UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q









(Mark
one)


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




For
the quarterly period ended March 31, 2009




or




 ̈
              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
      or other jurisdiction of
                  incorporation
      or organization)
                
                (I.R.S.
      Employer
                  Identification
      No.)




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.    Yes   x
    No   o




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 during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes   o    No  
o




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
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
                        x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes   o     No  
x




As of May
15, 2009, there were 15,320,415 shares of the Registrant’s Common Stock
outstanding.







CERTAIN
DEFINITIONS





Unless
the context indicates otherwise, the terms “Avantair”, “the Company”, “Ardent”,
“we”, “our”, and “us” refer to Avantair, Inc. and, where appropriate, its
subsidiary, 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;





(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
                  2Condensed
      Consolidated Statements of Operations
                  4Condensed
      Consolidated Statement of Changes in Stockholders’ Deficit
                  5Condensed
      Consolidated Statements of Cash Flows
                  6Notes
      to Condensed Consolidated Financial Statements
                  8Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  19Item
      3
                  Quantitative
      and Qualitative Disclosures about Market Risk
                  25Item
      4T.
                  Controls
      and Procedures
                  25PART
      II OTHER
      INFORMATIONItem
      1.
                  Legal
      Proceedings
                  26Item
      1A.
                  Risk
      Factors
                  26Item
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  26Item
      6.
                  Exhibits
                  26Signatures







PART
I - FINANCIAL INFORMATION
  Item
1. Financial Statements.
 
 AVANTAIR,
INC. AND SUBSIDIARIES
 Condensed
Consolidated Balance Sheets
 ASSETS
 March
      31,
                                
                                
                                June
      30,2009
                                
                                
                                2008(Unaudited)
                                
                                
                                (Note
      2)CURRENT
      ASSETSCash
      and cash equivalents
                                $
                                5,932,904
                                
                                
                                $
                                19,149,777Accounts
      receivable, net of allowance for doubtful accounts of $184,815 at March
      31, 2009 and $213,487 at June 30, 2008
                                
                                5,080,185
                                
                                
                                
                                5,692,809Inventory
                                
                                125,188
                                
                                
                                
                                252,407Current
      portion of aircraft costs related to fractional sales
                                
                                38,735,670
                                
                                
                                
                                40,417,203Current
      portion of notes receivable
                                
                                420,883
                                
                                
                                
                                832,107Prepaid
      expenses and other current assets
                                
                                879,493
                                
                                
                                
                                2,173,992Total
      current assets
                                
                                51,174,323
                                
                                
                                
                                68,518,295Aircraft
      costs related to fractional share sales, net of current
      portion
                                
                                78,247,776
                                
                                
                                
                                92,383,071Property
      and equipment, at cost, net of accumulated depreciation and amortization
      of $13,104,726 at March 31, 2009 and $8,989,277 at June 30,
      2008
                                
                                22,645,501
                                
                                
                                
                                25,663,264OTHER
      ASSETSCash-
      restricted
                                
                                2,583,213
                                
                                
                                
                                2,826,290Deposits
      on aircraft
                                
                                9,113,924
                                
                                
                                
                                8,679,277Deferred
      maintenance on aircraft engines
                                
                                1,667,577
                                
                                
                                
                                2,228,509Notes
      receivable-net of current portion
                                
                                -
                                
                                
                                
                                1,008,223Goodwill
                                
                                1,141,159
                                
                                
                                
                                1,141,159Other
      assets
                                
                                1,555,767
                                
                                
                                
                                2,029,367Total
      other assets
                                
                                16,061,640
                                
                                
                                
                                17,912,825Total
      assets
                                $
                                168,129,240
                                
                                
                                $
                                204,477,455
  2
 
 AVANTAIR,
INC. AND SUBSIDIARIES
 Condensed
Consolidated Balance Sheets
 
 LIABILITIES AND
STOCKHOLDERS' DEFICIT
  March 31,
                                    
                                    
                                    June 30,2009
                                    
                                    
                                    2008(Unaudited)
                                    
                                    
                                    (Note
      2)CURRENT
      LIABILITIESAccounts
      payable
                                    
                                    $
                                    3,973,998
                                    
                                    
                                    $
                                    4,718,355Accrued
      liabilities
                                    
                                    
                                    4,340,687
                                    
                                    
                                    
                                    5,528,472Customer
      deposits
                                    
                                    
                                    468,072
                                    
                                    
                                    
                                    1,905,682Short-term
      notes payable
                                    
                                    
                                    16,359,110
                                    
                                    
                                    
                                    15,775,260Current
      portion of long-term notes payable
                                    
                                    
                                    7,047,006
                                    
                                    
                                    
                                    6,648,093Current
      portion of deferred revenue related to fractional aircraft share
      sales
                                    
                                    
                                    45,688,127
                                    
                                    
                                    
