UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q







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




For
the quarterly period ended: March 31, 2010





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




For
the transition period
from            
to




Commission
File Number 000-51115









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)










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.  Yesþ
     No ̈





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





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





Large
Accelerated Filer  ̈     Accelerated
Filer   ̈


Non-Accelerated
Filer  ̈   Smaller
Reporting Company  þ





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




As of May
12, 2010, there were 26,333,613 shares of the Company’s 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
subsidiaries, or its predecessor, Ardent Acquisition Corporation.





SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS




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




(1)
              our
      inability to generate sufficient net revenue in the
  future;
 (2)
              our
      inability to fund our operations and capital
  expenditures;
 (3)
              our
      inability to acquire additional inventory of aircraft from our single
      manufacturer;
 (4)
              the
      loss of key personnel;
 (5)
              our
      inability to effectively manage our
growth;
 (6)
              our
      inability to generate sufficient cash flows to meet our debt service
      obligations;
 (7)
              competitive
      conditions in the fractional aircraft
industry;
 (8)
              extensive
      government regulation;
 (9)
              the
      failure or disruption of our computer, communications or other technology
      systems;
 (10)
              increases
      in fuel costs;
 (11)
              changing
      economic conditions; and
 (12)
              our
      failure to attract and retain qualified pilots and other operations
      personnel.






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





Table
of Contents





PagePART I FINANCIAL
      INFORMATIONItem 1.
              Financial
      StatementsCondensed
      Consolidated Balance Sheets
              
              
              1Condensed
      Consolidated Statements of Operations
              
              
              3Condensed
      Consolidated Statement of Changes in Stockholders’ Deficit
              
              
              4Condensed
      Consolidated Statements of Cash Flows
              
              
              5Notes
      to Condensed Consolidated Financial Statements
              
              
              7Item 2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              
              17Item 3.
              Quantitative
      and Qualitative Disclosures about Market Risk
              
              
              23Item 4T.
              Controls
      and Procedures
              
              
              23PART II OTHER
      INFORMATIONItem 1.
              Legal
      Proceedings.
              
              
              25Item 1A.
              Risk
      Factors.
              
              
              25Item 6.
              Exhibits
              
              
              25Signatures
              
              
              26




i


PART I





Item
1. Financial Statements.




AVANTAIR,
INC. AND SUBSIDIARIES
 Condensed
Consolidated Balance Sheets
  ASSETS
 
 March
      31,
                        
                        
                        June
      30,2010
                        
                        
                        2009(Unaudited)
                        
                        
                        (Note
      2)CURRENT
      ASSETSCash
      and cash equivalents
                        
                        $
                        7,295,116
                        
                        
                        $
                        3,773,789Accounts
      receivable, net of allowance for doubtful accounts of  $154,146
      at March 31, 2010 and $187,842 at June 30, 2009
                        
                        
                        10,050,611
                        
                        
                        
                        5,711,055Inventory
                        
                        
                        142,671
                        
                        
                        
                        140,997Current
      portion of aircraft costs related to fractional share
sales
                        
                        
                        30,822,339
                        
                        
                        
                        36,910,206Notes
      receivable
                        
                        
                        -
                        
                        
                        
                        272,731Prepaid
      expenses and other current assets
                        
                        
                        2,750,274
                        
                        
                        
                        1,278,506Total
      current assets
                        
                        
                        51,061,011
                        
                        
                        
                        48,087,284Aircraft
      costs related to fractional share sales, net of current
      portion
                        
                        
                        47,913,319
                        
                        
                        
                        70,199,786Property
      and equipment, at cost, net of accumulated depreciation and amortization
      of $15,491,824 at March 31, 2010 and $11,695,228 at June 30,
      2009
                        
                        
                        23,702,343
                        
                        
                        
                        29,842,365OTHER
      ASSETSCash
      - restricted
                        
                        
                        2,357,721
                        
                        
                        
                        2,352,337Deposits
      on aircraft
                        
                        
                        8,075,850
                        
                        
                        
                        9,264,890Deferred
      maintenance on aircraft engines
                        
                        
                        696,150
                        
                        
                        
                        1,538,175Goodwill
                        
                        
                        1,141,159
                        
                        
                        
                        1,141,159Other
      assets
                        
                        
                        2,869,159
                        
                        
                        
                        1,639,407Total
      other assets
                        
                        
                        15,140,039
                        
                        
                        
                        15,935,968Total
      assets
                        
                        $
                        137,816,712
                        
                        
                        $
                        164,065,403


See
Notes to Condensed Consolidated Financial Statements.




1




AVANTAIR,
INC. AND SUBSIDIARIES
 Condensed
Consolidated Balance Sheets
  LIABILITIES AND STOCKHOLDERS'
DEFICIT
 
 March
      31,
                              
                              
                              June
      30,2010
                              
                              
                              2009(Unaudited)
                              
                              
                              (Note
      2)CURRENT
      LIABILITIESAccounts
      payable
                              
                              $
                              5,190,240
                              
                              
                              $
                              7,307,320Accrued
      liabilities
                              
                              
                              4,703,578
                              
                              
                              
                              5,010,745Customer
      deposits
                              
                              
                              2,660,003
                              
                              
                              
                              1,282,936Short-term
      debt
                              
                              
                              11,000,000
                              
                              
                              
                              11,500,000Current
      portion of long-term debt
                              
                              
                              4,474,649
                              
                              
                              
                              11,020,590Current
      portion of deferred revenue related to fractional aircraft share
      sales
                              
                              
                              35,680,102
                              
                              
                              
                              43,385,779Unearned
      management fee, flight hour card and Axis Club Membership
      revenues
                              
                              
                              27,242,328
                              
                              
                              
                              17,807,796Total
      current liabilities
                              
                              
                              90,950,900
                              
                              
                              
                              97,315,166Long-term
      debt, net of current portion
                              
                              
                              16,326,114
                              
                              
                              
                              20,111,011Deferred
      revenue related to fractional aircraft share sales, net of current
      portion
                              
                              
                              42,074,851
                              
                              
                              
                              65,071,197Deferred
      revenue related to Axis Club Membership sales, net of current
      portion
                              
                              
                              1,289,582
                              
                              
                              
                              333,271Other
      liabilities
                              
                              
                              2,734,972
                              
                              
                              
                              2,714,058Total
      long-term liabilities
                              
                              
                              62,425,519
                              
                              
                              
                              88,229,537Total
      liabilities
                              
                              
                              153,376,419
                              
                              
                              
                              185,544,703COMMITMENTS
      AND CONTINGENCIESSeries
      A convertible preferred stock, $.0001 par value, authorized 300,000
      shares; 152,000 shares issued and outstanding
                              
                              
                              14,595,574
                              
                              
                              
                              14,528,383STOCKHOLDERS'
      DEFICITPreferred
      stock, $.0001 par value, authorized 700,000 shares; none
      issued
                              
                              
                              -
                              
                              
                              
                              -Common
      stock, Class A, $.0001 par value, 75,000,000 shares authorized, 26,333,613
      shares issued and outstanding at March 31, 2010 and 16,463,615 shares
      issued and outstanding at June 30, 2009
                              
                              
                              2,633
                              
                              
                              
                              1,646Additional
      paid-in capital
                              
                              
                              56,912,815
                              
                              
                              
                              47,667,493Accumulated
      deficit
                              
                              
                              (87,070,729
                              )
                              
                              
                              (83,676,822
                              )Total
      stockholders' deficit
                              
                              
                              (30,155,281
                              )
                              
                              
                              (36,007,683
                              )Total
      liabilities and stockholders' deficit
                              
                              $
                              137,816,712
                              
                              
                              $
                              164,065,403




See
Notes to Condensed Consolidated Financial Statements.





