
      requires that such person have voting or investment power with respect to
      securities. In computing the number of shares beneficially owned by a person
      listed below and the percentage ownership of such person, shares of common
      stock
      underlying options, warrants or convertible securities held by each such person
      that are exercisable or convertible within 60 days of September 18, 2008 are
      deemed outstanding, but are not deemed outstanding for computing the percentage
      ownership of any other person.




Unless
      otherwise indicated in the footnotes to the following table, each person named
      in the table has sole voting and investment power and that person’s address is
      4311 General Howard Drive, Clearwater, Florida 33762.


**Amount
                  and****Nature
                  of****Beneficial****Name
                  and Address of Beneficial
                  Owner****(1)**
              
              **Ownership**
              
              **Percent of Class**Jonathan
                  Auerbach(2)
              
              
              5,025,752
              (2)
              
              32.9
              %Steven
                  Santo(3)
              
              
              1,702,362
              
              
              11.1
              %Allison
                  Roberto(4)
              
              
              1,646,650
              
              
              10.8
              %Paul
                  Sonkin(5)
              
              
              3,247,481
              (6)
              
              21.2
              %Jeffrey
                  Kirby(7)
              
              
              864,900
              
              
              5.7
              %Paul
                  J Solit(8)
              
              
              2,282,246
              (8)
              
              14.9
              %Seth
                  Klarman(9)
              
              
              1,156,000
              
              
              7.6
              %Fred
                  B. Barbara(10)
              
              
              756,426
              
              
              4.9
              %Barry
                  J. Gordon(11)
              
              
              1,017,066
              (12)
              
              6.7
              %Richard
                  A. Pytak Jr.
              
              
              7,500
              (13)
              
              *Arthur
                  H. Goldberg(14)
              
              
              348,000
              (15)
              
              2.3
              %Stephanie
                  A. Cuskley(16)
              
              
              13,000
              (17)
              
              *A.
                  Clinton Allen(18)
              
              
              35,000
              (19)
              
              *Robert
                  J. Lepofsky(20)
              
              
              23,000
              (21)
              
              *Kevin
                  Beitzel
              
              
              23,842
              (22)
              
              *Gilder,
                  Gagnon, & Howe & Co. LLC(23)
              
              
              1,663,156
              
              
              10.9
              %All
                  directors and executive officers as a group (8 individuals)
                  (24)
              
              
              3,170,770
              
              
              20.7
              %


40





*
      Less
      than 1%





(1)
      Unless otherwise noted, the business address of each of the following is c/o
      Avantair, 4311 General Howard Drive, Clearwater FL 33762





(2)
      The
      business address of Mr. Auerbach is Hound Partners, LLC , 101 Park Avenue,
      48th
      Floor, New York, NY 10178. The shares are held by Hound
      Partners, LP, and Hound Partners Offshore Fund, LP. Mr. Auerbach is the Managing
      Member of Hound Performance, LLC and Hound Partners,
      LLC, investment management firms that serve as the general partner and
      investment manager, respectively, to Hound Partners, LP and Hound
      Partners Offshore Fund, LP. Includes 2,170,138 shares of common stock issuable
      upon exercise of warrants and 1,941,748 shares of common
      stock that may be acquired upon the conversion of Series A Convertible Preferred
      Stock. This information is based on Form 4 filed with the
      SEC
      on August 8, 2008 and Schedule 13D filed with the SEC on November 21, 2007
      by
      these persons.





(3)
      1,641,650 of the shares are held by Camelot 27 LLC. Each of Steven Santo and
      Allison Roberto are members of Camelot 27 LLC. Includes 60,712
      shares of restricted stock which were granted to Steven Santo individually,
      which one third vested on May 18, 2008 and one twelfth of the shares
      vest every 3 months thereafter.





(4)
      1,641,650 of the shares are held by Camelot 27 LLC. Each of Steven Santo and
      Allison Roberto are members of Camelot 27 LLC. Includes 5,000
      shares of restricted stock which was granted to Allison Roberto individually
      which one third vested on May 18, 2008 and one twelfth of the shares
      vest every 3 months thereafter.





(5)
      The
      business address of Mr. Sonkin is 460 Park Avenue, 12th Floor, New York, New
      York 10022. The shares are held by Hummingbird Value Fund,
      L.P., The Hummingbird Microcap Value Fund, L.P. and The Hummingbird Concentrated
      Fund, L.P. Mr. Sonkin, as managing member and control
      person of Hummingbird Management LLC, the investment manager of such entities,
      has sole voting and dispositive power over such shares.


This
      information is based upon Schedule 13D filed with the SEC on November 26, 2007
      and Form 4 filed with the SEC on November 26, 2007 by these
      persons.





(6)
      Includes 1,173,590 shares of common stock issuable upon exercise of warrants
      and
      233,010 shares of common stock that may be acquired upon the
      conversion of 12,000 shares of Series A Convertible Preferred
      Stock.





(7)
      The
      business address of Mr. Kirby is P.O. Box 70458, Reno, Nevada 89570. This
      information is based upon Schedule 13D filed with the SEC on
      March
      5, 2007 by Mr. Kirby.





(8)
      The
      business address of Mr. Solit is Potomac Capital Management, 825 Third Avenue,
      33 Floor, New York, NY 10022. The shares are held by Potomac
      Capital Management LLC and Potomac Capital Management Inc. Mr. Solit is the
      Managing Member of Potomac Capital Management LLC
      and
      the President and Sole Owner of Potomac Capital Management Inc. Includes 430,000
      shares of common stock issuable upon exercise of warrants
      and 776,680 shares of common stock that may be acquired upon the conversion
      of
      Series A Convertible Preferred Stock. This information is
      based
      on the Schedule 13G filed with the SEC on August 28, 2008 by these
      persons.





(9)
      The
      business address of Mr. Klarman is The Baupost Group, LLC, 10 St. James Avenue,
      Suite 1700, Boston, MA 02116. The shares are held by
      The
      Baupost Group, LLC. The Baupost Group LLC is a registered investment advisor.
      SAK Corporation is the Manager of The Baupost Group LLC.
      Seth
      Klarman is the sole Director of SAK Corporation and a controlling person of
      The
      Baupost Group LLC. This information is based on Form
      13G
      filed with the SEC on February 12, 2008 by these persons.





(10)
      The
      business address of Mr. Barbara is BHP Partners LLC, 2300 South Archer Avenue,
      Chicago, IL 60616. This information is based upon Schedule
      13D filed with the SEC on March 5, 2007 by Mr. Barbara.





(11)
      The
      business address of Mr. Gordon is 7808 Talavera Place, DelRay Beach, Florida
      33446.





(12)
      Includes 374,626 shares of common stock issuable upon exercise of warrants.
      Includes 10,000 shares of common stock issuable upon exercise of
      options which vested on February 23, 2008. Includes 3,000 shares of restricted
      stock which vest one-third upon each of the next 3 successive annual
      meetings of stockholders.





(13)
      Represents 7,500 shares of restricted stock granted to Mr. Pytak which vest
      one-third on June 30, 2009 and one-twelfth of the shares vest every 3
      months
      thereafter.





(14)
      The
      business address of Mr. Goldberg is c/o Corporate Solutions Group, 175 Great
      Neck Road, Suite 408, Great Neck, NY 11021.




41




(15)
      Includes 125,000 shares of common stock issuable upon exercise of warrants.
      Includes 10,000 shares of common stock issuable upon exercise ofoptions
      which vested on February 23, 2008. Includes 3,000 shares of restricted stock
      which vest one-third upon each of the next 3 successive annualmeetings
      of stockholders.





(16)
      The
      business address of Ms. Cuskley is 180 East 79th Street, New York, NY
      10021.





(17)
      Includes 10,000 shares of common stock issuable upon exercise of options which
      vested on February 23, 2008. Includes 3,000 shares of restricted
      stock which vest one-third upon each of the next 3 successive annual meetings
      of
      stockholders.





(18)
      The
      business address of Mr. Allen is 710 South Street, Needham, MA
      02492.





(19)
      Includes 10,000 shares of common stock issuable upon exercise of options which
      vested on February 23, 2008. Includes 3,000 shares of restricted
      stock which vest one-third upon each of the next 3 successive annual meetings
      of
      stockholders.





(20)
      The
      business address of Mr. Lepofsky is c/o Westcliff Capital Group, PO Box 81367,
      Wellesley Hills, MA 02461.





(21)
      Includes 10,000 shares of common stock issuable upon exercise of options which
      vested on February 23, 2008. Includes 3,000 shares of restricted
      stock which vest one-third upon each of the next 3 successive annual meetings
      of
      stockholders.





(22)
      Represents 10,000 shares of restricted stock granted to Mr. Beitzel which one
      third vested on May 18, 2008 and one-twelfth of the shares vest every
      three months thereafter. In addition, 15,000 shares of restricted stock were
      granted to Mr. Beitzel on June 30, 2008 which one third vests on June
      30,
      2009 and one-twelfth of the shares vest every 3 months thereafter.





(23)
      This
      information is based on Schedule 13G filed with the SEC on February 6, 2008
      by
      Walter Weadock, member of Gilder, Gagnon, Howe and Co.
      LLC.





(24)
      Includes 499,626 shares of common stock issuable upon exercise of warrants.
      Includes 107,054 shares of restricted stock. Includes 50,000 shares
      of
      common stock issuable upon exercise of options.


42





**Item 13.
      Certain Relationships, Related Transactions and Director
      Independence**





The
      following is a summary of transactions since July 1, 2007 to which we have
      been
      a party in which the amount involved exceeded $120,000 and in which any of
      our
      executive officers, directors or beneficial holders of more than 5% of our
      capital stock had or will have a direct or indirect material interest, other
      than compensation arrangements.




Effective
      April 11, 2008, the Company’s former Chief Financial Officer, John Waters,
      departed the Company and resigned his position as a director of the Company.
      In
      connection with the former Chief Financial Officer’s departure, on
      April 14, 2008, the Company entered into a separation agreement pursuant to
      which the former Chief Financial Officer will receive (i) a payment equal
      to eight months salary ($183,333), (ii) reimbursement of premium payments
      for COBRA benefits until the earlier of a period of eight (8) months
      commencing April 14, 2008 or at such time that the former Chief Financial
      Officer obtains employment providing health benefits and (iii) pursuant to
      an amendment to his previously issued restricted stock award, 33,334 shares
      of
      common stock. In addition, the former Chief Financial Officer has agreed not
      to
      transfer any shares of the Company’s common stock for a period of six
      (6) months commencing April 14, 2008. At the end of the six
      (6) month period, the former Chief Financial Officer’s unrestricted shares
      shall be freely tradable in the open market, subject to the Company’s “Right of
      First Refusal” and in compliance with applicable securities law. In addition,
      the former Chief Financial Officer has agreed to cooperate fully with the
      Company’s reasonable requests for assistance in transitioning his previous
      responsibilities for a period of eight (8) months commencing April 14,
      2008.




On
      March
      5, 2008, Avantair granted 3,000 shares of restricted stock to each of Barry
      Gordon, Arthur Goldberg, Stephanie Cuskley, Robert Lepofsky and A. Clinton
      Allen. Each of these individuals is a director of Avantair. The shares of
      restricted stock granted to the directors’ vest one third upon each of the next
      three (3) successive annual meetings of stockholders, subject to the grantee’s
      continued service on the Board of Directors.