                                    47,778,900Unearned
      management fee and charter card revenues
                                    
                                    
                                    15,965,760
                                    
                                    
                                    
                                    16,316,044Total
      current liabilities
                                    
                                    
                                    93,842,760
                                    
                                    
                                    
                                    98,670,806Long-term
      notes payable, net of current portion
                                    
                                    
                                    18,548,810
                                    
                                    
                                    
                                    23,856,322Deferred
      revenue related to fractional aircraft share sales, net of current
      portion
                                    
                                    
                                    74,325,009
                                    
                                    
                                    
                                    96,525,785Other
      liabilities
                                    
                                    
                                    2,794,015
                                    
                                    
                                    
                                    2,636,730Total
      long-term liabilities
                                    
                                    
                                    95,667,834
                                    
                                    
                                    
                                    123,018,837Total
      liabilities
                                    
                                    
                                    189,510,594
                                    
                                    
                                    
                                    221,689,643COMMITMENTS
      AND CONTINGENCIESSeries
      A convertible preferred stock, $.0001 par value, authorized 300,000
      shares; 152,000 shares issued and outstanding
                                    
                                    
                                    14,506,136
                                    
                                    
                                    
                                    14,439,358STOCKHOLDERS'
      DEFICITPreferred
      stock, $.0001 par value, authorized 700,000 shares; none
      issued
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Common
      stock, Class A, $.0001 par value, 75,000,000 shares authorized, 15,320,415
      shares issued and outstanding at March 31, 2009 and 15,286,792 shares
      issued and outstanding at June 30, 2008
                                    
                                    
                                    1,532
                                    
                                    
                                    
                                    1,529Additional
      paid-in capital
                                    
                                    
                                    44,471,978
                                    
                                    
                                    
                                    45,314,393Accumulated
      deficit
                                    
                                    
                                    (80,361,000
                                    )
                                    
                                    
                                    (76,967,468
                                    )Total
      stockholders' deficit
                                    
                                    
                                    (35,887,490
                                    )
                                    
                                    
                                    (31,651,546
                                    )Total
      liabilities and stockholders' deficit
                                    
                                    $
                                    168,129,240
                                    
                                    
                                    $
                                    204,477,455
  See
Notes to Condensed Consolidated Financial Statements.
  3
 
 AVANTAIR,
INC. AND SUBSIDIARIES
 Condensed
Consolidated Statements of Operations
 (Unaudited)
 
 Three Months
      Ended March 31,
                                                              
                                                              
                                                              Nine Months Ended March 31,2009
                                                              
                                                              
                                                              2008
                                                              
                                                              
                                                              2009
                                                              
                                                              
                                                              2008RevenuesFractional
      aircraft sold
                                                              
                                                              $
                                                              12,611,388
                                                              
                                                              
                                                              $
                                                              11,183,245
                                                              
                                                              
                                                              $
                                                              39,477,850
                                                              
                                                              
                                                              $
                                                              31,633,495Maintenance
      and management fees
                                                              
                                                              
                                                              18,027,667
                                                              
                                                              
                                                              
                                                              14,998,644
                                                              
                                                              
                                                              
                                                              52,807,156
                                                              
                                                              
                                                              
                                                              42,121,457Charter
      card and Axis Club Membership revenue
                                                              
                                                              
                                                              2,904,058
                                                              
                                                              
                                                              
                                                              1,940,246
                                                              
                                                              
                                                              
                                                              6,502,851
                                                              
                                                              
                                                              
                                                              5,464,332Other
      revenues
                                                              
                                                              
                                                              1,109,582
                                                              
                                                              
                                                              
                                                              1,823,274
                                                              
                                                              
                                                              
                                                              3,955,678
                                                              
                                                              
                                                              
                                                              5,010,890Total
      revenue
                                                              
                                                              
                                                              34,652,695
                                                              
                                                              
                                                              
                                                              29,945,409
                                                              
                                                              
                                                              
                                                              102,743,535
                                                              
                                                              
                                                              
                                                              84,230,174Operating
      expensesCost
      of fractional aircraft shares sold
                                                              
                                                              
                                                              10,692,513
                                                              
                                                              
                                                              
                                                              9,404,328
                                                              
                                                              
                                                              
                                                              33,620,690
                                                              
                                                              
                                                              
                                                              26,373,438Cost
      of flight operations
                                                              
                                                              
                                                              12,792,261
                                                              
                                                              
                                                              
                                                              13,322,523
                                                              
                                                              
                                                              
                                                              37,001,228
                                                              
                                                              
                                                              
                                                              38,809,119Vendor
      service reimbursement (see Note 3)
                                                              
                                                              
                                                              (2,951,867
                                                              )
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              (2,951,867
                                                              )
                                                              
                                                              
                                                              -Cost
      of fuel
                                                              
                                                              
                                                              2,956,377
                                                              
                                                              
                                                              