2




AVANTAIR,
INC. AND SUBSIDIARIES
 Consolidated
Statements of Operations
 (Unaudited)
 
 Three Months Ended March 31,
                      
                      
                      Nine Months Ended March 31,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009RevenueFractional
      aircraft sold
                      
                      $
                      10,458,376
                      
                      
                      $
                      12,611,388
                      
                      
                      $
                      33,664,521
                      
                      
                      $
                      39,477,850Maintenance
      and management fees
                      
                      
                      18,329,491
                      
                      
                      
                      18,027,667
                      
                      
                      
                      54,594,085
                      
                      
                      
                      52,807,156Flight
      hour card and Axis Club Membership revenue
                      
                      
                      5,683,548
                      
                      
                      
                      2,904,058
                      
                      
                      
                      14,518,782
                      
                      
                      
                      6,502,851Other
      revenue
                      
                      
                      1,538,020
                      
                      
                      
                      1,109,582
                      
                      
                      
                      4,201,888
                      
                      
                      
                      3,955,678Total
      revenue
                      
                      
                      36,009,435
                      
                      
                      
                      34,652,695
                      
                      
                      
                      106,979,276
                      
                      
                      
                      102,743,535Operating
      expensesCost
      of fractional aircraft shares sold
                      
                      
                      8,958,823
                      
                      
                      
                      10,692,513
                      
                      
                      
                      28,636,220
                      
                      
                      
                      33,620,690Cost
      of flight operations
                      
                      
                      13,884,386
                      
                      
                      
                      12,792,261
                      
                      
                      
                      39,608,930
                      
                      
                      
                      37,001,228Vendor
      service reimbursement
                      
                      
                      -
                      
                      
                      
                      (2,951,867
                      )
                      
                      
                      -
                      
                      
                      
                      (2,951,867
                      )Gain
      on sale of assets
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (897,595
                      )
                      
                      
                      -Cost
      of fuel
                      
                      
                      3,558,323
                      
                      
                      
                      2,956,377
                      
                      
                      
                      10,610,995
                      
                      
                      
                      10,529,802General
      and administrative expenses
                      
                      
                      6,443,599
                      
                      
                      
                      5,962,230
                      
                      
                      
                      18,978,745
                      
                      
                      
                      17,451,537Selling
      expenses
                      
                      
                      1,348,546
                      
                      
                      
                      712,736
                      
                      
                      
                      3,715,491
                      
                      
                      
                      2,729,170Depreciation
      and amortization
                      
                      
                      1,314,870
                      
                      
                      
                      1,240,262
                      
                      
                      
                      4,181,661
                      
                      
                      
                      3,640,783Total
      operating expenses
                      
                      
                      35,508,547
                      
                      
                      
                      31,404,512
                      
                      
                      
                      104,834,447
                      
                      
                      
                      102,021,343Income
      from operations
                      
                      
                      500,888
                      
                      
                      
                      3,248,183
                      
                      
                      
                      2,144,829
                      
                      
                      
                      722,192Other
      income (expenses)Interest
      and other income
                      
                      
                      7,234
                      
                      
                      
                      13,711
                      
                      
                      
                      25,019
                      
                      
                      
                      41,120Interest
      expense
                      
                      
                      (1,281,626
                      )
                      
                      
                      (1,439,661
                      )
                      
                      
                      (4,492,399
                      )
                      
                      
                      (4,156,844
                      )Total
      other expenses
                      
                      
                      (1,274,392
                      )
                      
                      
                      (1,425,950
                      )
                      
                      
                      (4,467,380
                      )
                      
                      
                      (4,115,724
                      )Net
      income (loss)
                      
                      
                      (773,504
                      )
                      
                      
                      1,822,233
                      
                      
                      
                      (2,322,551
                      )
                      
                      
                      (3,393,532
                      )Preferred
      stock dividend and accretion of expenses
                      
                      
                      (364,189
                      )
                      
                      
                      (364,053
                      )
                      
                      
                      (1,138,547
                      )
                      
                      
                      (1,127,670
                      )Net
      income (loss) attributable to common stockholders
                      
                      $
                      (1,137,693
                      )
                      
                      $
                      1,458,180
                      
                      
                      $
                      (3,461,098
                      )
                      
                      $
                      (4,521,202
                      )Income
      (loss) per common share:Basic
      and diluted
                      
                      $
                      (0.04
                      )
                      
                      $
                      0.10
                      
                      
                      $
                      (0.15
                      )
                      
                      $
                      (0.30
                      )Weighted-average
      common shares outstanding:Basic
      and diluted
                      
                      
                      26,327,827
                      
                      
                      
                      15,289,929
                      
                      
                      
                      22,457,292
                      
                      
                      
                      15,297,410


See
Notes to Condensed Consolidated Financial Statements.





3




AVANTAIR,
INC. AND SUBSIDIARIES
 Condensed
Consolidated Statement of Changes in Stockholders' Deficit
 Nine
Months Ended March 31, 2010
 (Unaudited)
 
 Class A
                  
                  
                  Additional
                  
                  
                  
                  
                  
                  TotalCommon Stock
                  
                  
                  Paid-In
                  
                  
                  Accumulated
                  
                  
                  Stockholders'Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  DeficitBalance
      at June 30, 2009
                  
                  
                  16,463,615
                  
                  
                  $
                  1,646
                  
                  
                  $
                  47,667,493
                  
                  
                  $
                  (83,676,822
                  )
                  
                  $
                  (36,007,683
                  )Stock-based
      compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  287,902
                  
                  
                  
                  
                  
                  
                  
                  287,902Dividend
      on Series A convertible preferred stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,071,356
                  )
                  
                  
                  (1,071,356
                  )Accretion
      of issuance costs
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (67,191
                  )
                  
                  
                  
                  
                  