**Policies
      and Procedures for Related Party Transactions**





We
      have
      adopted a Code of Conduct and Professional Ethics, applicable to our directors,
      officers and employees, including our Chief Executive Officer, Chief Financial
      Officer and all of our other executives pursuant to which all directors,
      officers and employees must promptly disclose to us, any material transaction
      or
      relationship that reasonably could be expected to give rise to an actual or
      apparent conflict of interest with Avantair, Inc. In approving or rejecting
      the
      proposed agreement, our audit committee shall consider the relevant facts and
      circumstances available and deemed relevant to the audit committee, including,
      but not limited to the risks, costs and benefits to us, the terms of the
      transaction, the availability of other sources for comparable services or
      products, and, if applicable, the impact on a director’s independence. Our audit
      committee shall approve only those agreements that, in light of known
      circumstances, are in, or are not inconsistent with, our best interests, as
      our
      audit committee determines in the good faith exercise of its
      discretion.





**Item 14.
      Principal Accounting Fees and Services**





**Principal
      Accountant Fees and Services**





Our
      Audit
      Committee has selected J.H. Cohn LLP as the principal independent
      registered public accounting firm for 2008. J.H. Cohn LLP has served as our
      principal independent registered public accounting firm since August 1,
      2006.





**Fees**





The
      following table sets forth the fees billed or to be billed for professional
      services rendered by J.H. Cohn LLP for audit services, audit-related services,
      and all other services in fiscal years 2008 and 2007, respectively.




**2008**
            
            **2007**Audit
                Fees (1)
            
            $
            211,000
            
            $
            230,699Audit-Related
                Fees (2)
            
            
            77,500
            
            
            96,000**Total
                Fees**
            
            $
            288,500
            
            $
            326,699




(1)
            For
                professional services rendered in connection with the audit of our
                annual
                financial statements and the reviews of the financial statements
                included
                in each of our quarterly reports on Form 10-Q.(2)
            For
                assurance and related services that are reasonably related to the
                performance of the audit or review of our financial statements in
                connection with regulatory filings.





**Policy
      on Pre-Approval by Audit Committee of Services Performed by Principal
      Independent Registered Public Accounting Firm**





The
      policy of the Audit Committee is to pre-approve all audit and permissible
      non-audit services to be performed by our principal independent registered
      public accounting firm.


43





**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.




44





**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
      24, 2008




Avantair,
                Inc.By:
            /s/
                Steven SantoSteven
                SantoChief
                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
                24, 2008Steven
                Santo/s/
                Richard A. Pytak Jr.
            
            Chief
                Financial Officer (Principal Financial and Accounting
                Officer)
            
            September
                24, 2008Richard
                A. Pytak Jr./s/
                Barry Gordon
            
            Chairman
            
            September
                24, 2008Barry
                Gordon/s/
                A. Clinton Allen
            
            Director
            
            September
                24, 2008A.
                Clinton Allen/s/
                Robert Lepofsky
            
            Director
            
            September
                24, 2008Robert
                Lepofsky/s/
                Arthur H. Goldberg
            
            Director
            
            September
                24, 2008Arthur
                H. Goldberg/s/
                Stephanie Cuskley
            
            Director
            
            September
                24, 2008Stephanie
                Cuskley









**AVANTAIR,
      INC. AND SUBSIDIARIES**


**(Formerly
      Ardent Acquisition Corporation)**





**Index**




**Consolidated
                Financial Statements:**Report
                  of Independent Registered Public Accounting Firm
            
            
            F-2Consolidated
                Balance Sheets as of June 30, 2008 and 2007
            
            
            F-3Consolidated
                Statements of Operations for the years ended June 30, 2008 and 2007
            
            
            F-5Consolidated
                Statement of Changes in Stockholders’ Deficit for the years ended
                June 30, 2008 and 2007
            
            
            F-6Consolidated
                Statements of Cash Flows for the years ended June 30, 2008 and 2007
            
            
            F-8Notes
                  to Consolidated Financial Statements
            
            
            F-11


F-1


**Report
      of Independent Registered Public Accounting Firm**





The
      Stockholders and Board of Directors





Avantair,
      Inc.





We
      have
      audited the accompanying consolidated balance sheets of Avantair, Inc. and
      Subsidiaries (Formerly Ardent Acquisition Corporation) as of June 30, 2008
      and 2007, and the related consolidated statements of operations, changes in
      stockholders’ deficit and cash flows for each of 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, 2008 and 2007, and their results of operations
      and cash flows for each of the years then ended, in conformity with accounting
      principles generally accepted in the United States of America.




/s/
                J.H. Cohn LLPJericho,
                New YorkSeptember
                24, 2008




F-2




**Avantair,
      Inc. and Subsidiaries**


**(Formerly
      Ardent Acquisition Corporation)**


**Consolidated
      Balance Sheets**




**Assets**




**June
                30,****2008**
            
            **2007****Current
                Assets**Cash
                and cash equivalents
            
            $
            19,149,777
            
            $
            12,577,468Accounts
                Receivable, net of allowance for doubtful accounts of $213,487 atJune
                30, 2008 and $460,377 at June 30, 2007
            
            
            5,692,809
            
            
            5,087,491Inventory
            
            
            252,407
            
            
            579,517Current
                portion of aircraft costs related to fractional sales
            
            
            40,417,203
            
            
            31,895,085Current
                portion of notes receivable
            
            
            832,107
            
            
            1,015,163Prepaid
                expenses and other current assets
            
            
            2,173,992
            
            
            378,394**Total
                current assets**
            
            
            68,518,295
            
            
            51,533,118Aircraft
                costs related to fractional share sales-net of current portion
            
            
            92,383,071
            
            
            74,870,704Property
                and Equipment, at cost, net
            
            
            25,663,264
            
            
            15,380,698**Other
                assets**Cash-
                restricted
            
            
            2,826,290
            
            
            2,942,983Deposits
                on aircraft
            
            
            8,679,277
            
            
            9,904,054Deferred
                maintenance on aircraft engines
            
            
            2,228,509
            
            
            2,691,539Notes
                receivable-net of current portion
            
            
            1,008,223
            
            
            1,327,552Goodwill
            
            
            1,141,159
            
            
            1,141,159Other
                assets
            
            
            2,029,367
            
            
            698,453**Total
                other assets**
            
            
            17,912,825
            
            
            18,705,740**Total
                assets**
            
            $
            204,477,455
            
            $
            160,490,260





*See
      Notes to Consolidated Financial Statements*




F-3




**Avantair,
      Inc. and Subsidiaries**


**(Formerly
      Ardent Acquisition Corporation)**


**Consolidated
      Balance Sheets**




**Liabilities
      and Stockholders' Deficit**





**June
                30,****2008**
            
            **2007****Current
                Liabilities**Accounts
                payable
            
            $
            4,718,355
            
            $
            5,765,189Accrued
                liabilities
            
            
            5,528,472
            
            
            3,141,061Customer
                deposits
            
            
            1,905,682
            
            
            612,500Short-term
                notes payable
            
            
            15,775,260
            
            
            -Current
                portion of long-term notes payable
            
            
            6,648,093
            
            
            4,412,288Current
                portion of deferred revenue related to fractional aircraft share
                sales
            
            
            47,778,900
            
            
            38,058,547Unearned
                management fee and charter card revenues
            
            
            16,316,044
            
            
            7,950,636**Total
                current liabilities**
            
            
            98,670,806
            
            
            59,940,221Long-term
                notes payable, net of current portion
            
            
            23,856,322
            
            
            18,560,570Deferred
                revenue related to fractional aircraft share sales, net of current
                portion
            
            
            96,525,785
            
            
            92,186,334Other
                liabilities
            
            
            2,636,730
            
            
            1,762,159**Total
                long-term liabilities**
            
            
            123,018,837
            
            
            112,509,063**Total
                liabilities**
            
            
            221,689,643
            
            
            172,449,284**Commitments
                and Contingencies**Series
                A convertible peferred stock, $.0001 par value, authorized 300,000
                shares;
                152,000shares
                issued and outstanding
            
            
            14,439,358
            
            
            -**Stockholders'
                Deficit**Perferred
                stock, $.0001 par value, authorized 700,000 shares; none issued
            
            
            -
            
            
            -Common
                stock, Class A, $.0001 par value, 75,000,000 shares authorized, 15,286,792shares
                issued and outstanding at June 30, 2008 and 15,220,817 shares issued
                and
                outstanding at June 30, 2007.
            
            
            1,529
            
            
            1,522Additional
                paid-in capital
            
            
            45,314,393
            
            
            46,124,857Accumulated
                deficit
            
            
            (76,967,468
            )
            
            (58,085,403
            )**Total
                stockholders' deficit**
            
            
            (31,651,546
            )
            
            (11,959,024
            )**Total
                liabilities and stockholders' deficit**
            
            $
            204,477,455
            
            $
            160,490,260





*See
      Notes to Consolidated Financial Statements*




F-4




**Avantair,
      Inc. and Subsidiaries**


**(Formerly
      Ardent Acquisition Corporation)**


**Consolidated
      Statements of Operations**





**Year Ended**
            
            
            **Year
                Ended****June 30,**
            
            
            **June
                30,****2008**
            
            
            **2007**


**Revenue**Fractional
                aircraft shares sold
            
            $
            43,426,696
            
            $
            29,695,175Maintenance
                and management fees
            
            
            58,211,457
            
            
            38,787,596Charter
                card and demonstration revenue
            
            
            10,233,232
            
            
            6,420,336FBO
                and other revenues
            
            
            3,747,598
            
            
            1,490,125**Total
                revenue**
            
            
            115,618,983
            
            
            76,393,232**Operating
                expenses**Cost
                of fractional aircraft shares sold
            
            
            36,637,959
            
            
            24,370,988Cost
                of flight operations
            
            
            50,058,692
            
            
            35,665,057Cost
                of fuel
            
            
            16,489,422
            
            
            10,192,406Write-off
                of aircraft deposit
            
            
            -
            
            
            300,000General
                and administrative expenses
            
            
            20,703,120
            
            
            18,540,610Selling
                expenses
            
            
            4,670,246
            
            
            4,333,268Depreciation
                and amortization
            
            
            3,624,710
            
            
            2,013,530**Total
                operating expenses**
            
            
            132,184,149
            
            
            95,415,859**Loss
                from operations**
            
            
            (16,565,166
            )
            
            (19,022,627
            )**Other
                income (expenses)**Interest
                income
            
            
            482,666
            
            
            444,179Other
                income
            
            
            861,662
            
            
            284,723Interest
                expense
            
            
            (3,661,227
            )
            
            (3,406,181
            )**Total
                other expenses**
            
            
            (2,316,899
            )
            
            (2,677,279
            )**Net
                Loss**
            
            
            (18,882,065
            )
            
            (21,699,906
            )Preferred
                stock dividend and accretion of expenses
            
            
            (903,851
            )
            
            -**Net
                loss attributable to common stockholders**
            
            $
            (19,785,916
            )
            $
            (21,699,906
            )**Loss
                per common share:**Basic
                and diluted
            
            $
            (1.30
            )
            $
            (2.47
            )**Weighted-
                average common shares outstanding:**Basic
                and diluted
            
            
            15,230,482
            
            
            8,780,234





*See
      Notes to Consolidated Financial Statements*


F-5




**Avantair,
      Inc. and Subsidiaries**


**(Formerly
      Ardent Acquisition Corporation)**


**Consolidated
      Statements of Changes in Stockholders' Deficit**


**Years
      Ended June 30, 2008 and 2007**





Class
                A
            
            Class
                B
            
            
            
            
            
            
            
            
            