                                                              4,767,280
                                                              
                                                              
                                                              
                                                              10,529,802
                                                              
                                                              
                                                              
                                                              12,373,941General
      and administrative expenses
                                                              
                                                              
                                                              5,962,230
                                                              
                                                              
                                                              
                                                              5,499,457
                                                              
                                                              
                                                              
                                                              17,451,537
                                                              
                                                              
                                                              
                                                              14,852,400Selling
      expenses
                                                              
                                                              
                                                              712,736
                                                              
                                                              
                                                              
                                                              978,999
                                                              
                                                              
                                                              
                                                              2,729,170
                                                              
                                                              
                                                              
                                                              3,392,324Depreciation
      and amortization
                                                              
                                                              
                                                              1,240,262
                                                              
                                                              
                                                              
                                                              1,132,865
                                                              
                                                              
                                                              
                                                              3,640,783
                                                              
                                                              
                                                              
                                                              2,878,978Total
      operating expenses
                                                              
                                                              
                                                              31,404,512
                                                              
                                                              
                                                              
                                                              35,105,452
                                                              
                                                              
                                                              
                                                              102,021,343
                                                              
                                                              
                                                              
                                                              98,680,200Income
      (loss) from operations
                                                              
                                                              
                                                              3,248,183
                                                              
                                                              
                                                              
                                                              (5,160,043
                                                              )
                                                              
                                                              
                                                              722,192
                                                              
                                                              
                                                              
                                                              (14,450,026
                                                              )Other
      income (expenses)Interest
      income
                                                              
                                                              
                                                              12,963
                                                              
                                                              
                                                              
                                                              83,316
                                                              
                                                              
                                                              
                                                              38,872
                                                              
                                                              
                                                              
                                                              418,169Gain
      on sale of assets
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              341,370
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              341,370Other
      income
                                                              
                                                              
                                                              748
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              2,248
                                                              
                                                              
                                                              
                                                              -Interest
      expense
                                                              
                                                              
                                                              (1,439,661
                                                              )
                                                              
                                                              
                                                              (705,222
                                                              )
                                                              
                                                              
                                                              (4,156,844
                                                              )
                                                              
                                                              
                                                              (1,855,053
                                                              )Total
      other expenses
                                                              
                                                              
                                                              (1,425,950
                                                              )
                                                              
                                                              
                                                              (280,536
                                                              )
                                                              
                                                              (4,115,724
                                                              )
                                                              
                                                              
                                                              (1,095,514
                                                              )Net
      income (loss)
                                                              
                                                              
                                                              1,822,233
                                                              
                                                              
                                                              
                                                              (5,440,579
                                                              )
                                                              
                                                              
                                                              (3,393,532
                                                              )
                                                              
                                                              
                                                              (15,545,540
                                                              )Preferred
      stock dividend and accretion of expenses
                                                              
                                                              
                                                              (364,053
                                                              )
                                                              
                                                              
                                                              (367,982
                                                              )
                                                              
                                                              
                                                              (1,127,670
                                                              )
                                                              
                                                              
                                                              (535,859
                                                              )Net
      income (loss) attributable to common stockholders
                                                              
                                                              $
                                                              1,458,180
                                                              
                                                              
                                                              $
                                                              (5,808,561
                                                              )
                                                              
                                                              $
                                                              (4,521,202
                                                              )
                                                              
                                                              $
                                                              (16,081,399
                                                              )Earnings
      (loss) per common share:Basic
      and diluted
                                                              
                                                              $
                                                              0.10
                                                              
                                                              
                                                              $
                                                              (0.38
                                                              )
                                                              
                                                              $
                                                              (0.30
                                                              )
                                                              
                                                              $
                                                              (1.06
                                                              )Weighted-
      average common shares outstanding:Basic
      and diluted
                                                              
                                                              
                                                              15,289,929
                                                              
                                                              
                                                              
                                                              15,220,817
                                                              
                                                              
                                                              
                                                              15,297,410
                                                              
                                                              
                                                              
                                                              15,220,817
 See
Notes to Condensed Consolidated Financial Statements.
 4
  AVANTAIR,
INC. AND SUBSIDIARIES
 Condensed
Consolidated Statement of Changes in Stockholders' Deficit
 Nine
Months Ended March 31, 2009
 (Unaudited)
 
 Class
      A
                                
                                
                                Class
      B
                                
                                
                                Additional
                                
                                
                                
                                
                                
                                TotalCommon
      Stock
                                
                                
                                Common
      Stock
                                
                                
                                Paid-In
                                
                                
                                Accumulated
                                
                                
                                Stockholders'Shares
                                
                                
                                Amount
                                
                                
                                Shares
                                
                                
                                Amount
                                
                                
                                Capital
                                
                                
                                Deficit
                                
                                
                                DeficitBalance
      at June 30, 2008
                                
                                
                                15,286,792
                                
                                
                                $
                                1,529
                                
                                
                                