                  
                  (67,191
                  )Issuance
      of shares in connection with vested restricted stock, net of shares
      surrendered in lieu of payroll taxes
                  
                  
                  34,978
                  
                  
                  
                  3
                  
                  
                  
                  (15,810
                  )
                  
                  
                  
                  
                  
                  
                  (15,807
                  )Issuance
      of warrants in consideration for services rendered in private
      placement
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  209,708
                  
                  
                  
                  
                  
                  
                  
                  209,708Issuance
      of warrants in connection with operating lease obligation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  807,031
                  
                  
                  
                  
                  
                  
                  
                  807,031Sale
      of common stock in connection with private sale, net of expenses
      associated with registration of shares
                  
                  
                  9,835,020
                  
                  
                  
                  984
                  
                  
                  
                  8,023,682
                  
                  
                  
                  
                  
                  
                  
                  8,024,666Net
      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2,322,551
                  )
                  
                  
                  (2,322,551
                  )Balance
      at March 31, 2010
                  
                  
                  26,333,613
                  
                  
                  $
                  2,633
                  
                  
                  $
                  56,912,815
                  
                  
                  $
                  (87,070,729
                  )
                  
                  $
                  (30,155,281
                  )




See
Notes to Condensed Consolidated Financial Statements.





4




AVANTAIR,
INC. AND SUBSIDIARIES
 Condensed
Consolidated Statements of Cash Flows
 Nine
Months Ended March 31, 2010 and 2009
 (Unaudited)
 
 2010
                  
                  
                  2009OPERATING
      ACTIVITIES:Net
      loss
                  
                  $
                  (2,322,551
                  )
                  
                  $
                  (3,393,532
                  )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                  
                  
                  4,181,661
                  
                  
                  
                  3,640,783Amortization
      of deferred interest related to capital lease obligation
                  
                  
                  286,426
                  
                  
                  
                  -Stock-based
      compensation
                  
                  
                  287,902
                  
                  
                  
                  292,207Gain
      on sale of assets
                  
                  
                  (897,595
                  )
                  
                  
                  -Bad
      debt expense (recoveries)
                  
                  
                  33,696
                  
                  
                  
                  (28,672
                  )Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (4,373,252
                  )
                  
                  
                  641,296Inventory
                  
                  
                  (1,674
                  )
                  
                  
                  127,219Deposits
      on aircraft
                  
                  
                  1,189,040
                  
                  
                  
                  (434,647
                  )Deferred
      maintenance agreement on aircraft engines
                  
                  
                  842,025
                  
                  
                  
                  560,932Prepaid
      expenses and other current assets
                  
                  
                  (1,471,768
                  )
                  
                  
                  1,294,499Notes
      receivable
                  
                  
                  272,731
                  
                  
                  
                  1,419,447Aircraft
      costs related to fractional shares
                  
                  
                  28,374,336
                  
                  
                  
                  15,816,828Other
      assets
                  
                  
                  (422,721
                  )
                  
                  
                  473,600Accounts
      payable
                  
                  
                  (2,072,980
                  )
                  
                  
                  (744,357
                  )Accrued
      liabilities
                  
                  
                  (1,394,330
                  )
                  
                  
                  (2,253,761
                  )Unearned
      management fee, flight hour card and Axis Club Membership
      revenue
                  
                  
                  8,677,905
                  
                  
                  
                  (467,923
                  )Cash-restricted
                  
                  
                  (5,384
                  )
                  
                  
                  243,077Customer
      deposits
                  
                  
                  1,377,067
                  
                  
                  
                  (1,437,610
                  )Deferred
      revenue related to fractional aircraft share sales
                  
                  
                  (30,702,026
                  )
                  
                  
                  (24,291,549
                  )Deferred
      revenue related to Axis Club Membership sales
                  
                  
                  1,573,188
                  
                  
                  
                  117,639Other
      liabilities
                  
                  
                  20,915
                  
                  
                  
                  157,285Net
      cash provided by (used in) operating activities
                  
                  
                  3,452,611
                  
                  
                  
                  (8,267,239
                  )INVESTING
      ACTIVITIES:Proceeds
      from the sale of asset
                  
                  
                  2,900,000
                  
                  
                  
                  -Capital
      expenditures
                  
                  
                  (151,015
                  )
                  
                  
                  (623,020
                  )Net
      cash provided by (used in) investing activities
                  
                  
                  2,748,985
                  
                  
                  
                  (623,020
                  )FINANCING
      ACTIVITIES:Borrowings
      under long- term debt
                  
                  
                  56,614
                  
                  
                  
                  -Borrowings
      under short- term debt
                  
                  
                  -
                  
                  
                  
                  6,325,000Principal
      payments on long-term debt
                  
                  
                  (10,471,257
                  )
                  
                  
                  (4,908,599
                  )Principal
      payments on short-term debt
                  
                  
                  (500,000
                  )
                  
                  
                  (5,741,150
                  )Proceeds
      from issuance of stock, net of cost of stock
      redemption/registration
                  
                  
                  8,234,374
                  
                  
                  
                  (1,865
                  )Net
      cash used in financing activities
                  
                  
                  (2,680,269
                  )
                  
                  
                  (4,326,614
                  )





5




AVANTAIR,
INC. AND SUBSIDIARIES
 Condensed
Consolidated Statements of Cash Flows
 Nine
Months Ended March 31, 2010 and 2009
 (Unaudited)
 
 2010
                  
                  
                  2009Net
      increase (decrease) in cash and cash equivalents
                  
                  $
                  3,521,327
                  
                  
                  $
                  (13,216,873
                  )Cash
      and cash equivalents, beginning of the period
                  
                  
                  3,773,789
                  
                  
                  
                  19,149,777Cash
      and cash equivalents, end of the period
                  
                  $
                  7,295,116
                  
                  
                  $
                  5,932,904SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
                  
                  $
                  4,492,399
                  
                  
                  $
                  4,156,844SUPPLEMENTAL
      DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIESAccretion
      of Series A convertible preferred stock
                  
                  $
                  67,191
                  
                  
                  $
                  66,778Dividends
      payable on Series A convertible preferred stock
                  
                  $
                  1,071,356
                  
                  
                  $
                  1,060,892Flight
      hour cards issued in consideration for equipment
                  
                  $
                  139,570
                  
                  
                  $
                  -Common
      shares surrendered in lieu of payroll taxes
                  
                  $
                  15,810
                  
                  
                  $
                  5,084Issuance
      of warrants to underwriter in connection with private sale of common
      stock
                  
                  $
                  209,708
                  
                  
                  $
                  -Issuance
      of warrants to Lorne Weil in connection with aircraft
      agreement
                  
                  $
                  807,031
                  
                  
                  $
                  -Reversal
      of accrued expense
                  
                  $
                  44,100
                  
                  
                  $
                  -


See
Notes to Condensed Consolidated Financial Statements.