            TotalCommon Stock
            
            Common Stock
            
            Paid-In
            
            Due
                From
            
            Accumulated
            
            Treasury
            
            Stockholders'Shares
            
            Amount
            
            Shares
            
            Amt
            
            Capital
            
            Stockholder
            
            Deficit
            
            Stock
            
            DeficitBalance,
                June 30, 2006
            
            
            3,288,590
            
            $
            329
            
            
            100
            
            $
            1,000
            
            $
            671
            
            $
            (533,986
            )
            $
            (34,498,621
            )
            $
            -
            
            $
            (35,030,607
            )Advances
                to Stockholder
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (118,339
            )
            
            
            
            
            
            
            
            (118,339
            )Reclassification
                of stockholder advances to treasury stock
            
            
            (178,471
            )
            
            (18
            )
            
            
            
            
            
            
            
            
            
            
            652,325
            
            
            
            
            
            (652,307
            )
            
            -Redemption
                of Class A common stock
            
            
            (136,707
            )
            
            (14
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (499,986
            )
            
            (500,000
            )Redemption
                of Class B shareholders
            
            
            
            
            
            
            
            
            (100
            )
            
            (1,000
            )
            
            
            
            
            
            
            
            
            
            
            (734,583
            )
            
            (735,583
            )Sale
                of common stock at $2.78 per share, net of $450,000 of costs
            
            
            3,237,410
            
            
            324
            
            
            
            
            
            
            
            
            8,549,676
            
            
            
            
            
            
            
            
            
            
            
            8,550,000Issuance
                of shares to members of management at fair value of $5.36 per share
            
            
            474,000
            
            
            47
            
            
            
            
            
            
            
            
            2,542,353
            
            
            
            
            
            
            
            
            
            
            
            2,542,400Shares
                outstanding upon consummation of reverse merger
            
            
            8,400,000
            
            
            840
            
            
            
            
            
            
            
            
            34,014,961
            
            
            
            
            
            
            
            
            
            
            
            34,015,801Retirement
                of treasury stock upon consummation of reverse merger
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,886,876
            )
            
            1,886,876Stock
                redemption in connection with reverse merger
            
            
            (64,550
            )
            
            (6
            )
            
            
            
            
            
            
            
            (362,126
            )
            
            
            
            
            
            
            
            
            
            
            (362,132
            )Issuance
                of shares to financial advisor in connection with reverse merger
            
            
            200,545
            
            
            20
            
            
            
            
            
            
            
            
            1,070,890
            
            
            
            
            
            
            
            
            
            
            
            1,070,910Issuance
                of warrants to financial advisor in connection with reverse merger
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            64,240
            
            
            
            
            
            
            
            
            
            
            
            64,240Issuance
                of warrants at fair value of $0.77
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            156,000
            
            
            
            
            
            
            
            
            
            
            
            156,000Issuance
                of 150,000 stock options to non-employee directors
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            44,946
            
            
            
            
            
            
            
            
            
            
            
            44,946Issuance
                of restricted stock grants to employee executives and managers
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            43,246
            
            
            
            
            
            
            
            
            
            
            
            43,246Net
                Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (21,699,906
            )
            
            
            
            
            (21,699,906
            )Balance,
                June 30, 2007
            
            
            15,220,817
            
            $
            1,522
            
            
            -
            
            $
            -
            
            $
            46,124,857
            
            $
            -
            
            $
            (58,085,403
            )
            $
            -
            
            $
            (11,959,024
            )




*See
      Notes to Consolidated Financial Statements*


F-6




**Avantair,
      Inc. and Subsidiaries**


**(Formerly
      Ardent Acquisition Corporation)**


**Consolidated
      Statements of Changes in Stockholders' Deficit**


**Years
      Ended June 30, 2008 and 2007**





Class A
            
            Class B
            
            
            
            
            
            
            
            
            
            TotalCommon Stock
            
            Common Stock
            
            Paid-In
            
            Due From
            
            Accumulated
            
            Treasury
            
            Stockholders'Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Stockholder
            
            Deficit
            
            Stock
            
            DeficitExpenses associated with
                issuance of preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (391,423
            )
            
            
            
            
            
            
            
            
            
            $
            (391,423
            )Expenses
                associated with registration of sharesStock
                based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            484,817
            
            
            
            
            
            
            
            
            
            
            
            484,817Dividend
                on Series A convertible preferred stock and accretion of issuance
                costs
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (903,851
            )
            
            
            
            
            
            
            
            
            
            
            (903,851
            )Issuance
                of shares with vested restricted stock
            
            
            65,975
            
            
            7
            
            
            
            
            
            
            
            
            (7
            )Net
                Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (18,882,065
            )
            
            
            
            
            (18,882,065
            )Balance
                at June 30, 2008
            
            
            15,286,792
            
            $
            1,529
            
            
            -
            
            $
            -
            
            $
            45,314,393
            
            $
            -
            
            $
            (76,967,468
            )
            $
            -
            
            $
            (31,651,546
            )





*See
      Notes to Consolidated Financial Statements*


F-7


**Avantair,
      Inc. and Subsidiaries**


**(Formerly
      Ardent Acquisition Corporation)**


**Consolidated
      Statements of Cash Flows**





**Year Ended June 30,**
            
            **Year Ended June 30,****2008**
            
            **2007****OPERATING
                ACTIVITIES:**Net
                loss
            
            $
            (18,882,065
            )
            $
            (21,699,906
            )Adjustments
                to reconcile net loss to net cash used inoperating
                activities:Depreciation
                and amortization
            
            
            3,624,710
            
            
            2,013,530Gain
                on sale of assets
            
            
            (861,410
            )
            
            -Provision
                for bad debts
            
            
            21,109
            
            
            -Stock-based
                compensation
            
            
            484,817
            
            
            2,784,592Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (626,427
            )
            
            (2,518,189
            )Accounts
                receivable from vendor
            
            
            -
            
            
            222,974Inventory
            
            
            327,110
            
            
            (325,984
            )Deposits
                and other assets
            
            
            (1,475,223
            )
            
            2,919,969Deferred
                maintenance agreement on aircraft engines
            
            
            463,030
            
            
            637,961Prepaid
                expenses and other current assets
            
            
            (1,795,598
            )
            
            (297,975
            )Notes
                receivable
            
            
            1,252,385
            
            
            2,250,929Aircraft
                costs related to fractional shares
            
            
            (26,034,485
            )
            
            (42,310,593
            )Other
                assets
            
            
            (334,726
            )
            
            (502,957
            )Accounts
                payable
            
            
            1,642,167
            
            
            (3,687,102
            )Accrued
                liabilities
            
            
            2,042,629
            
            
            1,193,723Unearned
                management fees and charter card revenues
            
            
            8,269,808
            
            
            4,513,021Cash-
                restricted
            
            
            116,693
            
            
            (2,942,983
            )Customer
                deposits
            
            
            1,293,182
            
            
            31,511Other
                liabilities
            
            
            874,571
            
            
            460,656Deferred
                revenue related to fractional aircraft share sales
            
            
            14,059,804
            
            
            40,046,766Net
                cash used in operating activities
            
            
            (15,537,919
            )
            
            (17,210,057
            )**INVESTING
                ACTIVITIES:**Proceeds
                from sale of deposits
            
            
            2,470,000
            
            
            -Proceeds
                from sale of aircraft
            
            
            -
            
            
            4,200,000Capital
                expenditures
            
            
            (5,195,325
            )
            
            (1,654,951
            )Net
                cash provided by (used in) investing activities
            
            
            (2,725,325
            )
            
            2,545,049


F-8


**Avantair,
      Inc. and Subsidiaries**


**(Formerly
      Ardent Acquisition Corporation)**


**Consolidated
      Statements of Cash Flows**





**Year Ended June 30,**
            
            **Year Ended June 30,****2008**
            
            **2007****FINANCING
                ACTIVITIES:**Borrowings
                under long-term notes payable
            
            $
            2,200,000
            
            $
            11,312,277Borrowings
                under line of credit
            
            
            -
            
            
            7,581,365Borrowings
                under short- term notes payable
            
            
            25,910,842
            
            
            -Principal
                payments on long-term notes payable
            
            
            (6,630,674
            )
            
            (12,965,653
            )Principal
                payments on short-term notes payable
            
            
            (10,135,582
            )
            
            -Principal
                payments on line of credit
            
            
            -
            
            
            (22,848,144
            )Preferred
                stock dividends paid
            
            
            (502,504
            )
            
            -Proceeds
                from issuance of stock
            
            
            -
            
            
            8,550,000Proceeds
                from the sale of preferred stock-net
            
            
            14,384,894
            
            
            -Cost
                of stock redemption/registration
            
            
            (391,423
            )
            
            (362,132
            )Proceeds
                from consummation of reverse merger
            
            
            -
            
            
            35,150,951Proceeds
                from issuance of warrants to officer
            
            
            -
            
            
            2,000Advances
                to stockholder
            
            
            -
            
            
            (118,339
            )Cost
                of treasury shares
            
            
            -
            
            
            (1,235,583
            )Net
                cash provided by financing activities
            
            
            24,835,553
            
            
            25,066,742Net
                increase in cash and cash equivalents
            
            
            6,572,309
            
            
            10,401,734Cash
                and cash equivalents, beginning of the year
            
            
            12,577,468
            
            
            2,175,734Cash
                and cash equivalents, end of the year
            
            $
            19,149,777
            
            $
            12,577,468**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:**Interest
                paid (net of amounts capitalized)
            
            $
            3,661,227
            
            $
            3,610,172


F-9


**Avantair,
      Inc. and Subsidiaries**


**(Formerly
      Ardent Acquisition Corporation)**


**Consolidated
      Statements of Cash Flows**





**Year Ended June 30,**
            
            **Year Ended June 30,****2008**
            
            **2007****SUPPLEMENTAL
                DISCLOSURE OF NON-CASH FINANCING****AND INVESTING ACTIVITIES**Accretion
                of Series A convertible preferred stock
            
            $
            54,464
            
            $
            -Dividends
                payable on Series A convertible preferred stock
            
            $
            346,883
            
            $
            -Settlement
                of note payable through sale of aircraft
            
            $
            457,600
            
            $
            -Charter
                card issued as partial consideration of aircraft purchase
            
            $
            95,600
            
            $
            -Deferred
                financing costs
            
            $
            996,188
            
            $
            -Short-term
                notes payable- refinancing
            
            $
            2,689,001
            
            $
            -Note
                receivable on sale of deposits
            
            $
            750,000
            
            $
            -Aircraft
                purchased under long-term note payable
            
            $
            3,906,000
            
            $
            -Issuance
                of shares in connection with reverse merger
            
            $
            -
            
            $
            1,070,910Issuance
                of warrants in connection with reverse merger
            
            $
            -
            
            $
            64,240Reclassification
                of stockholder advances to treasury stock
            
            $
            -
            
            $
            652,325Aircraft
                purchased under capital lease obligation
            
            $
            4,828,642
            
            $
            4,392,163Deferred
                gain on sale and leaseback of asset
            
            $
            -
            
            $
            860,714Conversion
                of short-term borrowings to long-term notes payable
            
            $
            -
            
            $
            7,050,300Note
                payable for purchase of core aircraft net of deposit
                ($607,000)
            
            $
            -
            
            $
            2,233,340





*See
      Notes to Consolidated Financial Statements*


F-10


**NOTE
      1 – OPERATIONS AND MANAGEMENT’S PLANS**





Avantair,
      Inc. (formerly known as Ardent Acquisition Corporation) (“Avantair”, “Ardent” or
      the “Company”), was organized on September 14, 2004 as a blank check
      company whose objective was to acquire an operating business.