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                45,314,393
                                
                                
                                $
                                (76,967,468
                                )
                                
                                $
                                (31,651,546
                                )Expenses
      associated with registration of shares
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (1,865
                                )
                                
                                
                                
                                
                                
                                
                                (1,865
                                )Stock-based
      compensation
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                292,207
                                
                                
                                
                                
                                
                                
                                
                                292,207Dividend
      on Series A convertible preferred stock and accretion of issuance
      costs
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (1,127,670
                                )
                                
                                
                                
                                
                                
                                
                                (1,127,670
                                )Issuance
      of shares in connection with vested restricted stock, net of shares
      surrendered in lieu of payroll taxes
                                
                                
                                33,623
                                
                                
                                
                                3
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (5,087
                                )
                                
                                
                                
                                
                                
                                
                                (5,084
                                )Net
      loss
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (3,393,532
                                )
                                
                                
                                (3,393,532
                                )Balance
      at March 31, 2009
                                
                                
                                15,320,415
                                
                                
                                $
                                1,532
                                
                                
                                
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                44,471,978
                                
                                
                                $
                                (80,361,000
                                )
                                
                                $
                                (35,887,490
                                )
 
 See
Notes to Condensed Consolidated Financial Statements.
  5
  AVANTAIR,
INC. AND SUBSIDIARIES
 Condensed
Consolidated Statements of Cash Flows
 Nine
Months Ended March 31, 2009 and 2008
 (Unaudited)
  2009
                                            
                                            
                                            2008OPERATING
      ACTIVITIES:Net
      loss
                                            
                                            $
                                            (3,393,532
                                            )
                                            
                                            $
                                            (15,545,540
                                            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                                            
                                            
                                            3,640,783
                                            
                                            
                                            
                                            2,878,978Gain
      on sale of assets
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (341,370
                                            )Stock-based
      compensation
                                            
                                            
                                            292,207
                                            
                                            
                                            
                                            345,937Decrease
      in bad debt expense
                                            
                                            
                                            (28,672
                                            )
                                            
                                            
                                            (260,398
                                            )Changes
      in operating assets and liabilities:Accounts
      receivable
                                            
                                            
                                            641,296
                                            
                                            
                                            
                                            (246,643
                                            )Inventory
                                            
                                            
                                            127,219
                                            
                                            
                                            
                                            (30,105
                                            )Deposits
      on aircraft
                                            
                                            
                                            (434,647
                                            )
                                            
                                            
                                            (2,561,056
                                            )Deferred
      maintenance agreement on aircraft engines
                                            
                                            
                                            560,932
                                            
                                            
                                            
                                            178,499Prepaid
      expenses and other current assets
                                            
                                            
                                            1,294,499
                                            
                                            
                                            
                                            (1,430,803
                                            )Notes
      receivable
                                            
                                            
                                            1,419,447
                                            
                                            
                                            
                                            1,074,557Aircraft
      costs related to fractional shares
                                            
                                            
                                            15,816,828
                                            
                                            
                                            
                                            (24,538,004
                                            )Other
      assets
                                            
                                            
                                            473,600
                                            
                                            
                                            
                                            (501,906
                                            )Accounts
      payable
                                            
                                            
                                            (744,357
                                            )
                                            
                                            
                                            4,783,784Accrued
      liabilities
                                            
                                            
                                            (2,253,761
                                            )
                                            
                                            
                                            (543,312
                                            )Unearned
      management fees and charter card revenue
                                            
                                            
                                            (350,284
                                            )
                                            
                                            
                                            4,066,885Cash-restricted
                                            
                                            
                                            243,077
                                            
                                            
                                            
                                            125,154Customer
      deposits
                                            
                                            
                                            (1,437,610
                                            )
                                            
                                            
                                            152,693Other
      liabilities
                                            
                                            
                                            157,285
                                            
                                            
                                            
                                            588,229Deferred
      revenue related to fractional aircraft share sales
                                            
                                            
                                            (24,291,549
                                            )
                                            
                                            
                                            11,454,005Net
      cash used in operating activities
                                            
                                            
                                            (8,267,239
                                            )
                                            
                                            
                                            (20,350,416
                                            )INVESTING
      ACTIVITIES:Capital
      expenditures
                                            
                                            
                                            (623,020
                                            )
                                            
                                            
                                            (3,455,906
                                            )Net
      cash used in investing activities
                                            
                                            
                                            (623,020
                                            )
                                            
                                            
                                            (3,455,906
                                            )FINANCING
      ACTIVITIES:Borrowings
      under long-term notes payable
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2,200,000Borrowings
      under short-term notes payable
                                            
                                            
                                            6,325,000
                                            
                                            
                                            
                                            15,706,247Principal
      payments on long-term notes payable
                                            
                                            
                                            (4,908,599
                                            )
                                            