6





AVANTAIR,
INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(Unaudited)





NOTE
1 - BUSINESS OPERATIONS




General




Avantair,
Inc. (formerly known as Ardent Acquisition Corporation) (“Avantair” 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
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”). On February 22, 2007, the stockholders of Avantair voted in favor
of the Reverse Merger. On February 22, 2007, upon the closing of the reverse
acquisition of Ardent Acquisition Corp., the Company received approximately
$36.3 million. For further details on this reverse acquisition, refer to the
audited consolidated financial statements and the notes thereto included in the
Company’s Annual Report on Form 10-K for the fiscal year ended June 30,
2009.




Avantair
is engaged in the sale of fractional ownership interests and flight hour card
usage of professionally piloted aircraft for personal and business use and the
management of its aircraft fleet. According to AvData, Avantair is the fifth
largest company in the North American fractional aircraft industry. As of March
31, 2010, Avantair operated 55 aircraft within its fleet, which is comprised of
46 aircraft for fractional ownership, 5 company owned core aircraft and 4 leased
and company managed aircraft. Avantair also operates fixed flight based
operations (FBO) in Camarillo, California and effective August 1, 2008, in
Caldwell, New Jersey. Through these FBOs and its headquarters in Clearwater,
Florida, Avantair provides aircraft maintenance, concierge and other services to
its customers as well as to the Avantair fleet.




NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Interim
Reporting




The
accompanying unaudited interim condensed consolidated financial statements were
prepared in accordance with accounting principles generally accepted in the
United States of America and the interim condensed financial statement rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, these statements included all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the condensed
consolidated financial statements. The interim condensed operating results are
not necessarily indicative of the results for a full year or any interim period.
The June 30, 2009 consolidated balance sheet has been derived from the audited
consolidated financial statements included in the Company’s Annual Report on
Form 10-K for the fiscal year ended June 30, 2009.





Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations relating to interim financial statements. These condensed
consolidated financial statements should be read in conjunction with the
Company’s Annual Report on Form 10-K for the fiscal year ended June 30,
2009.





Basis
of Presentation





All
material intercompany accounts and transactions have been eliminated in the
condensed consolidated financial statements.




The
accompanying condensed 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 March
31, 2010, the Company’s recurring losses resulting in a stockholders’ deficit of
approximately $30.2 million and a working capital deficiency of approximately
$39.9 million. The Company’s primary sources of operating funds are the
collection of management and maintenance fees from fractional share owners as
well as the sale of fractional ownership shares, flight hour cards and effective
January 2009, Axis Club Memberships. Sales by product category
follow:


7


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


Avantair’s
primary growth strategy is to continue to increase the number of fractional
share owners and aircraft under management as well as increase the number of
flight hour cards and Axis Club Memberships sold. At March 31, 2010, the Company
had 29 fractional aircraft shares available for sale. In addition to the cost of
acquiring aircraft, Avantair’s primary expenses are related to fuel, aircraft
repositioning (i.e., moving an aircraft to another location to accommodate a
customer’s need and for demonstration flights for sales purposes), maintenance,
charters and insurance. To finance its growth strategy, the Company may continue
to actively pursue additional funds through equity financing, including the sale
of additional shares of common and preferred stock, asset sales, accelerated
collection of maintenance and management fees, debt financing, or a combination
thereof. At March 31, 2010, the Company had approximately $7.3 million of
unrestricted cash on hand and assuming there is no change in sales and expense
trends experienced since the fourth quarter of fiscal 2009, the Company believes
that its cash on hand is sufficient to continue operations for the foreseeable
future.





FASB Codification
Discussion




The
Company follows accounting standards set by the Financial Accounting Standards
Board, commonly referred to as the “FASB.” The FASB sets generally accepted
accounting principles (GAAP) that the Company follows to ensure the Company
consistently report its financial condition, results of operations, and cash
flows.  Over the years, the FASB and other designated GAAP-setting
bodies, have issued standards in the form of FASB Statements, Interpretations,
FASB Staff Positions, EITF consensuses, AICPA Statements of Position,
etc.




The FASB
recognized the complexity of its standard-setting process and embarked on a
revised process in 2004 that culminated in the release on July 1, 2009, of the
FASB Accounting Standards Codification, sometimes referred to as the
Codification or ASC. The Codification does not change how the Company accounts
for its transactions or the nature of related disclosures made. However, when
referring to guidance issued by the FASB, the Company now also refers to topics
in the ASC. The above change was made effective by the FASB for periods ending
on or after September 15, 2009. The Company updated references to GAAP to
reflect the guidance in the Codification.




Use
of Estimates




The
preparation of financial statements in conformity with U.S. GAAP requires
management to make certain estimates and assumptions that affect the amounts
reported in the condensed 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 condensed consolidated financial statements will change as new events
occur, as more experience is acquired, as additional information is obtained and
as the Company’s operating environment changes. Changes in estimates are made
when circumstances warrant. Such changes in estimates and refinements in
estimation methodologies are reflected in reported results of operations; if
material, the effects of changes in estimates are disclosed in the notes to the
condensed consolidated financial statements. Significant estimates and
assumptions by management affect: the proper recording of revenue arrangements
with multiple deliverables, the allowance for doubtful accounts, the carrying
value of long-lived assets, the amortization period of long-lived assets, the
provision for (benefit from) income taxes and related deferred tax accounts,
certain accrued expenses and contingencies, warrant valuations and the ability
to continue as a going concern.




Revenue
Recognition




Avantair
is engaged in the sale and management of fractional ownerships of professionally
piloted aircraft for personal and business use and access to its aircraft fleet
through either 15 or 25 hour flight hour cards (either individually or through
the Company’s Axis Club Membership program). In the case of fractional ownership
sales, the aircraft are sold in one-sixteenth shares or multiples thereof. The
purchase agreement grants the customer an undivided interest in a specified
aircraft. When a customer purchases a fractional share, they are also required
to enter into a five-year management and maintenance agreement which grants the
customer the right to the use of the aircraft for a specified number of hours
each year. Under the terms of the maintenance and management agreement, the
Company agrees to manage, operate and maintain the aircraft on behalf of the
customer in exchange for a fixed monthly fee. Flight hour cards provide
customers with a fixed number of flight hours for a fixed fee.


8


Fractional
Aircraft Shares Sales




The
Company does not have objective evidence to determine the fair value and
allocate fractional share revenue from that generated from the management and
maintenance agreement, and, as a result, has adopted the provisions of ASC
605-25“Multiple- Element
Arrangements” to account for the sale of fractional shares of aircraft.
Accordingly, as the sales of the fractional shares cannot be separated from the
underlying management and maintenance agreement, fractional share sale revenue
is recognized ratably over the five-year life of the management and maintenance
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 with
fractional share owners is recognized ratably over the term of the agreement,
usually five years. If a customer prepays its management and maintenance fee for
a period of one year or longer, the prepayment is recorded as unearned revenue
and amortized into revenue on a monthly basis in accordance with the schedule
provided for within each agreement.