On
      October 2, 2006, the Company signed a definitive stock purchase agreement
      (the “Reverse Merger”) with Avantair Inc. (“Old Avantair”). The agreement, as
      amended on December 15, 2006, provided for Avantair to issue 6,684,822
      shares of common stock to the stockholders of Old Avantair in exchange for
      all
      of the issued and outstanding shares of Old Avantair (the “Share Exchange” or
“Reverse Merger”). The agreement also provided for the Company to issue to the
      stockholders of Old Avantair additional shares as follows:




•
            
            At
                the end of the fiscal year ending June 30, 2007, if Cash Earnings
                Before Interest Taxes Depreciation and Amortization (Cash EBITDA)
                (EBITDA
                + non cash expenses) was greater than $6,000,000 for the fiscal year
                ending June 30, 2007, the Company would issue an aggregate of 954,975
                shares of its common stock to Old Avantair stockholders. The Company’s
                results did not meet the requirements for the year ended June 30,
                2007 and
                therefore these shares were not
                issued.




•
            
            At
                the end of the fiscal year ending June 30, 2008, the Company would
                calculate (based on its annual audited consolidated financial statements
                for such fiscal year) Cash EBITDA. If Cash EBITDA was greater than
                $20,000,000 for the fiscal year ending June 30, 2008, the Company
                would issue an aggregate of 4,774,873 shares of its common stock
                to Old
                Avantair stockholders. The Company’s results did not meet the requirements
                for the year ended June 30, 2008 and therefore these shares were not
                issued.




•
            
            If
                at any time prior to February 23, 2009, the closing trading price on
                the Over-the-Counter Bulletin Board (or on a national securities
                market on
                which the Company’s common stock is then quoted for trading) of the
                Company’s common stock for 20 trading days within any 30 trading day
                period equals or exceeds $8.50 per share, then the Company will issue
                an
                additional aggregate of 4,774,873 shares of its common stock to Old
                Avantair stockholders.





Where
      appropriate, additional shares issued as a result of achieving the targets
      referred to above will be accounted for in accordance with Statement of
      Financial Accounting Standards (“SFAS”) No. 123R, “Share based Payments”
(“SFAS 123(R)”) where the fair value of shares issued will be charged to expense
      when earned and issued.





On
      February 22, 2007, the stockholders of Avantair voted in favor of the
      Reverse Merger. Subsequent to the Reverse Merger, Old Avantair’s business
      activities were the activities of Avantair. The stockholders and management
      of
      Old Avantair own a substantial portion of the equity of the combined company.
      The Board of Directors is comprised of three individuals designated by
      Avantair’s stockholders and four individuals designated by Old Avantair’s
      stockholders, one of which is subject to the approval of Avantair’s
      stockholders. In addition, Old Avantair’s management is responsible for carrying
      out the Company’s current business plan. As a result, this transaction has been
      treated as a Reverse Merger, and a capital transaction, equivalent to the
      issuance of stock by Old Avantair for Avantair’s net assets and, accordingly,
      the historical financial statements prior to February 22, 2007 are those of
      Old Avantair. All shares and per share data prior to the Share Exchange have
      been restated to reflect the stock issuances and the effect of the closing
      of
      the Share Exchange including the recognition of 8,400,000 shares of Ardent
      common stock outstanding as of the closing of the Share Exchange. Upon the
      closing of the Share Exchange, 1,601,593 shares of the Company’s common stock
      included within the purchase price have been transferred to an escrow agent
      to
      secure indemnification obligations of the Company’s stockholders under the stock
      purchase agreement. Such shares will be released from escrow within 45 days
      of
      the Company filing this Form 10-K for the year ended June 30,
      2008.





Avantair
      is engaged in the sale and management of fractional ownerships of professionally
      piloted aircraft for personal and business use. As of June 30, 2008, Avantair
      operated 49 aircraft (which includes 5 core aircraft), with 60 additional
      Piaggio aircraft on order. Avantair operates fixed flight based operations
      (FBO)
      in Camarillo, California and effective August 1, 2008, in Caldwell, New Jersey.
      The Company also provides aircraft maintenance, concierge and other services
      to
      customers and services to the Avantair fleet from hangars and office locations
      in Clearwater, Florida, Camarillo, California and Caldwell, New
      Jersey.





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,
      2008, the Company’s recurring losses resulting in an accumulated deficit of
      $76,967,468 and a working capital deficiency of $30,152,511. In order to achieve
      profitable income from operations before depreciation and amortization,
      management currently estimates that the Company will need to have 45 fully
      fractionalized aircraft. At June 30, 2008, the Company had 41.3 fractionalized
      aircraft. Therefore, Avantair’s primary growth strategy is to continue to
      increase the number of fractional share owners and aircraft under management.
      The Company believes income from operations before depreciation and amortization
      is useful to investors as it excludes non-cash expenses that do not directly
      relate to the operation of fractionalized aircraft. This measure is a supplement
      to generally accepted accounting principles (GAAP) used to prepare the Company’s
      consolidated financial statements and should not be viewed as a substitute
      for
      GAAP measures. In addition, the Company’s non-GAAP measure may not be comparable
      to non-GAAP measures of other companies. Income from operations according to
      GAAP would include depreciation and amortization expense, estimated to be
      approximately $330,000 per month at the time of fully fractionalizing the
      45 th aircraft. In connection with future financing of growth, the Company may obtain
      additional funds through equity financing, including the sale of additional
      shares of common stock, assets sales, accelerated payments of maintenance and
      management fees, debt financing, or a combination thereof. During the fiscal
      year ended June 30, 2008, the Company raised net proceeds of $14.4 million
      through an equity offering detailed in Note 11, $2.5 million from the sale
      of
      the Company’s rights to purchase eighteen Embraer Phenom 100 aircraft, and
      approximately $6.9 million of cash through accelerated payments of management
      fees. With this capital, the Company has sufficient cash to continue its
      operations for the forseeable future.


F-11


**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. 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 accounting principles
      generally accepted in the United States of America requires management to make
      certain estimates and assumptions that affect the amounts reported in the
      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 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 reported
      results of operations; if material, the effects of changes in estimates are
      disclosed in the notes to the 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 from) income taxes and related deferred tax accounts,
      certain accrued expenses and contingencies, and ability to continue as a going
      concern.





*Cash
      and Cash Equivalents*





Cash
      and
      cash equivalents consist of cash and highly liquid investment grade investments
      held with financial institutions, with maturities of three months or less from
      the date of acquisition.





*Cash-
      restricted*





The
      Company agreed to restrict $2,826,290 in cash at June 30, 2008 and $2,942,983
      in
      cash at June 30, 2007, 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*





The
      Company sells fractional shares of aircraft and the related maintenance and
      management services that accompany aircraft ownership. The aircrafts are sold
      in
      1/16th shares or multiples thereof. The purchase agreement grants the customer
      the right to the use of the aircraft for a specified number of hours each year
      the aircraft is in service. When a customer purchases a fractional share, they
      are also required to enter into a five-year management and maintenance
      agreement. Under the terms of the maintenance and management agreement, the
      Company agrees to manage, operate and maintain the aircraft on behalf of the
      customer in exchange for a fixed monthly fee.





*Fractional
      Aircraft Shares*





The
      Company does not have objective evidence to determine the fair value and locate
      fractional share revenue from that generated from the management and maintenance
      agreement, and, as a result, has adopted the provisions of the Emerging Issues
      Task Force (“EITF”) Issue No. 00-21 “Accounting for Revenue Arrangements with
      Multiple Deliverables” to account for the sale of fractional shares of aircraft.
      Accordingly, as the sales of the fractional shares cannot be separated from
      the
      underlying maintenance and management agreement, fractional share sale revenue
      is recognized ratably over the five-year life of the maintenance and management
      agreement. The period in which revenue is recognized will be evaluated on a
      periodic basis. Factors that impact management’s assessment of the most
      appropriate period of revenue recognition will include, but not be limited
      to,
      customer turnover, terms and conditions of the related fractional share sale,
      maintenance arrangements as well as any other factor that could impact
      revenue.





*Referral
      Incentive Hours*





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





*Management
      and Maintenance Agreement*





Revenue
      earned in connection with the management and maintenance agreements is
      recognized ratably over the term of the agreement or 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.


F-12




*Charter
      Card and Demonstration Revenue*





*Demonstration
      revenue.* The
      Company charges prospective new aircraft 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.




*Charter
      Card revenue* .
      The
      Company sells access to its aircraft fleet through a 25 hour time 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 are flown.





*FBO
      and Other Revenue*





FBO
      and
      other revenue is comprised primarily of revenue from the sale of fuel at the
      Company’s FBO facilities and rental of hangar space at the Company’s operating
      locations. This revenue is recorded when goods are delivered or services have
      been rendered.





*Aircraft
      Costs Related To Fractional Sales*





The
      Company reflects aircraft costs related to the sale of fractional aircraft
      shares. As a result of the adoption of EITF 00-21, the Company recognizes
      revenue from the sale of fractional shares as income over the five-year period.
      The aircraft costs related to sales of fractional shares consist of the cost
      of
      the aircraft and are recorded as an asset and recognized as the cost of aircraft
      shares sold over the five-year period.





*Maintenance
      Policy*





The
      Company uses the direct method of accounting for scheduled non-refurbishment
      maintenance checks. The refurbishment portion of the maintenance check is
      capitalized since the interior of the aircraft is substantially refurbished
      and
      the life of the aircraft is extended. The cost of refurbishment is amortized
      over a three-year period. The direct method of accounting for overhaul costs
      is
      also used and these costs are expensed as incurred.





*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. The Company’s estimate is based on
      historical collection experience and a review of the current status of trade
      accounts receivable.




Information
      related to the activity of the allowance for doubtful accounts is as
      follows:




**June
                30,****2008**
            
            **2007**Beginning
                balance
            
            $
            460,377
            
            $
            600,000Prior
                        year accounts receivable reserved and recovered in current
                        year
            
            
            (150,000
            )
            
            -Bad
                debt expense
            
            
            21,109
            
            
            -Write-offs
            
            
            (117,999
            )
            
            (139,623
            )Ending
                balance
            
            $
            213,487
            
            $
            460,377





Management
      believes that they have adequately provided for uncollectible receivables in
      the
      Company’s allowance for doubtful accounts.





*Prepaid
      Pilot Training*





Beginning
      in 2008, the costs related to the training of pilots as required by Federal
      Aeronautic Regulations are capitalized and amortized over the twelve month
      certification period. These costs were expensed in prior years. This change
      did
      not have a material impact on the Company’s financial position or results of
      operation as of and for the two years ended June 30, 2008.





*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 $2,260,782 and $2,040,804 for the
      years ended June 30, 2008 and 2007, respectively.





*Inventory*





Aircraft
      parts 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 totaled $2,034,362 and $959,001 at June 30, 2008 and 2007 respectively,
      and
      is included in other liabilities.


F-13





*Income
      Taxes*





Income
      taxes are accounted for under the asset and liability method in accordance
      with
      SFAS No. 109, “Accounting for 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.





*Stock-Based
      Compensation*





The
      Company accounts for share-based compensation to employees and directors in
      accordance with SFAS 123(R) “Share-Based Payment,” which requires the
      recognition of compensation expense for employee stock options and other
      share-based payments. Under SFAS 123(R), 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. The stock option
      compensation expense was approximately $151,000 for the year ended June 30,
      2008. The Company issued 22,500 shares of restricted common stock to certain
      members of its Executive Officers in June 2008 and 15,000 shares of restricted
      common stock to the non-employee members of its Board of Directors in March
      2008. One-third (1/3) of the 22,500 shares awarded in June 2008 will vest on
      the
      first anniversary date of grant and then one-twelfth (1/12) on the date three
      months after the first anniversary date of the grant and on such date every
      three months thereafter, such that 100% of the shares will be vested on the
      third anniversary date so long as employment with the Company is continuous.
      One-third (1/3) of the 15,000 shares awarded in March 2008 will vest on each
      date of the next three annual shareholders meetings at which directors are
      elected and so long as the recipient remains a member of 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 $1.94 and $3.95 at June 30, 2008 and March 5, 2008, respectively. The
      compensation expense from restricted stock was approximately $333,000 for the
      year ended June 30, 2008. The Company did not issue warrants during the year
      ended June 30, 2008.