                                            
                                            (5,580,066
                                            )Principal
      payments on short-term notes payable
                                            
                                            
                                            (5,741,150
                                            )
                                            
                                            
                                            (10,180,750
                                            )Proceeds
      from issuance of preferred stock-net
                                            
                                            
                                            -
                                            
                                            
                                            
                                            13,881,388Cost
      of stock redemption/registration
                                            
                                            
                                            (1,865
                                            )
                                            
                                            
                                            (360,321
                                            )Net
      cash (used in) provided by financing activities
                                            
                                            
                                            (4,326,614
                                            )
                                            
                                            
                                            15,666,498
  6
  
 AVANTAIR,
INC. AND SUBSIDIARIES
 Condensed
Consolidated Statements of Cash Flows
 Nine
Months Ended March 31, 2009 and 2008
 (Unaudited)
  2009
                                              
                                              
                                              2008Net
      decrease in cash and cash equivalents
                                              
                                              $
                                              (13,216,873
                                              )
                                              
                                              $
                                              (8,139,824
                                              )Cash
      and cash equivalents, beginning of the period
                                              
                                              
                                              19,149,777
                                              
                                              
                                              
                                              12,577,468Cash
      and cash equivalents, end of the period
                                              
                                              $
                                              5,932,904
                                              
                                              
                                              $
                                              4,437,644SUPPLEMENTAL
      DISCLOSURE OF CASHFLOW INFORMATION:Interest
      paid (net of amounts capitalized)
                                              
                                              $
                                              4,156,844
                                              
                                              
                                              $
                                              1,344,997SUPPLEMENTAL
      DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIESAccretion
      of Series A convertible preferred stock
                                              
                                              $
                                              66,778
                                              
                                              
                                              $
                                              2,353Dividends
      payable on Series A convertible preferred stock
                                              
                                              $
                                              1,060,892
                                              
                                              
                                              $
                                              531,478Common
      shares surrendered in lieu of payroll taxes
                                              
                                              $
                                              5,084
                                              
                                              
                                              $
                                              -Aircraft
      purchased under capital lease obligation
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              4,828,642Aircraft
      purchased under long-term notes payable
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              3,906,900Charter
      card issued as partial consideration of aircraft purchase
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              95,600Aircraft
      sold through settlement of note payable
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              457,560
 
 See
Notes to Condensed Consolidated Fanancial Statements.
  7


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 “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,
2008.





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 time cards (either individually or through the
Company’s Axis Club Membership program). As of March 31, 2009, Avantair’s
aircraft fleet was comprised of:




Aircraft
      for Fractional
                                Ownership
                              
                              Company
      Owned
                                and
      Managed
                              
                              
                              Leased
      and
                                Company
      Managed
                              
                              
                              Total46
                              
                              4
                              
                              
                              2
                              
                              
                              52





At March
31, 2009, Avantair had 57 additional Piaggio aircraft on order. Avantair
operates fixed flight based operations (FBO) in Camarillo, California and
effective August 1, 2008, in Caldwell, New Jersey. The Company also provides
aircraft maintenance, concierge and other services to customers and services to
the Avantair fleet from hangars and office locations in Clearwater, Florida,
Camarillo, California and Caldwell, New Jersey.





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 (“GAAP”) in
the United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and
Exchange Commission. Accordingly, 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. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
information set forth therein have been included. Certain amounts in the prior
periods’ financial statements have been reclassified to conform to the current
period presentation. The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and footnotes included in the Annual Report on Form 10-K of Avantair,
Inc. (the “Company”) for the fiscal year ended June 30, 2008. The interim
condensed operating results are not necessarily indicative of the results for a
ful1 year or any interim period. The June 30, 2008 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,
2008.


8





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, 2009, the Company’s recurring losses resulted in an accumulated deficit of
approximately $80.4 million and a working capital deficiency of approximately
$42.7 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, charter cards and, effective
January 2009, Axis Club Memberships. Sales by product category
follow:





Unit
      Sales for the Three Months EndedSeptember 30, 2008
                      
                      
                      December 31, 2008
                      
                      
                      March 31, 2009
                      
                      
                      TotalNew
      Fractional shares
                      
                      
                      19.5
                      
                      
                      
                      17
                      
                      
                      
                      -
                      
                      
                      
                      36.5Charter
      cards
                      
                      
                      27
                      
                      
                      
                      53
                      
                      
                      
                      29
                      
                      
                      
                      109Axis
      Club Memberships
                      
                      
                      N/A
                      
                      
                      
                      N/A
                      
                      
                      
                      2
                      
                      
                      
                      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
charter cards and Axis Club Memberships sold. In connection with future
financing of growth, the Company may obtain additional funds through equity
financing, including the sale of additional shares of common stock, assets
sales, accelerated payments of maintenance and management fees, debt financing,
or a combination thereof. In addition, the Company is in active discussions of
options to secure financing of future aircraft deliveries for use in satisfying
the demand of the growing charter card product line. The Company believes that
its capital on hand, as may be augmented by these means to fund future growth,
is sufficient to continue operations for the foreseeable future.