Flight
hour card and Axis Club Membership Revenue





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




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




Other
Revenues




Other
revenues are comprised primarily of revenue from demonstration flights, revenue
from the sale of fuel at the Company’s FBO facilities and revenue from the
rental of hangar space at the Company’s operating locations. Revenue from fuel
sales and hangar rentals are recorded when goods are delivered or services are
rendered. Demonstration revenue is earned as the Company charges prospective
fractional share owners on an hourly basis for each hour the prospective share
owners are flown to demonstrate the quality and capabilities of the aircraft.
The Company recognizes revenue related to these demonstration flights when the
flight is completed.




Aircraft
Costs Related To Fractional Sales




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




Maintenance
Expense Policy




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




Prepaid
Pilot Training




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


9




Income
Taxes




Income
taxes are accounted for under the asset and liability method in accordance with
ASC 740“Income Taxes.”
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is established to reduce deferred tax
assets to the amounts expected to be realized. The Company calculated an annual
effective tax rate to determine the interim period income tax provisions;
however, no tax liability was accrued for the three months ended March 31, 2010,
as the Company expects to have sufficient operating loss and tax credit
carryforwards to cover any taxable income.




Effective
July 1, 2007, the Company adopted the provisions of the ASC 740 relating to
uncertain tax positions. ASC 740 prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. For those benefits
to be recognized, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. The Company has identified its federal
tax return and State of Florida tax return as “major” tax jurisdictions, as
defined in ASC 740. The Company evaluations were performed for the tax years
ended 2005 through 2009. The Company believes that its income tax positions and
deductions would be sustained on audit and does not anticipate any adjustments
that would result in a material change to its financial position. The Company
recognizes accrued interest and penalties related to unrecognized tax benefits
as income tax expense.




Stock-Based
Compensation




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




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




Stock-based
compensation expense related to these plans, which is included in “General and
administrative” costs in the accompanying Condensed Consolidated Statements of
Operations, was $97,856 and $287,902 for the three and nine months ended March
31, 2010 and was $95,708 and $287,124 for the three and nine months ended March
31, 2009, respectively. There were no related income tax benefits recognized in
the accompanying Condensed Consolidated Statements of Operations for the three
or nine months ended March 31, 2010 or for the comparable 2009 period. In
September 2009, by recommendation of the Compensation Committee and approval by
the Board of Directors, 25,000 shares of restricted stock were granted to each
of the Company's three named executive officers, effective October 1, 2009.
One-third of the shares will vest one year following the grant date, and
one-twelfth of the shares vest every three months thereafter. As of March 31,
2010, the Company had 309,834 shares of restricted stock and 150,000 stock
options outstanding. The Company made no stock option grants nor issued warrants
pursuant to the Plan during the three months ended March 31, 2010.




Accounting
for Derivative Instruments




The
Company accounts for derivative instruments in accordance with ASC 815“Derivatives & Hedging,”
which establishes accounting and reporting standards for derivative instruments
and hedging activities, including certain derivative instruments embedded in
other financial instruments or contracts. The Company also considers ASC 815,
which provides criteria for determining whether freestanding contracts that are
settled in a company’s own stock, including common stock warrants, should be
designated as either an equity instrument, an asset or as a liability under ASC
815. The Company evaluates the conversion feature embedded in its Series A
Convertible Preferred Stock at each reporting period based on the criteria of
ASC 815 to determine whether the conversion feature would be required to be
bifurcated from the Preferred Stock and accounted for separately as a
derivative. Based on management’s evaluation, the embedded conversion feature
did not require bifurcation and derivative accounting as of March 31,
2010.


10




Fair
Value Measurements




Effective
July 1, 2008, the Company adopted the provisions of ASC 820“Fair Value Measurements and
Disclosures.” ASC 820, defines fair value, establishes a framework for
measuring fair value in accordance with U.S. GAAP, and expands disclosures about
fair value measurements. ASC 820 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. ASC
820 permits an entity to measure certain financial assets and financial
liabilities at fair value with changes in fair value recognized in earnings each
period. During the nine months ended March 31, 2010, the Company has elected not
to use the fair value option permitted under ASC 820 for any of its financial
assets and financial liabilities that are not already recorded at fair
value.




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




Income
(loss) Per Share




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




For the
three and nine months ended March 31, 2010, a total of 3,103,438
share-equivalents of potentially dilutive securities were excluded from the
calculation of diluted earnings per share. These securities were comprised of
2,373,620 warrants issued in conjunction with the LW Air transactions to Lorne
Weil, 455,887 warrants issued to EarlyBirdCapital in consideration for services
rendered as placement agent for the Company’s June, September and October 2009
private placements and 150,000 options to purchase shares of common stock were
outstanding during the periods but were not included in the computation of
diluted earnings per share because the options’ exercise prices were greater
than the average market price of the common shares, and therefore, their effect
would be anti-dilutive as calculated under the treasury method promulgated by
ASC 260“Earnings Per
Share.” In accordance with ASC 260’s contingently issuable shares
provision, 123,931 shares of performance-based, unvested common stock awards
(“restricted stock”) granted were not included in the calculation because all
the necessary conditions for vesting had not been satisfied.





For the
three months ended March 31, 2009, a total of 15,281,013 share-equivalents of
potentially dilutive securities were excluded from the calculation of diluted
earnings per share. These securities were comprised of 150,000 options to
purchase shares of common stock and 300,000 unit purchase options (with each
unit consisting of one share and two warrants that expired February 23, 2010)
which were outstanding during the periods but were not included in the
computation of diluted earnings per share because the options’ exercise prices
were greater than the average market price of the common shares, and therefore,
their effect would be anti-dilutive as calculated under the treasury method
promulgated by ASC 260“Earnings Per Share.” In accordance with ASC 260’s contingently issuable
shares provision, 85,013 shares of performance-based, unvested common stock
awards (“restricted stock”) granted were not included in the calculation because
all the necessary conditions for vesting had not been satisfied. In addition,
14,146,000 warrants to purchase shares of the Company’s common stock were not
included in the calculation of diluted earnings per share as they were
antidilutive and expired on February 23, 2009. For the nine months ended March
31, 2009, a total of 15,281,013 share-equivalents of potentially dilutive
securities were excluded from the calculation of diluted loss per share which
were comprised of 14,146,000 warrants to purchase shares of the Company’s common
stock, 85,013 shares of restricted stock, 300,000 unit purchase options (with
each unit consisting of one share and two warrants that expired February 23,
2010) and 150,000 outstanding options since the effect of outstanding options
and warrants is antidilutive due to the losses incurred by the
Company.