*Accounting
      for Derivative Instruments*





The
      Company accounts for derivative instruments in accordance with SFAS
      No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as
      amended, which establishes accounting and reporting standards for derivative
      instruments and hedging activities, including certain derivative instruments
      imbedded in other financial instruments or contracts. The Company also considers
      the EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to and
      Potentially Settled in, a Company’s Own Stock,” 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 SFAS No. 133. The Company
      evaluates the conversion feature embedded in its Series A Convertible Preferred
      Stock (see Note 11 to the audited consolidated financial statements) at each
      reporting period based on the criteria of SFAS No. 133 and EITF 00-19 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, 2008.





*Goodwill
      and Long-lived Assets*





Goodwill
      represents the excess of cost over fair value of net assets acquired through
      acquisitions. In accordance with SFAS No. 141, Business Combinations, all
      business combinations must be accounted for under the purchase method of
      accounting. SFAS No. 142, Goodwill and Other Intangible Assets, 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. The Company performed its annual evaluation
      during June 2008 by comparing the product of the trading price as of June 30,
      2008 and the Company’s outstanding shares of common stock on that date.





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.





In
      accordance with SFAS No. 144, “Accounting for Impairment or Disposal of
      Long-Lived Assets,” 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.


F-14





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




•
            
            Market
                prices. At June 30, 2008, the quoted market for Avantair’s common
                stock was $1.94 a share with 15,220,817 shares outstanding giving
                the
                Company a total market capitalization of approximately $29.5
                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 fact that the Company’s revenue is contractual and therefore
                management can predict future management fee revenues with some certainty.
                The model is based on the premise that for every plane sold the Company
                will increase management fees by an agreed upon amount per plane.
                When the
                Company gets to a certain aircraft fleet size, 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 9 planes in the next 12 months and management believes it will
                fully
                sell the fractional shares with respect to those planes prior to
                or
                contemporaneous with the receipt of the planes which would produce
                a cash
                flow improvement.




As
      a
      result of the analysis, no impairment charges were required for long-lived
      assets during the years ended June 30, 2008 and 2007.





*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. Since the effect of outstanding options and warrants
      is
      antidilutive due to the losses incurred by the Company, they have been excluded
      from the Company’s computation of net loss per share for all years presented. A
      total of 14,496,834 of potentially dilutive securities were excluded from the
      calculation of diluted loss per share for the year ended June 30, 2008 and
      were
      comprised of 14,146,000 warrants to purchase one share of the Company’s common
      stock, 200,834 shares of restricted stock and 150,000 outstanding options.
      The
      total number of potentially dilutive securities excluded from the calculation
      of
      diluted loss per share for the year ended June 30, 2007 was 14,510,000 which
      were comprised of 14,146,000 warrants to purchase one share of the Company’s
      common stock, 214,000 shares of restricted stock and 150,000 outstanding
      options.





*Property
      and Equipment*





Property
      and equipment is recorded at cost and consists principally of aircraft purchased
      which are not fractionalized and which provide additional capacity to the
      Company to meet customer demand. Depreciation and amortization is computed
      using
      the straight-line method over the following useful lives:




Aircraft
            7 yearsOffice
                equipment and furniture and fixtures
            5 - 7 yearsFlight
                management software/hardware
            5
                yearsVehicles
            5
                yearsImprovements
            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 are capitalized.





The
      Company capitalized interest costs relating to borrowings made for the
      acquisition of aircraft. The amounts capitalized are as follows:


2008
              
              2007Total
                  interest costs
              
              $
              3,661,227
              
              $
              3,952,087Less:
                  amount capitalized
              
              
              —
              
              
              545,907Interest
                  expense
              
              $
              3,661,227
              
              $
              3,406,180


F-15





*Recently
      Issued Pronouncements*





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This
      statement establishes a single authoritative definition of fair value, sets
      out
      a framework for measuring fair value, and requires additional disclosures about
      fair-value measurements. SFAS No. 157 defines fair value as “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”. For the
      Company, SFAS No. 157 is effective for the fiscal year beginning July 1, 2008.
      Management is currently evaluating this standard to determine its impact, if
      any, on our consolidated financial statements.




On
      February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an Amendment of FASB
      Statement No. 115.” This standard permits an entity to measure financial
      instruments and certain other items at estimated fair value. Most of the
      provisions of SFAS No. 159 are elective; however, the amendment to FASB No.
      115,
“Accounting for Certain Investments in Debt and Equity Securities,” applies to
      all entities that own trading and available-for-sale securities. The fair value
      option created by SFAS No. 159 permits an entity to measure eligible items
      at
      fair value as of specified election dates. The fair value option (a) may
      generally be applied instrument by instrument, (b) is irrevocable unless a
      new
      election date occurs, and (c) must be applied to the entire instrument and
      not
      to only a portion of the instrument. For the Company, SFAS No. 159 is effective
      for the fiscal year beginning July 1, 2008. Management is currently evaluating
      the impact of SFAS No. 159, if any, on our consolidated financial
      statements.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
      Combinations" (“SFAS 141”). SFAS 141 requires an acquirer to measure the
      identifiable assets acquired, the liabilities assumed and any non-controlling
      interest in the acquiree at their fair values on the acquisition date, with
      goodwill being the excess value over the net identifiable assets acquired.
      SFAS
      141 also requires the fair value measurement of certain other assets and
      liabilities related to the acquisition such as contingencies. SFAS 141 applies
      prospectively to business combinations and is effective for fiscal years
      beginning on or after December 15, 2008. Management is currently evaluating
      the
      impact that SFAS 141 will have on the accounting for future acquisitions and
      our
      consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
      Consolidated Financial Statements" (“SFAS 160”). SFAS 160 requires that a
      non-controlling interest in a subsidiary be reported as equity in the
      consolidated financial statements. Consolidated net income should include the
      net income for both the parent and the non-controlling interest with disclosure
      of both amounts on the consolidated statement of income. The presentation
      provisions of SFAS 160 are to be applied retrospectively, and SFAS 160 is
      effective for fiscal years beginning on or after December 15, 2008. Management
      is currently evaluating the impact that SFAS 160 will have on our consolidated
      financial statements.




No
      other
      pronouncements have been recently issued that Avantair believes will have a
      material impact on Avantair’s financial position and results of
      operations.





**NOTE
      3 – CONCENTRATIONS OF RISK**





The
      Company acquires all of its aircraft from one supplier and is dependent on
      that
      supplier for timely delivery of its airplanes. Any disruption in the delivery
      of
      these airplanes 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,
      2008, the Company had cash and cash equivalents in excess of federally insured
      limits of $23,550,357.





**NOTE
      4 – PROPERTY AND EQUIPMENT**





Property
      and equipment, stated at cost as of June 30, 2008 and 2007 consisted of the
      following:




**2008**
            
            **2007**Aircraft
            
            $
            27,300,707
            
            $
            16,824,050Leasehold
                improvements
            
            
            4,235,476
            
            
            2,267,451Furniture,
                fixtures and equipment
            
            
            1,199,528
            
            
            1,357,037Flight
                management software/hardware
            
            
            1,516,826
            
            
            541,649Vehicles
            
            
            50,823
            
            
            44,817Total
            
            
            34,303,360
            
            
            21,035,004Less:
                accumulated depreciation and amortization
            
            
            (8,640,096
            )
            
            (5,654,306
            )$
            25,663,264
            
            $
            15,380,698





Depreciation
      and amortization expense for the years ended June 30, 2008 and 2007 was $3,624,710 and
      $2,013,530, respectively.


F-16





**NOTE
      5 – RELATED PARTY TRANSACTIONS**





The
      following is a summary of transactions entered into during the years ended
      June
      30, 2008 and 2007, to which we have been a party in and in which any of our
      executive officers, directors or beneficial holders of more than 5% of our
      capital stock had or will have a direct or indirect material interest, other
      than compensation arrangements.




Effective
      April 11, 2008, the Company’s former Chief Financial Officer departed the
      Company and resigned his position as a director of the Company. In connection
      with the former Chief Financial Officer’s departure, on April 14, 2008, the
      Company entered into a separation agreement pursuant to which the former Chief
      Financial Officer will receive (i) a payment equal to eight months salary
      ($183,333), (ii) reimbursement of premium payments for COBRA benefits until
      the earlier of a period of eight (8) months commencing April 14, 2008
      or at such time that the former Chief Financial Officer obtains employment
      providing health benefits and (iii) pursuant to an amendment to his
      previously issued restricted stock award, 33,334 shares of common stock. In
      addition, the former Chief Financial Officer has agreed not to transfer any
      shares of the Company’s common stock for a period of six (6) months
      commencing April 14, 2008. At the end of the six (6) month period, the
      former Chief Financial Officer’s unrestricted shares shall be freely tradable in
      the open market, subject to the Company’s “Right of First Refusal” and in
      compliance with applicable securities law. In addition, the former Chief
      Financial Officer has agreed to cooperate fully with the Company’s reasonable
      requests for assistance in transitioning his previous responsibilities for
      a
      period of eight (8) months commencing April 14, 2008.




On
      March
      5, 2008, Avantair granted 3,000 shares of restricted stock to each of Barry
      Gordon, Arthur Goldberg, Stephanie Cuskley, Robert Lepofsky and A. Clinton
      Allen. Each of these individuals is a director of Avantair. The shares of
      restricted stock granted to the directors’ vest one third upon each of the next
      3 successive annual meetings of stockholders, subject to the grantee’s continued
      service on the Board of Directors.





**NOTE
      6 – INCOME TAXES**





The
      difference between income tax benefit provided at the Company’s effective rate
      and the statutory rate at June 30, 2008 and 2007 are as
      follows:


**2008**
              
              **2007**Income
                  tax benefit at statutory rate
              
              $
              6,608,723
              
              $
              8,194,626State
                  tax benefit, net of Federal benefit
              
              
              562,373
              
              
              648,484Increase
                    in valuation allowance
              
              
              (7,123,389
              )
              
              (8,843,110
              )Other
              
              
              (47,707
              )
              
              -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, 2008 and 2007 are
      as follows:


**2008**
              
              **2007**Deferred
                  tax liabilitiesGoodwill
              
              $
              (144,547
              )
              $
              (115,637
              )Depreciation
              
              
              (1,798,582
              )
              
              (826,738
              )Other
              
              
              (75,792
              )
              
              -(2,018,921
              )
              
              (942,375
              )Deferred
                  tax assetsDeferred
                  revenues, net of amortized aircraft costs related to fractional
                  share
                  sales
              
              
              4,371,790
              
              
              6,579,939Other
              
              
              1,190,382
              
              
              572,876Net
                  operating loss carryforwards
              
              
              25,653,733
              
              
              15,863,15531,215,905
              
              
              23,015,970Less
                  valuation allowance
              
              
              (29,196,984
              )
              
              (22,073,595
              )2,018,921
              
              
              942,375Net
                  deferred tax assets
              
              $
              -
              
              $
              -


F-17


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 2008
      and 2007 and, accordingly, the Company did not recognize any benefit from income
      taxes in the accompanying consolidated statements of operations. At
      June 30, 2008, the Company had net operating loss carryforwards of
      approximately $67.5 million which begin to expire in 2019.