Use of Estimates





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





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 time cards (either individually or through the
Company’s Axis Club Membership program). In the case of fractional ownership
sales, the aircraft are sold in 1/16th shares or multiples thereof. The purchase
agreement grants the customer the right to the use of the aircraft for a
specified number of hours each year the aircraft is in service. When a customer
purchases a fractional share, they are also required to enter into a five-year
management and maintenance agreement. Under the terms of the maintenance and
management agreement, the Company agrees to manage, operate and maintain the
aircraft on behalf of the customer in exchange for a fixed monthly fee. Time
cards provide customers with hours of flight for a fixed fee.


9





Fractional
Aircraft Shares





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





Management
and Maintenance Agreement





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





Charter
Card and Axis Club Membership Revenue





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





Axis Club Membership revenue.
During the quarter ended March 31, 2009, the Company initiated the Axis Club
Membership program that offers customers access to blocks of flight time at a
discount from standard charter 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 time 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 charter card sales, payment for time cards
sold through the Axis Club Membership program are collected in advance of access
to the aircraft fleet, deferred and recognized as revenue on an incremental
basis as aircraft hours are flown.




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 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 new aircraft
share owners on an hourly basis for each hour the prospective share owners are
flown to demonstrate the quality and capabilities of the aircraft. The Company
recognizes revenue related to these demonstration flights when the flight is
completed.





Prepaid
Pilot Training





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




Aircraft
Costs Related To Fractional Sales





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


10





Maintenance
Policy





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





Income Taxes





Income
taxes are accounted for under the asset and liability method in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 109 (“SFAS
No. 109”),“Accounting
for Income Taxes.” Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is established to reduce
deferred tax assets to the amounts expected to be realized. In addition, in
accordance with Financial Accounting Standards Board (“FASB”) Interpretation No.
18 “Accounting for Income Taxes in Interim
Periods- an interpretation of APB Opinion No. 28,”the Company calculated
an annual effective tax rate to determine the interim period income tax
provisions; however, although the Company recognized income for the three months
ended March 31, 2009, no tax liability was accrued as the Company expects to be
in a net loss position for the year.




Effective
July 1, 2007, the Company adopted the provisions of the FASB Interpretation No.
48, “Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
prescribes a recognition threshold and a measurement attribute for the financial
statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must
be more-likely-than-not to be sustained upon examination by taxing authorities.
The Company has identified its federal tax return and State of Florida tax
return as “major” tax jurisdictions, as defined in FIN 48. The Company
evaluations were performed for tax years ended 2004, 2005, 2006, 2007 and 2008.
The Company believes that its income tax positions and deductions would be
sustained on audit and does not anticipate any adjustments that would result in
a material change to its consolidated financial position. The Company recognizes
accrued interest and penalties related to unrecognized tax benefits as income
tax expense.




Stock-Based
Compensation





The
Company has one stock-based compensation plan, the 2006 Long Term Incentive
Plan, which is shareholder 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 SFAS 123(R)“Share-Based Payment,” which requires the recognition of compensation
expense for employee stock options and other share-based payments. Under SFAS
123(R), expense related to employee stock options and other share-based payments
is recognized over the relevant service period based on the fair value of each
stock option grant. 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, 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 $95,708 and $287,124 for the three and nine months ended
March 31, 2009 and was $116,000 and $347,000 for the three and nine months ended
March 31, 2008, 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, 2009 or for the comparable 2008
periods. The Company made no stock option or restricted stock grants during the
three months ended March 31, 2009. As of March 31, 2009, the Company had 85,013
shares of restricted stock and 150,000 stock options outstanding. The Company
did not issue warrants during the three months ended March 31,
2009.


11





Earnings
(loss) Per Share





Basic
earnings (loss) per share are computed by dividing earnings (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 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 expire 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 SFAS No. 128, Earnings Per Share (“SFAS
128”). In accordance with SFAS 128’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 expire 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. For the three and
nine months ended March 31, 2008, a total of 15,410,000 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, 214,000 shares of restricted stock, 300,000 unit
purchase options (with each unit consisting of one share and two warrants that
expire 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.





Fair
Value Measurements





Effective
July 1, 2008, the Company adopted the provisions of SFAS No. 157 (“SFAS
157”),“Fair Value
Measurements” and SFAS No. 159 (“SFAS 159”),“The Fair Value Option for
Financial Assets and Financial Liabilities — including an amendment to FASB
Statement No. 115.” SFAS 157, which defines fair value, establishes
a framework for measuring fair value in accordance with GAAP, and expands
disclosures about fair value measurements. SFAS 157 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. SFAS 159 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, 2009,
the Company has elected not to use the fair value option permitted under SFAS
159 for any of its financial assets and financial liabilities that are not
already recorded at fair value.