Subsequent
Events




Effective
July 1, 2009, the Company adopted the provisions of ASC 855 “Subsequent Events,”
which established principles and standards related to the accounting for and
disclosure of events that occur after the balance sheet date but before the
financial statements are issued. ASC 855 requires an entity to recognize, in the
financial statements, subsequent events that provide additional information
regarding conditions that existed at the balance sheet date. Subsequent events
that provide information about conditions that did not exist at the balance
sheet date shall not be recognized in the financial statements under ASC 855.
Management has evaluated subsequent events through May 13, 2010.





Reclassifications




Certain
balances in the prior periods were reclassified to conform to classifications
adopted in the current period.


11




Recently
Issued Pronouncements




In
November 2008, the FASB issued an ASC which enhances the disclosure requirements
for separating disclosing information related to individually significant
arrangements and disclosing the qualitative and quantitative information on an
aggregate basis. This new guidance applies prospectively to revenue arrangements
entered into or materially modified in fiscal years beginning on or after
December 15, 2009. The accounting standard was subsequently codified into ASC
605-25. The Company is currently evaluating the requirements of ASC 605-25 and
its impact on its condensed consolidated financial condition, results of
operations and cash flows.




In June
2009, the FASB issued additional guidance related to financial instrument
transfers Accounting Standards Update (“ASU”) (2009-16, Transfers and Servicing (Topic 860):
Accounting for Transfers of Financial Assets) and evaluation of VIEs for
consolidation (ASU 2009-17, Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities). The guidance is effective for the first quarter of
calendar year 2010:





·
            The
      financial instrument transfer guidance eliminates the concept of a “QSPE,”
      eliminates the guaranteed mortgage securitization exception, changes the
      criteria for achieving sale accounting when transferring a financial asset
      and changes the initial recognition of retained beneficial interests. The
      guidance also requires additional disclosures about transfers of financial
      assets, including securitized transactions, as well as a company’s
      continuing involvement in transferred financial assets. The Company is
      currently evaluating the adoption of this guidance and its impact on its
      condensed consolidated financial condition, results of operations and cash
      flows.





·
            The
      consolidation guidance relating to VIEs changes the determination of the
      primary beneficiary of a VIE from a quantitative model to a qualitative
      model. Under the new qualitative model, the primary beneficiary must have
      both the ability to direct the activities of the VIE and the obligation to
      absorb either losses or gains that could be significant to the VIE. The
      guidance also changes when reassessment is needed, as well as requires
      enhanced disclosures, including the effects of a company’s involvement
      with the VIEs on its financial statements. The Company is currently
      evaluating the adoption of this guidance and its impact on its
      consolidated financial condition, results of operations and cash flows.
      Subsequently, this guidance was indefinitely deferred for an interest in
      an entity that has the attributes of an investment company or for which it
      is industry practice to apply measurement principles for financial
      reporting purposes that are consistent with those followed by investment
      companies (ASU 2010-10, Consolidation (Topic 810):
      Amendments to Statement 167 for Certain Investment
      Funds).





In
October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue
Arrangements,”which is effective for fiscal years beginning on or after
June 15, 2010, with early adoption permitted. Under the new guidance, when
vendor specific objective evidence or third party evidence for deliverables in
an arrangement cannot be determined, a best estimate of the selling price is
required to separate deliverables and allocate arrangement consideration using
the relative selling price method. The new guidance includes new disclosure
requirements on how the application of the relative selling price method affects
the timing and amount of revenue recognition. The Company is currently
evaluating the adoption of this guidance and its impact on its condensed
consolidated financial condition, results of operations and cash
flows.





In
January 2010, the FASB issued new guidance that requires new disclosures about
significant transfers in and/or out of Levels 1 and 2 of the fair value
hierarchy and activity in Level 3 ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements). In addition, this guidance provides clarification of
existing disclosure requirements about (a) level of disaggregation and (b)
inputs and valuation techniques. The update is effective for the first quarter
of calendar year 2010. The Company is currently evaluating the adoption of this
guidance and its impact on its condensed consolidated financial condition,
results of operations and cash flows.





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


12


NOTE
3 – VENDOR SERVICE REIMBURSEMENT





In
January 2009, the Company replaced a former engine service vendor with another
nationally recognized, FAA certified engine maintenance vendor. The service
contracts with both the former and successor engine service vendors transferred
risk. Accordingly, the Company’s policy for engine maintenance is to record the
expense as incurred. As a result of the termination of the arrangement with the
former service provider, the Company realized a $2.9 million reduction in
maintenance expense which was credited to cost of flight operations during the
third quarter of fiscal year 2009, of which approximately $2.0 million of the
credit was related to expenses recorded in the first six months of fiscal year
2009.





NOTE
4 - COMMITMENTS AND CONTINGENCIES




Operating
Lease Commitments





The
Company conducts a major part of its operations from leased facilities, which
include airplane hangars and administrative offices. The 15 year hangar lease in
Clearwater, Florida 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 flight
based operation in Camarillo, California expiring in 2021 and a 10 year lease
for its fixed flight based operation in Caldwell, New Jersey expiring in 2018,
which are classified as operating leases.





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





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





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




Purchase
Commitments





On June
20, 2008, Avantair assigned its rights and obligations to purchase twenty
Embraer Phenom 100 (“Phenom 100”) aircraft positions to Share 100 Holding Co.,
LLC (“Share 100”), a wholly-owned subsidiary of Avantair. On the same date,
Avantair entered into a membership interest purchase agreement with Executive
Air Shares Corporation (EAS), in which EAS purchased the Class A membership of
Share 100 and Avantair retained the Class B membership. EAS, as Class A member,
has the rights and obligations to purchase the Phenom 100 aircraft with
positions one through eighteen and to fund payment due in connection with these
aircraft. EAS paid Share 100 approximately $2.47 million in connection with
these transactions and made an additional $750,000 capital contribution to Share
100 in December 2008, all of which was, immediately distributed to Avantair.
Avantair, as Class B member, has the rights and obligations to purchase 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
March 31, 2010, Avantair had contractual commitments to purchase 52 additional
Piaggio Avanti II aircraft through 2013. The total commitment, including a
recently proposed price escalation, is valued at approximately $330
million.