Upon
      the
      completion of the Reverse Merger, the Company became subject to Section 382
      of the IRS Code relating to a change in ownership. Accordingly, utilization
      of
      the net operating loss carryforward will 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 FASB Interpretation
      No.
      48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB
      Statement No. 109” (“FIN 48”). There were no unrecognized tax benefits as of
      July 1, 2007 or as of June 30, 2008. FIN 48 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 FIN 48. The Company evaluations were performed
      for
      tax years ended 2004, 2005, 2006, 2007 and 2008. 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, 2008 and 2007.





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


**June
                  30,****2008**
              ****
              **2007**Beginning
                  balance
              
              $
              22,073,595
              
              $
              13,230,485Increase
                  in valuation allowance
              
              
              7,123,389
              
              
              8,843,
                  110Ending
                  balance
              
              $
              29,196,984
              
              $
              22,073,
                  595





**NOTE
      7 – COMMITMENTS AND CONTINGENCIES**





*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 expiring in 2020 is classified as an operating lease. The
      lease provides for rent allocation credits for the first three years. These
      credits have been netted in rental expense on a straight line basis over the
      term of the lease. The Company also has a 15 year lease for its fixed based
      operation in Camarillo, California expiring in 2021, which is classified as
      an
      operating lease.





Most
      of
      the 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.





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, 2008 and 2007 was $2,665,797 and
      $2,420,466, respectively.





Future
      minimum lease payments on these leases are:




**Year
                Ended June 30,**2009
            
            $
            3,216,9742010
            
            
            3,245,4302011
            
            
            3,240,2592012
            
            
            2,508,3762013
            
            
            2,419,858Thereafter
            
            
            20,445,019$
            35,075,916


F-18




*Purchase
      Commitment*





On
      June
      20, 2008, Avantair assigned its rights and obligations to purchase twenty
      Embraer Phenom 100 aircraft positions to Share 100 Holding Co., LLC, 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
      will make an additional $750,000 capital contribution to Share 100 on or before
      December 1, 2008, all of which has or will be, respectively, immediately
      distributed to Avantair. Avantair, as Class B member, has the rights and
      obligations to purchase aircraft positions nineteen and twenty and to fund
      payment due in connection with these aircraft. EAS has the option to purchase
      aircraft nineteen and twenty, which must be exercised by October 1, 2010; if
      exercised, EAS shall reimburse Avantair for all payments made relative to these
      aircraft and provide all remaining funds required. In
      the
      event that EAS does not exercise the option to purchase aircrafts nineteen
      and
      twenty by October 1, 2010, Avantair will have the right and obligation to
      purchase the nineteenth and twentieth aircraft.  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, 2008, the Company has agreed to purchase 60 additional Avanti II P-180
      aircraft from Piaggio America. The total commitment is approximately $349
      million to be delivered through fiscal 2013.





*Litigation*





From
      time
      to time the Company is party to various legal proceedings in the normal course
      of business involving principally commercial charter party disputes. It is
      expected that these claims would be covered by insurance if they involve
      liabilities that arise from collision, other casualty, death or personal
      injuries to crew, subject to customary deductibles. Those claims, even if
      lacking merit, could result in the expenditure of significant financial and
      managerial resources. At June 30, 2008, there were no legal proceedings which
      outside counsel anticipates would have a material adverse effect on the
      Company’s financial position, results of operations or cash flows.





**NOTE
      8 – CAPITAL LEASE TRANSACTIONS**





The
      Company entered into a sale and leaseback agreement, dated August 11, 2006,
      with JMMS, LLC. Under the sale and leaseback agreement, the Company sold 100%
      of
      its interest in a core aircraft for $4.2 million and leased back 68.8% of the
      aircraft for a five year term. The proceeds of the sale and leaseback
      arrangement were used to pay down the line of credit with CNM, Inc. In March
      2007, the Company amended the lease agreement to include a provision for the
      Company to buy back the aircraft at the expiration of the term. As a result
      of
      the amendment, the Company has accounted for the sale and leaseback transaction
      as a finance lease in accordance with SFAS Nos. 13 and 98, “Accounting for
      Leases”.





On
      October 10, 2007, Avantair acquired a core aircraft under a capital lease
      obligation with Midsouth Services, Inc.  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% 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
      capital lease obligation is comprised of the following:




2009
            
            $
            1,542,0002010
            
            
            1,542,0002011
            
            
            1,542,0002012
            
            
            5,347,0002013
            
            
            2,736,693Total
                minimum payments
            
            
            12,709,693Less
                amount representing interest
            
            
            3,739,569Present
                value of minimum lease payments
            
            $
            8,970,124





The
      capital lease obligation is included in notes payable in the accompanying
      consolidated balance sheets.


F-19





**NOTE
      9 – SHORT-TERM NOTES PAYABLE**





*CNM,
      Inc.*





On
      October 2, 2006, the Company and CNM and its principal stockholders entered
      into a revolving credit agreement (the “Agreement”) that provides for the
      Company to borrow $7,600,000 from CNM. This borrowing was conditional on the
      execution of a definitive stock purchase agreement with a public company, which
      occurred on October 2, 2006. The parties also agreed that upon the
      completion of the stock purchase agreement and approval of the proposed
      acquisition by the public company shareholders, the Company would repay a
      minimum of $19,000,000 of the borrowings under the revolving credit agreement.
      Per the terms of the Agreement, upon the completion of the Reverse Merger the
      Company repaid approximately $19,000,000 of the borrowings under the revolving
      credit agreement with CNM.





In
      addition, upon the execution of the stock purchase agreement, the outstanding
      balance after repayment of the $19,000,000, which may be no more than
      $10,000,000, will be converted into a term loan payable quarterly over three
      years and bearing interest at 10% per annum. The borrowings under the
      arrangement were collateralized by a first priority lien and security interest
      in all of the Company’s assets.





Under
      the
      agreement, the Company also has agreed to provide the principal stockholder
      of
      CNM 100 hours of use of its aircraft over the three-year period. The fair value
      of aircraft usage of approximately $200,000 was accrued and will be amortized
      to
      interest expense over the term of the remaining debt under a method that will
      produce a constant periodic rate of return. In the year ended June 30,
      2008, CNM used approximately 45 hours at an internal cost of
      $47,250.





In
      August
      2007, the Company and CNM executed a new note agreement which converted an
      outstanding note obligation of approximately $7,000,000 into a term loan payable
      monthly over three years and bearing interest at 10% per annum. CNM also
      assumed a promissory note due to Wells Fargo Bank for $2,900,000 which was
      included as part of this new note agreement. The Company accounted for this
      conversion in accordance with EITF Issue No. 98-14, “Debtor’s Accounting
      for Changes in Line-of-Credit or Revolving-Debt Arrangements.”





*Midsouth
      Services, Inc*





On
      October 3, 2007, the Company entered into a floor plan agreement with Midsouth
      Services, Inc. (“Midsouth”) which provides for up to approximately $5.1 million
      of financing for aircraft to be acquired from Piaggio America, Inc, extended
      on
      a month-to-month basis from April 2008 and repaid on July 2008. Effective March
      3, 2008, the Company entered into a second floor plan agreement with Midsouth
      that provides for up to $5.3 million of financing for aircraft to be acquired
      from Piaggio America, Inc. for the six month period commencing with the first
      delivery of aircraft under the plan. Each agreement requires a $75,000 monthly
      facility fee with payment of any outstanding borrowings due in full prior to
      taking delivery of additional aircraft. Midsouth also agreed, at the option
      of
      the Company, to provide an additional loan in the amount of $5.3 million, with
      terms and conditions of the additional loan substantially similar to the terms
      of the March 2008 loan, upon expiration of the October 3, 2007 floor plan
      agreement. Borrowings outstanding under these arrangements at June 30, 2008
      totaled approximately $10.5 million.





Subsequently,
      on July 31, 2008, Avantair, Inc. (the "Company") entered into two new Floor
      Plan
      Finance Agreements (each, an “Agreement” and collectively "the Agreements"),
      pursuant to which MidSouth Services, Inc. has agreed to extend credit to the
      Company in an amount not to exceed $5,345,000 under each Agreement ($10,690,000
      in total for the Agreements), for an initial term of three (3) months for each
      Agreement. Indebtedness under the Agreements will be used by the Company to
      fund
      the purchase of new Piaggio P-180 aircraft. The Company shall have the sole
      option to renew the Agreements for three (3) consecutive additional one (1)
      month terms at the expiration of the initial term. The effective dates of the
      two Agreements are July 31, 2008, and August 1, 2008, respectively.  The
      Company has agreed to pay to the Lender a monthly fee of $75,000 under each
      Agreement.





In
      connection with the entry into the Agreements, on July 31, 2008, the Company
      terminated the prior Floor Plan Finance Agreements dated March 3, 2008 and
      October 3, 2007 between the Company and Midsouth.





*Century
      Bank, F.S.B.*





On
      May
      29, 2008 the Company entered into a Promissory Note (“Note”) with Century Bank,
      F.S.B. (“Lender”), pursuant to which Lender agreed to provide financing to the
      company in the amount of $5,200,000 to be used towards the purchase of a new
      Piaggio P-180 aircraft. The Company paid the following fees for the Note: (1)
      $37,500 on the effective date of the Note and (2) $75,000 on the 30th day of
      the
      each month thereafter until repayment in full of the principal amount of the
      Note (“Term”). The Principal amount of the Note was to be paid in
      full within 120 days from the Effective Date of the Note. The Company was
      to make partial payments to Lender in $325,000 increments upon the closing
      of
      each fractional interest and Lender shall provide partial lien releases as
      to
      the respective fractional interests sold. Additionally, the Company paid a
      fee
      of $52,000 at the time of repayment in full of the principal amount of the
      Note,
      constituting a fee a 1% of the principal amount. If repayment was made in full
      within 90 days after the effective date of this Note, the fee was to be reduced
      to $26,000, constituting a fee of 0.5% of the principal amount.





In
      July
      2008, the Company repaid the full amount of the Promissory Note (“Note”) with
      Century Bank , F.S.B. (“Lender”). The Company paid the following fees for the
      Note: (1) $37,500 on the effective date of the Note and (2) $75,000 on the
      30 th
      day of the each month thereafter until repayment in full of the principal amount
      of the Note (“Term”). Per the terms of the agreement, the Note was to be paid in
      full within 120 days from the Effective Date of the Note. Additionally, the
      Company was to also pay a fee of $52,000 at the time of repayment in full of
      the
      principal amount of the Note, constituting a fee of 1 % of the principal amount.
      However, as the Company repaid the note in full in July 2008 (within 90 days
      after the effective date of the note), the fee was reduced to 0.5% of the
      principal amount or $26,000.


F-20





**NOTE
      10 – LONG TERM NOTES PAYABLE**





Long-term
      notes payable consists of the following as of June 30, 2008 and
      2007:




**2008**
            
            **2007**Wells
                Fargo Equipment Finance, Inc.
            
            $
            3,488,042
            
            $
            7,267,244CNM,
                Inc.
            
            
            6,968,036
            
            
            7,101,969Jet
                Support Services, Inc.
            
            
            5,461,540
            
            
            2,043,727Bank
                of America
            
            
            —
            
            
            2,176,040JMMS,
                Inc.
            
            
            4,347,058
            
            
            4,383,878Century
                Bank, F.S.B.
            