Accounting
for Derivative Instruments




The
Company accounts for derivative instruments in accordance with SFAS
No. 133,“Accounting for
Derivative Instruments and Hedging Activities,” (“SFAS 133”) as amended,
which establishes accounting and reporting standards for derivative instruments
and hedging activities, including certain derivative instruments imbedded in
other financial instruments or contracts. The Company also considers the EITF
00-19, “Accounting for Derivative Financial Instruments Indexed to and
Potentially Settled in, a Company’s Own Stock,” which provides criteria for
determining whether freestanding contracts that are settled in a company’s own
stock, including common stock warrants, should be designated as either an equity
instrument, an asset or as a liability under SFAS 133. The Company evaluates the
conversion feature embedded in its Series A Convertible Preferred Stock at each
reporting period based on the criteria of SFAS 133 and EITF 00-19 to determine
whether the conversion feature would be required to be bifurcated from the
Preferred Stock and accounted for separately as a derivative.  Based on
management’s evaluation, the embedded conversion feature did not require
bifurcation and derivative accounting as of March 31, 2009.





Reclassifications




Certain
balances for the three and nine months ended March 31, 2008 were reclassified to
conform to classifications adopted in the current period.


12





Recently
Issued Pronouncements





In
December 2007, Financial Accounting Standards Board (the “FASB”) issued SFAS No.
141 (revised 2007),“Business
Combinations” (“SFAS 141”). SFAS 141 requires an acquirer to measure the
identifiable assets acquired, the liabilities assumed and any non-controlling
interest in the acquiree at their fair values on the acquisition date, with
goodwill being the excess value over the net identifiable assets acquired. SFAS
141 also requires the fair value measurement of certain other assets and
liabilities related to the acquisition such as contingencies. SFAS 141 applies
prospectively to business combinations and is effective for fiscal years
beginning on or after December 15, 2008. The Company is currently evaluating the
impact of adopting the presentation and disclosure provisions of SFAS 141 on its
financial condition, results of operations and cash flows.





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





In March
2008, the FASB issued SFAS No. 161,“Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 changes the
disclosure requirements for derivative instruments and hedging activities. The
Company will be required to provide enhanced disclosures about (a) how and
why derivative instruments are used, (b) how derivative instruments and
related hedged items are accounted for under SFAS 133, and its related
interpretations, and (c) how derivative instruments and related hedged
items affect the Company's financial position, financial performance, and cash
flows. This statement is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The
Company is currently evaluating the requirements of SFAS 161 and its impact on
its financial condition, results of operations and cash flows. However, the
adoption of SFAS 161 is not expected to have an impact on the Company’s
financial position, results of operations or cash flows as the pronouncement
addresses disclosure requirements only.





In
April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3
(“FSP 142-3”),“Determination
of the Useful Life of Intangible Assets.”  FSP 142-3 amends
the factors an entity should consider in developing renewal or extension
assumptions used in determining the useful life of recognized intangible assets
under FASB Statement No. 142,“Goodwill and Other Intangible
Assets.” This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets in business
combinations and asset acquisitions. FSP 142-3 is effective for fiscal years and
interim periods beginning after December 15, 2008.  The Company
is currently evaluating the impact that FSP 142-3 will have on its financial
condition, results of operations and cash flows.





In June
2008, the FASB issued FASB Staff Position EITF 03-6-1,“Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities”
(“FSP EITF 03-6-1”). FSP EITF 03-6-1 states that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
are “participating securities” as defined in EITF 03-6,“Participating Securities and the
Two-Class Method under FASB Statement No. 128”, and therefore should
be included in computing earnings per share using the two-class method.
According to FSP EITF 03-6-1, a share-based payment award is a participating
security when the award includes nonforfeitable rights to dividends or dividend
equivalents. The rights result in a noncontingent transfer of value each time an
entity declares a dividend or dividend equivalent during the award’s vesting
period. However, the award would not be considered a participating security if
the holder forfeits the right to receive dividends or dividend equivalents in
the event that the award does not vest. FSP EITF 03-6-1 is effective for
financial statements issued in fiscal years beginning after December 15,
2008, and interim periods within those years. When adopted, its requirements are
applied by recasting previously reported EPS. The Company is currently
evaluating the requirements of FSP EITF 03-6-1 and its impact on its financial
condition, results of operations and cash flows.





In
October 2008, the FASB issued FSP No. FAS 157-3 (“FSP 157-3”), “Determining the Fair Value of a
Financial Asset When the Market for that Asset Is Not Active, ” which
clarifies the application of SFAS 157 as it relates to the valuation of
financial assets in a market that is not active for those financial assets. FSP
157-3 is effective immediately and includes those periods for which financial
statements have not been issued. The Company does not have any financial assets
that are valued using inactive markets, and therefore is not impacted by the
issuance of this standard.