Financing
Commitments- Short-term





Short-term
debt consists of the following as of March 31, 2010:





Midsouth
      Services, Inc (“Midsouth”)
                
                $
                11,000,000




13


Midsouth
Services, Inc





On April
2, 2009, Avantair entered into two Floor Plan Agreements with Midsouth Services,
Inc (“Midsouth”) to replace Midsouth’s existing Floor Plan Agreements dated July
31, 2008.  The new Floor Plan Agreements extended credit to Avantair
in an increased amount of $11.6 million to be used towards the purchase of new
Piaggio P-180 aircraft.  Each of the new Floor Plan Agreements are
similar to the prior Floor Plan Agreements and cover an amount not to exceed
$5.8 million for a term of twelve months.  The Company has the sole
option to terminate one of the Agreements during the term with ninety days
written notice.  The Company has agreed to pay Midsouth a monthly fee
of $82,500 for each Floor Plan Agreement during the term. Borrowings outstanding
under this arrangement at March 31, 2010 totaled $11.0 million.




Financing Commitments-
Long-term





Long-term
debt consists of the following as of March 31, 2010:




Wells
      Fargo Equipment Finance, Inc.
                
                $
                2,786,824Jet
      Support Services, Inc.
                
                
                2,271,925Century
      Bank, F.S.B.
                
                
                1,797,637Wachovia
      Bank
                
                
                2,220,935Other
      long-term debt
                
                
                39,951Midsouth
      Services, Inc
                
                
                11,683,49120,800,763Less
      current portion
                
                
                (4,474,649
                )Long-term
      debt
                
                $
                16,326,114




Wells
Fargo Equipment Finance, Inc.





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




Jet
Support Services, Inc.





On April
24, 2006, Avantair financed an aircraft maintenance program contract with Jet
Support Services, Inc. (“JSSI”) in the amount of $3.4 million. The promissory
note provided for seven monthly installments of $145,867 and 53 monthly
installments of $45,867, respectively, including interest at 7.0% per year. On
April 15, 2008, the Company entered into a financing arrangement with JSSI by
means of a $5.5 million promissory note. The new note matures on April 1,
2011 and bears interest at 10.0% per annum, with 35 monthly payments of
principal and interest in an amount of $185,127 beginning on June 2, 2008.
The new note covered the remaining balance of $0.4 million of the aforementioned
promissory note, other costs and fees to be paid by the Company under service
agreements with JSSI and related deferred financing costs of approximately $1.0
million which will be amortized over the life of the note using the effective
interest method. Upon entering into this payment arrangement and the $5.5
million promissory note, the parties terminated the airframe maintenance
contract and have agreed to apply the unamortized prepayment ($1,319,368 at
December 31, 2009 and $1,538,175 at June 30, 2009) under the airframe
maintenance contract to the engine maintenance program and will amortize this
amount over the remaining 37 month term of that program.  Borrowings
outstanding under this arrangement at March 31, 2010 totaled approximately $2.3
million.





Century
Bank, F.S.B.





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





Wachovia
Bank





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


14


Other
long-term debt





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





Capital
Lease Transactions





Midsouth Services,
Inc.





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





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





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





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





NOTE
5 – EQUITY TRANSACTIONS




On June
30, 2009, Avantair sold 567,200 units at a price of $2.50 per unit to investors
in a private placement, generating net proceeds of approximately $1.3 million.
Each unit consisted of two shares of common stock and one warrant to purchase
one common share. The warrants had an exercise price of $4.00 per share and were
exercisable until June 30, 2012. The sale was consummated under the terms of a
Securities Purchase Agreement between Avantair and each of the investors.
Pursuant to a registration rights agreement, Avantair agreed to use it best
efforts to register the shares issued to the investors and the shares underlying
the warrants issued to the investors for sale under the Securities Act of 1933,
as amended. By agreement between Avantair, the investors in the June 30, 2009
private placement and that offering’s placement agent, the period for
additional sales of units was extended until October 15, 2009. On September 25,
2009, the Company sold an additional 250,000 units at a price of $2.50 per unit
generating net proceeds of approximately $0.6 million.
 
 In
October 2009, the Company sold 8,818,892 shares of common stock to new investors
at a price per share of $0.95 for net proceeds of approximately $8 million
pursuant to the October 16, 2009 Securities Purchase and Exchange Agreement. In
addition, pursuant to the October 16, 2009 Securities Purchase and Exchange
Agreement, on October 19, 2009 the Company exchanged the 817,200 outstanding
warrants that had been issued to existing investors in the June and September
2009 private placements for an aggregate of 516,127 shares of common stock for
no additional consideration.  The October 2009 Securities Purchase and
Exchange Agreement terminated the Securities Purchase and Registration Rights
Agreement entered into in connection with the June and September 2009 private
placements. Subsequent to the closing of the September private placement, the
terms of the offer were modified from the price of $2.50 per unit in the first
and second private placements to conform to the price in the October private
placement of $0.95 per common share.  The exchange represents the
equivalent number of shares necessary to cause the per share price paid in the
June and September private placements to equal the price per share in the
October private placement.  The exchange was recorded at its fair
value as an adjustment to paid-in capital and common stock for its par
value.
 
 In
connection with the October 2009 private placement, Avantair entered into a
newRegistration
Rights Agreement with the investors inthe June, September and
October private placements. The October 2009 Registration Rights Agreement
requires the Company promptly, but not later than 30 days after the closing, to
file a registration statement registering for sale the shares issued to the
investors and to cause the registration statement to be declared effective on or
prior to the 150th day after the filing date, as the Company’s registration
statement is being reviewed by the SEC. Under the terms of the Registration
Rights Agreement, the Company is obligated to maintain the effectiveness of the
sale registration statement until all securities registered thereunder are sold
or otherwise can be sold pursuant to Rule 144, without restriction. The Company
is required to pay to each investor an amount in cash each month, as partial
liquidated damages, equal to 1.5% of the aggregate purchase price paid by such
investor in the event of failure (i) to file the registration statement or (ii)
to cause the registration statement to be declared effective, in each case by
the date described in the Registration Rights Agreement, for so long as such
failure continues.In the opinion of
management, the Company believes that the registration statement will be
declared effective on or prior to the 150th day and
therefore has not accrued any liquidated damages.
  On
October 16, 2009, pursuant to an agreement between EarlyBirdCapital, Inc. and
the Company, in consideration for services rendered as placement agent for the
Company’s June, September and October 2009 private placements, the Company
issued to EarlyBirdCapital, Inc. and its affiliates 455,887 fully vested
warrants which expire on June 30, 2012. Each warrant permits the holder to
purchase one share of the Company’s common stock at an exercise price of $1.05
per share. The shares issuable upon exercise of the warrants are entitled to
registration rights under the October 2009 Registration Rights Agreement. The
Company may redeem the warrants at any time on or after October 16, 2011 at the
price of $0.01 per warrant, provided that the volume weighted average price of
the Company’s common stock has been at least 200.0% of the exercise price of a
warrant for any twenty trading days during any consecutive thirty trading day
period ending on the third trading day preceding the date of the notice of
redemption. The fair value of the warrants calculated in accordance with ASC 820
estimated at $0.46 will be charged to additional paid-in capital. The fair
values of the warrants issued were estimated on the date of grant. A Lattice
option-pricing model, applying the following assumptions, was used to estimate
the fair value for the warrants issued:
  Stock
      Price (1)
                