            
            2,082,804
            
            
            —Wachovia
                Bank
            
            
            3,534,814
            
            
            —Midsouth
                Services, Inc
            
            
            4,622,121
            
            
            —30,504,415
            
            
            22,972,858Less
                current portion
            
            
            (6,648,093
            )
            
            (4,412,288
            )Long-term
                debt
            
            $
            23,856,322
            
            $
            18,560,570





*Wells
      Fargo Equipment Finance, Inc.*




In
      February 2005, the Company entered into financing arrangements for the purchase
      of three aircraft under various notes payable with Wells Fargo Equipment
      Finance, Inc. In January 2008, the Company sold one of these aircraft and repaid
      the outstanding balance on the related note payable. The notes outstanding
      at
      June 30, 2008 in the amount of $3,488,042 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.





*CNM,
      Inc*




In
      August
      2007, the Company and CNM, Inc. (“CNM”) executed a new note agreement which
      converted an outstanding note obligation of approximately $7 million into a
      term
      loan payable monthly over three years and bearing interest at 10% per
      annum. CNM also assumed a promissory note due to Wells Fargo Bank for $2,900,000
      which was included as part of this new note agreement. CNM, Inc paid off the
      $2,900,000 promissory note to Wells Fargo Bank on December 7, 2007. The Company
      accounted for this conversion in accordance with EITF Issue No. 98-14,
“Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt
      Arrangements.” No adjustments to the consolidated financial statements were
      necessary as a result of such modification.





*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 provides for seven monthly installments of $145,867 and 53 monthly
      installments of $45,867, respectively, including interest at 7% per year. On
      April 15, 2008, the Company entered into a payment arrangement with JSSI by
      means of a $5.5 million promissory note. The note matures on April 1, 2011
      and bears interest at the rate of 10% per annum, with 35 monthly payments
      of principal and interest in an amount of $185,127 beginning on June 2,
      2008. The note covers the balance of the aforementioned $3.4 million 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. In connection with the parties entering into this payment arrangement
      and the $5.5 million promissory note, the parties terminated the airframe
      maintenance contract and have agreed to apply the unamortized prepayment under
      the airframe maintenance contract to the engine maintenance program and will
      amortize this amount over the remaining 37 month term of that program.





In
      addition, the Company entered into another payment arrangement with JSSI by
      means of a $525,000 promissory note dated July 31, 2008 with five monthly
      payments of $105,000 commencing August 1, 2008. The note constitutes payment
      of
      the purchase of airframe parts inventory by the Company from JSSI.





*Bank
      of America, Inc.*





In
      January 2007, the Company assumed a term loan totaling $2,290,640 from Bank
      of
      America in connection with the acquisition of the outstanding interest in
      Aircraft Support . The term loan provided for monthly installments of $9,550
      plus interest at LIBOR plus 2% through July 1, 2011. The Company
      subsequently repaid the full amount of the term loan with the execution of
      a new
      note agreement with Century Bank on August 2, 2007 and is detailed below.





*JMMS,
      Inc.*





On
      August 11, 2006, the Company entered into a sale and leaseback agreement
      with JMMS, LLC. The lease transaction has been accounted for as finance lease
      under SFAS 13 and provides for monthly payments of $39,500 through July 11,
      2011 (See Note 8).





*Century
      Bank, F.S.B.*





In
      August
      2007, the Company and Century Bank F.S.B executed a $2.2 million note agreement
      for the purchase of one aircraft. The note outstanding at June 30, 2008 in
      the
      amount of $2,082,805 is payable in monthly installments of $27,175 with interest
      of 8.25% per annum, through July 1, 2011. The note is collateralized by the
      aircraft.





*Wachovia
      Ban* k





On
      October 31, 2007, the Company entered into a financing arrangement for the
      purchase of one used aircraft at a total purchase price of approximately $4.5
      million (inclusive of the value of a charter card of 100 hours). Financing
      was
      obtained from Wachovia through a note payable of $3.9 million. This debt will
      be
      repaid monthly over 7 years at an interest rate of the LIBOR rate plus
      4.0%.





*Midsouth
      Services, Inc*





On
      October 10, 2007, the Company entered into a sale and leaseback agreement with
      Midsouth Services, Inc. The lease transaction has been accounted for as finance
      lease under SFAS 13 and provides for monthly payments of $39,500 through October
      1, 2021 (See Note 8).


F-21





Future
      minimum payments on notes payable in years subsequent to June 30, 2008 are
      as follows:




**Year
                Ended June 30,**2009
            
            $
            6,648,0932010
            
            
            7,210,9972011
            
            
            3,536,1732012
            
            
            7,826,9622013
            
            
            4,538,018Thereafter
            
            
            744,172$
            30,504,415





**NOTE
      11 – CAPITAL STOCK**





**General:** Our
      authorized capital stock will consist of 76 million shares of all classes of
      capital stock, of which 75 million are shares of common stock, par value,
      $0.0001 per share, and 1 million are shares of preferred stock, par value of
      $0.0001 per share.




**Units:** Each
      unit
      consists of one share of common stock and two warrants, which started trading
      separately as of the opening of trading on March 9, 2005. Each warrant entitles
      the holder to purchase one share of common stock at an exercise price of $5.00
      per share.




**Common
      Stock:** The
      holders of shares of our 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 our shares of common stock are entitled to share ratably in any
      distribution of our assets upon liquidation, dissolution or winding-up, after
      satisfaction of all debts and other liabilities.





As
      of
      June 30, 2008, we have outstanding 15,286,792 shares of common stock. There
      are
      14,146,000 shares are reserved on our books and records for issuance upon the
      exercise of outstanding warrants and issuance of the securities underlying
      the
      outstanding unit purchase options, if exercised. In addition, 2,951,457 shares
      are reserved on our books and records for issuance upon the conversion of
      outstanding shares of Series A Preferred Stock. 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). While the additional shares are not designed to deter
      or
      prevent a change of control, under some circumstances we could use the
      additional shares to create voting impediments or to frustrate persons seeking
      to effect a takeover or otherwise gain control by, for example, issuing those
      shares in private placements to purchasers who might side with our Board of
      Directors in opposing a hostile takeover bid.





**Registration
      of shares:** The
      Company's registration statement on Form S-1 to register 4,540,381 shares sold
      in connection with a private placement raising $9 million in proceeds and
      346,000 warrants and 346,000 shares underlying the warrants issued in connection
      with the reverse merger, went effective in October 2007. Costs associated with
      that registration statement in the amount of $391,423 were charged to paid-in
      capital.





**Sale
      of Series A Convertible Preferred Stock :** On
      November 14, 2007, the Company entered into a Preferred Stock Purchase Agreement
      (the “Preferred Stock Agreement”) with certain investors. Under the Preferred
      Stock Agreement, the Company agreed to issue 152,000 shares of its newly-created
      Series A Convertible Preferred Stock to the Investors for an aggregate purchase
      price of $15.2 million, which was received in two tranches of $11.2 million
      and
      $4 million on November 14, 2007 and December 5, 2007, respectively. The proceeds
      were used predominantly to fund business operations and to acquire fractional
      shares in two aircraft delivered on December 28, 2007. The Series A Convertible
      Preferred Stock will not be registered under the Securities Act of 1933, but
      the
      Investors will have registration rights (including an obligation by the Company
      to have a “shelf” registration statement declared effective with the Securities
      and Exchange Commission within nine months of the issuance of the shares of
      Series A Convertible Preferred Stock) with respect to shares of Common Stock
      issuable upon conversion of the shares of Series A Convertible Preferred Stock
      (“Conversion Shares”). The Investors will be subject to restrictions on the
      number of Conversion Shares they may sell in the open market within six months
      and one year of such issuance. 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% 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 a conversion price of $5.15 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 at a price per share equal to the sum of
      105% of the Series A Issue Price and any accrued dividends, (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 at a price per share equal to the sum of 100% of the Series
      A
      Issue Price and any accrued dividends (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% of the cash raised on this preferred
      financing.


F-22





**NOTE
      12 – STOCK-BASED COMPENSATION**





***Stock
      Options***





The
      Company issues stock-based compensation to its officers, directors, employees
      and consultants under its 2006 Long Term Incentive Plan (the “Plan”). There are
      1,500,000 shares authorized under the Plan. The term of stock options granted
      are determined by the Compensation Committee not to exceed 10 years.
      Additionally, the term of the stock grants is limited to five years if the
      grantee owns in excess of 10% of the stock of the Company at the time of the
      grant. The vesting provisions of individual options may vary but in each case
      will generally provide for vesting of at least 33% per year of the total number
      of shares subject to the option. The exercise price and other terms and
      conditions of stock options will be determined by the Compensation Committee
      at
      the time of grant. The exercise price per share may not be less than 100 percent
      of the fair market value of a share of the Company’s common stock on the date of
      the grant.





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 which resulted in
      $151,339 and $44,946 of stock-based compensation expense during the years ended
      June 30, 2008 and 2007, respectively, included in general and
      administrative expenses on the accompanying consolidated statement of
      operations. All options granted under the Plan are accounted for in accordance
      with SFAS 123R.





A
      summary
      of options activity for the year ended June 30, 2008 is presented
      below:




**Shares**
            
            **Weighted Average**
              **Exercise Price**
            
            **Weighted Average**
              **Fair Value**Options
                Outstanding as of July 1, 2007
            
            
            150,000
            
            $
            5.34
            
            $
            1.94Granted
            
            
            —
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —
            
            
            —Forfeited
                and Expired
            
            
            —
            
            
            —
            
            
            —Options
                Outstanding, June 30, 2008
            
            
            150,000
            
            $
            5.34
            
            $
            1.94Expected
                to vest, June 30, 2008
            
            
            135,000
            
            $
            5.34
            
            $
            1.94Exercisable,
                June 30, 2008
            
            
            50,000
            
            $
            5.34
            
            $
            1.94




**Stock Options Outstanding**
            
            **Stock Options Exercisable****Exercise Prices**
            
            **Shares**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life (Years)**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Aggregate**
              **Intrinsic**
              **Value**
            
            **Shares**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life (Years)**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Aggregate**
              **Intrinsic**
              **Value**$ 5.34
            
            
            150,000
            
            
            8.25
            
            $
            5.34
            
            $
            —
            
            
            —
            
            
            —
            
            $
            —
            
            $
            —





The
      fair
      value of each stock option grant to employees is estimated on the date of grant.
      A Black-Scholes option-pricing model, applying the following weighted average
      assumptions, was used to estimate the fair value for employee stock options
      issued:




**Year ended June 30,**
              **2007**Dividend
                yield
            
            
            0.00
            %Expected
                volatility
            
            
            60.68
            %Risk-free
                rate
            
            
            4.67
            %Expected
                life of options
            
            
            6
                years





Due
      to
      the Company’s limited history as a public company, 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 with Staff Accounting Bulletin
      No. 107 on Share Based Payment.




As
      of
      June 30, 2008, there was $ 239,684 of total
      deferred compensation cost related to options issued to non-employee board
      members that will be recognized in expense over the remaining vesting period
      of
      1.67 years.


F-23




***Restricted
      Shares***





The
      Company expenses restricted shares granted in accordance with the provisions
      of
      SFAS 123(R). The fair value of the restricted shares issued is amortized on
      a
      straight-line basis over the vesting period of three years. The expense
      associated with the awarding of restricted shares for the years ended
      June 30, 2008 and 2007 is $333,478 and $32,942, respectively, which is
      included in general and administrative expense on the accompanying consolidated
      statement of operations. As of June 30, 2008, $446,076 of deferred
      compensation cost related to restricted stock will be charged to operations
      over
      the next three years.





The
      following table summarizes information concerning restricted
      shares:


**Nonvested**
                **Restricted**
                **Shares**
              
              **Weighted Average**
                **Fair Value****Balance
                  at June 30, 2007**
              
              
              214,000
              
              $
              4.90Granted
              
              
              37,500
              
              
              2.61Forfeited/cancelled
              
              
              (50,666
              )
              
              4.90**Balance
                  at June 30, 2008**
              
              
              200,834





**NOTE
      13 – WARRANTS**





We
      currently have warrants outstanding to purchase 14,146,000 shares of our common
      stock, which entitle the registered holder to purchase one share of our common
      stock at a price of $5.00 per share. The warrants will expire on February 23,
      2009, at 5:00 p.m., Eastern Standard time. We may call the warrants for
      redemption in whole and not in part, at a price of $.01 per warrant at any
      time
      after the warrants become exercisable, upon not less than 30 days’ prior written
      notice of redemption to each warrant holder, if, and only if, the last reported
      sale price of the common stock equals or exceeds $8.50 per share for any 20
      trading days within a 30 trading day period ending on the third business day
      prior to the notice of redemption to warrant holders.




The
      warrants are issued in registered form under a warrant agreement between
      Continental Stock Transfer & Trust Company, as warrant agent, and Avantair,
      Inc.




The
      exercise price and number of shares of common stock issuable on exercise of
      the
      warrants may be adjusted in certain circumstances including in the event of
      a
      stock dividend, or Avantair’s recapitalization, reorganization, merger or
      consolidation. However, the warrants will not be adjusted for issuances of
      common stock at a price below their respective exercise prices.




The
      warrants may be exercised upon surrender of the warrant certificate on or prior
      to the expiration date at the offices of the warrant agent, with the exercise
      form on the reverse side of the warrant certificate completed and executed
      as
      indicated, accompanied by full payment of the exercise price, by certified
      check
      payable to Avantair, for the number of warrants being exercised. The warrant
      holders do not have the rights or privileges of holders of common stock or
      any
      voting rights until they exercise their warrants and receive shares of common
      stock. After the issuance of shares of common stock upon exercise of the
      warrants, each holder will be entitled to one vote for each share held of record
      on all matters to be voted on by stockholders.




No
      warrants will be exercisable unless at the time of exercise a prospectus
      relating to common stock issuable upon exercise of the warrants is current
      and
      the common stock has been registered or qualified or deemed to be exempt under
      the securities laws of the state of residence of the holder of the warrants.
      Under the terms of the warrant agreement, we have agreed to meet these
      conditions and use our best efforts to maintain a current prospectus relating
      to
      common stock issuable upon exercise of the warrants until the expiration of
      the
      warrants. On November 2, 2006, we entered into a Warrant Clarification
      Agreement, dated as of February 24, 2005, with Continental Stock Transfer &
Trust Company, as Warrant Agent, to clarify the terms of the warrant agreement.
      The Warrant Clarification Agreement clarified, consistent with the terms of
      the
      warrant agreement and the disclosure contained in our prospectus, that if the
      prospectus relating to the common stock issuable upon the exercise of the
      warrants is not current or if the common stock is not qualified or exempt from
      qualification in the jurisdictions in which the holders of the warrants reside,
      we will not be required to net cash settle or cash settle the warrant exercise,
      the warrants may have no value, the market for the warrants may be limited
      and
      the warrants may expire worthless. As discussed above, the foregoing
      clarification was based on the disclosure set forth in the warrant agreement
      and
      the final prospectus. Such clarification is entirely consistent with the terms
      of the warrant agreement and the disclosure contained in our
      prospectus.





On
      June
      17, 2008, the Company filed with the Securities and Exchange Commission a
      post-effective amendment on Form S-3 to the Company’s Registration Statement on
      Form S-1 (No. 333-121028). Upon effectiveness of the amendment, the registration
      statement will be available for the issuance of shares of common stock upon
      exercise of the Company’s outstanding publically traded warrants. The Company
      also approved a warrant retirement program, pursuant to which it will offer
      the
      holders of its 13,800,000 publically traded warrants the opportunity to exercise
      those warrants on amended terms for a limited time. The Company is modifying
      the
      13,800,000 warrants to reduce the per-share exercise price from $5.00 to $3.00.
      In addition, for each warrant exercised by a holder at the reduced exercise
      price, the holder will have the option to engage in a cashless exercise by
      exchanging ten additional warrants for one additional share of common stock.
      Warrants tendered for cashless exercise may only be tendered in groups of ten
      and no fractional shares will be issued for odd lots of nine or less. The
      Company has filed a Tender Offer Statement on Schedule TO and related materials
      as a pre-commencement communication. The Tender Offer has not commenced and
      the
      Company and its agents are not currently accepting tenders at this time. The
      Company will issue a press release announcing the commencement of the tender
      offer once it has begun.




No
      fractional shares will be issued upon exercise of the warrants. If, upon
      exercise of the warrants, a holder would be entitled to receive a fractional
      interest in a share, we will, upon exercise, round up to the nearest whole
      number the number of shares of common stock to be issued to the warrant
      holder.




No
      changes have been made to our warrant position in fiscal year
      2008.





**NOTE
      14 – 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
      at
      the discretion of the Company. The Company has not made any discretionary profit
      sharing employer contributions to the 401(k) Plan to date.




F-24




**NOTE
      15 – SUBSEQUENT EVENTS**





In
      July
      2008, the Company repaid the full amount of the $5.2 million Promissory Note
      (“Note”) with Century Bank, F.S.B., as discussed in Note 9.





On
      July
      31, 2008, Avantair, Inc. entered into two new Floor Plan Finance Agreements
      (each, an “Agreement” and collectively "the Agreements"), pursuant to which
      MidSouth Services, Inc. has agreed to extend credit to the Company in an amount
      not to exceed $5,345,000 under each Agreement ($10,690,000 in total for the
      Agreements), for an initial term of three (3) months for each Agreement.
      Indebtedness under the Agreements will be used by the Company to fund the
      purchase of new Piaggio P-180 aircraft. The Company shall have the sole option
      to renew the Agreements for three (3) consecutive additional one (1) month
      terms
      at the expiration of the initial term. The effective dates of the two Agreements
      are July 31, 2008, and August 1, 2008, respectively.  The Company has
      agreed to pay a monthly fee of $75,000 under each Agreement.





In
      connection with the entry into the Agreements, on July 31, 2008, the Company
      terminated the prior Floor Plan Finance Agreement dated March 3, 2008 between
      the Company and Midsouth.





On
      July
      31, 2008, the Company entered a $525,000 promissory note arrangement with JSSI
      for the purchase of airframe parts. The note is payable in five monthly
      installments of $105,000 commencing August 1, 2008.





Effective
      August 1, 2008, Avantair, Inc. entered into Lease Agreement (“Lease”) and
      Operating Agreement for Fueling Service (“Fueling Agreement”) between Essex
      County Improvement Authority (“ECIA”) and the Company. The Lease provides the
      Company with a hangar located at Essex County Airport that is approximately
      17,752 square feet, which includes hanger space, shop space and office space.
      The Lease will be month to month until it is approved by the Essex County Board
      of Chosen Freeholder, and once the Lease is approved, ECIA and the Company
      shall
      enter into a ten (10) year lease term. The annual rent for the Lease is
      $230,776, payable in monthly installments of $19,231. The annual rent shall
      be
      adjusted on the first day of each new year of the ten (10) year lease term
      by
      adding the product of the current annual rent multiplied by the percentage
      change of the CPI index for the preceding 12 months. The Fueling Agreement
      shall
      be in force and effect while the Company is in lawful possession of the property
      pursuant to the Lease, but it shall not extend beyond the term of the Lease.
      The
      Lease and the Fueling Agreement will allow the Company to operate a full service
      FBO at Essex County Airport.





On
      August
      4, 2008, the Company terminated the month- to- month lease agreement for the
      principal property located at 155 Passaic Avenue, Fourth Floor, Fairfield,
      New
      Jersey, which offered 100 square feet of office space.




F-25




**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)3.1
            
            Amended
                and Restated Certificate of Incorporation. (3)3.2
            
            Amended
                and Restated By-laws. (4)4.1
            
            Specimen
                Unit Certificate. (5)4.2
            
            Specimen
                Common Stock Certificate. (5)4.3
            
            Specimen
                Warrant Certificate. (5)4.4
            
            Form
                of Unit Purchase Option to be granted to Representative.
                (5)4.5
            
            Form
                of Warrant Agreement between Continental Stock Transfer & Trust
                Company and the Registrant. (5)4.6
            
            2006
                Long –Term Incentive Plan. (6)*10.1
            
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and Barry
                J.
                Gordon. (5)10.2
            
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and Marc H.
                Klee.
                (5)10.3
            
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and Harvey
                Granat.
                (5)10.4
            
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and Robert
                Brill.
                (5)10.5
            
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and Arthur
                G.
                Goldberg. (5)10.6
            
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and Philip
                Goodman.
                (5)10.7
            
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and Alan J.
                Loewenstein. (5)10.8
            
            Letter
                Agreement among the Registrant, EarlyBirdCapital, Inc. and Robert
                Sroka.
                (5)10.9
            
            Form
                of Investment Management Trust Agreement between Continental Stock
                Transfer & Trust Company and the Registrant. (5)10.10
            
            Form
                of Stock Escrow Agreement between the Registrant, Continental Stock
                Transfer & Trust Company and the Initial Stockholders.
                (5)10.11
            
            Form
                of Letter Agreement between American Fun Advisors, Inc. and Registrant
                regarding admin. support. (5)10.12
            
            Promissory
                Note, dated October 31, 2004, in the principal amount of $70,000
                issued to
                Barry J. Gordon. (5)10.13
            
            Registration
                Rights Agreement among the Registrant and the Initial Stockholders.
                (5)10.14
            
            Form
                of Warrant Purchase Agreement among EarlyBirdCapital, Inc. and each
                of the
                Initial Stockholders. (5)10.15
            
            Investors
                Rights Agreement, entered into as of October 2, 2006, between Avantair,
                Inc. and certain equity investors. (1)10.16
            
            Loan
                Agreement, entered into as of October 2, 2006 by and among Avantair,
                Inc., CNM, Inc. and Ardent Acquisition Corporation. (1)10.17
            
            Amended
                and Restated Promissory Note, dated June 1, 2007, made by Avantair,
                Inc.
                to CNM, Inc. (4)14.1
            
            Code
                of Conduct and Professional Ethics for directors, officers and employees,
                including our Chief Executive Officer and Chief Financial Officer.
                (7)31.1
            
            Chief
                Executive Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a)
                of
                the Securities Exchange Act of 193431.2
            
            Chief
                Financial Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a)
                of
                the Securities Exchange Act of 193432.1
            
            Chief
                Executive Officer Certification pursuant to 18 U.S.C. Section
                135032.2
            
            Chief
                Financial Officer Certification pursuant to 18 U.S.C. Section
                135099.1
            
            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)




(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. 333-142312).(5)
              Incorporated
                  by reference to the Registrant’s Registration Statement on Form S-1 (SEC
                  File No. 333-121028).(6)
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, filed with
                  the Securities and Exchange Commission on March 23,
                  2007.(7)
              Re-filed
                  to reflect the final versions of the documents as adopted by the
                  Registrant's Board of Directors. Since adoption, the accurate version
                  of
                  each document has been publicly available on the Registrant's
                  website.(8)
              Re-filed
                  to reflect the revised versions of the documents as adopted by
                  the
                  Registrant's Board of Directors on September 18, 2008.(9)
              Incorporated
                  by reference to the Registrant’s Current Report on Form 10-KSB, filed with
                  the Securities and Exchange Commission on April 6,
                  2007.*
              Management
                  contract or compensatory plan or
                  arrangement.





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