                $
                1.15Exercise
      Price (2)
                
                $
                1.05Interest
      Rate (1)
                
                
                1.34
                %
                (4)Volatility
                
                
                79.93
                %Time
      to Maturity (2)
                
                2.71
      yearsNumber
      of Steps (3)
                
                
                12Exercise
      Factor
                
                
                2.00Minimum
      Market Price
                
                $
                2.10
 (1)
      As of the Valuation Date(2)
      Per warrant agreement(3)
      Number of quarterly periods in the 2.71 year term.(4)
      Based on vesting period on date of grant.
  15
 The
warrants issued in conjunction with the LW Air transactions (see Note 4) to
Lorne Weil, Managing Member of LW Air, provide for the purchase of 2,373,620
shares of the Company’s common stock at an exercise price of $1.25 per share.
The warrants expire on October 16, 2012, and the warrants and any underlying
shares purchased upon exercise of the warrants may not be sold, transferred,
assigned or hypothecated, in whole or in part, at any time on or prior to
October 16, 2011, other than to an affiliate of the warrant holder. The Company
may redeem the warrants held by Lorne Weil at any time on and after October 16,
2011 at the price of $0.01 per warrant, provided that the volume weighted
average price of the Company’s common stock has been at least 300.0% of the
exercise price of a warrant for any twenty trading days during any consecutive
thirty trading day period ending on the third trading day preceding the date of
the notice of redemption. On December 15, 2009, LW Air took delivery of the
fourth aircraft and, as such, has satisfied the conditions for vesting of all
the warrants. The Company will account for the LW Air transaction and the
issuance of the warrants by recording the charges paid to the owner (including
the fair value of the warrants calculated in accordance with ASC 820 estimated
at $0.34 per warrant) to the Cost of Flight Operations on a straight-line basis
ratably over the initial term of the agreement. The fair values of the warrants
issued were estimated on the date of grant. A Lattice option-pricing model,
applying the following assumptions, was used to estimate the fair value for the
warrants issued:
  Stock
      Price (1)
                
                $
                1.15Exercise
      Price (2)
                
                $
                1.25Interest
      Rate (1)
                0.015%
      and 0.066%Volatility
                
                
                78.89
                %
                (4)Time
      to Maturity (2)
                
                3
      yearsNumber
      of Steps (3)
                
                
                156Suboptimal
      Exercise Factor
                
                
                3.00Minimum
      Market Price
                
                $
                3.75
 (1)
      As of the Valuation Date(2)
      Per warrant agreement(3)
      Number of weeks in a 52 week year over a 3 year period.(4)
      Based on vesting period of one and nine weeks.
 
 Due to
its limited history as a public company, the Company has estimated expected
volatility for the EarlyBirdCapital, Inc and Lorne Weil warrant valuations based
on the historical volatility of certain similar companies. The risk-free
interest rate assumptions are based upon observed interest rates appropriate for
the expected term of the warrants.


NOTE
6 – RELATED PARTY TRANSACTIONS
 
 The
following is a summary of a transaction entered into since July 1, 2009, to
which the Company has been a party in and in which any of the Company’s
executive officers, directors or beneficial holders of more than 5% of its
capital stock had or will have a direct or indirect material
interest.
 
 In March
2010, Avantair granted 3,000 shares of restricted stock to each of its six
non-employee directors of the Company’s Board of Directors. The restricted
shares granted to the director’s vest one third upon each of the next three
successive annual meetings, subject to the grantee’s continued service on the
Board of Directors.
 
 NOTE
7 – SUBSEQUENT EVENTS
 
 In April
2010, upon approval from the Board of Directors, the Company issued a total of
626,100 stock options to each Company employee (other than its Executive
Officers) with each receiving a specified number of stock options. The fair
value of each stock option granted to employees will be estimated as of the date
of grant. A Black-Scholes option-pricing model will be applied following certain
weighted average assumptions, to estimate the fair value for employee stock
options issued. Future stock-based compensation expense will be included in
general and administrative expenses on the accompanying consolidated statement
of operations. All options granted under the Plan are accounted for in
accordance with ASC 718.


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




16





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





Overview




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




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




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




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




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




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




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


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




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


17





Critical
Accounting Policies and Estimates





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





Revenue
Recognition




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




Fractional
Aircraft Shares Sales




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




Aircraft
Costs Related To Fractional Sales




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




Maintenance
Expense Policy




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




Stock-Based
Compensation




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


18




Results
of Operations




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





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




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





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





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





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





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





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


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





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





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





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





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


19





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





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




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




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





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





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





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





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





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





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





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





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


20


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





Liquidity
and Capital Resources





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




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




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





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





Financing
Arrangements





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





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





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




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


21





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





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





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





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





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





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





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





Off-Balance
Sheet Arrangements





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


22





Item 3. 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 Wachovia Bank. 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 March 31, 2010, the liabilities of
Avantair with exposure to interest rate risk were approximately $2.2
million.




Item
4T. Controls and Procedures.




Evaluation
of Disclosure Controls and Procedures





As of
March 31, 2010, under the direction of the Chief Executive Officer and Chief
Financial Officer, the Company evaluated the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rule 13a —
15(e) under the Securities Exchange Act of 1934, as amended. Based on the
evaluation, it was concluded that the Company’s disclosure controls and
procedures are effective at a reasonable assurance level and are designed to
ensure that the information required to be disclosed in SEC reports is recorded,
processed, summarized and reported within the time period specified by the SEC’s
rules and forms, and is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.





Limitations
on the Effectiveness of Controls and Other Matters





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





The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions; over time, a control may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.





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





The
Company assessed the effectiveness of the Company’s internal control over
financial reporting as of March 31, 2010. In making this assessment, management
used the criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission.




Based on
the assessment, management believes that, as of March 31, 2010, the Company’s
internal control over financial reporting was effective.




Changes
to Internal Control Over Financial Reporting




There has
been no change, other than those noted above, in the internal controls over
financial reporting during the three months ended March 31, 2010, that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.


23




CEO
and CFO Certifications





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


24





PART
II - OTHER INFORMATION


Item 1. Legal
Proceedings.





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




Item 1A. Risk Factors.





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





Item
6. Exhibits.





See
exhibit index.


25




SIGNATURES





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





May 13,
2010





Avantair,
      IncBy:
            /s/ Steven SantoSteven
      SantoChief
      Executive Officer




26


EXHIBIT
INDEX





Exhibit
                Number
              
              Description31.1
              
              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
      1350




27