In
June 2008, the FASB issued EITF No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock,” which
provides guidance for determining whether an equity-linked financial instrument
(or embedded feature) issued by an entity is indexed to the entity’s stock, and
therefore, would qualify for the first part of the scope exception in paragraph
11(a) of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities”. The EITF proscribes a two-step
approach under which the entity would evaluate the instrument’s contingent
exercise provisions and then the instrument’s settlement provisions, for
purposes of evaluating whether the instrument (or embedded feature) is indexed
to the entity’s stock. This EITF is effective for financial statements issued
for fiscal years beginning after December 15, 2008. The Company is currently
evaluating the requirements of EITF 07-05 and its impact on its financial
condition, results of operations and cash flows.




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


13




NOTE
3 – VENDOR SERVICE REIMBURSEMENT





Operating
expenses for the three and nine months ended March 31, 2009 has been reduced by
a $2.95 million 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 January 2009. The Company’s policy for
engine maintenance is to record the expense as incurred. The Company’s
arrangements with the former engine service vendor were similar to an insurance
contract whereby maintenance of the engines were performed by the former engine
service vendor for a negotiated fee per flight hour per engine. Consistent with
the policy for expensing engine repairs as incurred, the Company expensed the
per hour per engine fee based on actual flight time. As a result of the
termination of their services, the former engine service vendor reimbursed the
Company approximately $1.1 million during March 2009, representing amounts paid
by the Company for related services not performed. In addition, a $1.85 million
liability to the former engine service provider included in accounts payable in
the Company’s condensed consolidated balance sheet at December 31, 2008 is no
longer due as a result of this termination and was credited in March 2009
against operating expenses.





NOTE 4 - COMMITMENTS AND
CONTINGENCIES





Lease
Commitments





The
Company conducts a major part of its operations from leased facilities, which
include aircraft hangars and administrative offices. The 15 year hangar lease in
Clearwater, Florida expiring in 2020 is classified as an operating lease. The
lease provided for rent allocation credits for the first three years. These
credits have been netted in rental expense on a straight line basis over the
term of the lease. The Company also has a 15 year lease for its fixed based
operation in Camarillo, California, expiring in 2021, which is classified as an
operating lease.





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





Effective
August 1, 2008, Avantair, Inc. entered into a Lease Agreement (“Lease”) and
Operating Agreement for Fueling Service (“Fueling Agreement”) between Essex
County Improvement Authority (“ECIA”) and the Company. The Lease provides the
Company with a hangar located at the Essex County Airport in Caldwell, New
Jersey that is approximately 17,752 square feet, which includes hanger space,
shop space and office space. The Lease was month to month until it was approved
by the Essex County Board of Chosen Freeholders, and once the Lease was approved
in October 2008, the ECIA and the Company entered into a ten year lease term.
The annual rent for the Lease is $230,776, payable in monthly installments of
$19,231. The annual rent shall be adjusted on the first day of each new year of
the ten year lease term by adding the product of the current annual rent
multiplied by the percentage change of the CPI index not to exceed 4% for the
preceding 12 months. The Fueling Agreement shall be in force and effect while
the Company is in lawful possession of the property pursuant to the Lease, but
it shall not extend beyond the term of the Lease. The Lease and the Fueling
Agreement will allow the Company to operate a full service FBO at Essex County
Airport.





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





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


14





Purchase
Commitments





On June
20, 2008, Avantair assigned its rights and obligations to purchase twenty
Embraer Phenom 100 aircraft positions to Share 100 Holding Co., LLC, a
wholly-owned subsidiary of Avantair. On the same date, Avantair entered into a
membership interest purchase agreement with Executive Air Shares Corporation
(“EAS”), in which EAS purchased the Class A membership of Share 100 and Avantair
retained the Class B membership. EAS, as Class A member, has the rights and
obligations to purchase the Phenom 100 aircraft with positions one through
eighteen and to fund payment due in connection with these aircraft. EAS paid
Share 100 approximately $2.47 million in connection with these transactions and
made an additional $750,000 capital contribution to Share 100 on December 1,
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, 2009, the Company has agreed to purchase 57 additional Avanti II P-180
aircraft from Piaggio America. The total commitment including recent proposed
vendor price escalation is approximately $364 million to be delivered through
fiscal 2013.





From time
to time, the Company may lease aircraft that require purchase commitments.
Please see “Financing
Commitments” and Note 7- “Subsequent Events” below.





Financing
Commitments- Short-term notes payable





CNM,
Inc.





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





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





Under the
agreement, the Company also has agreed to provide the principal stockholder of
CNM 100 hours of use of its aircraft over the three-year period. The fair value
of aircraft usage of approximately $200,000 was accrued and will be amortized to
interest expense over the term of the remaining debt under a method that will
produce a constant periodic rate of return. In the fiscal quarter ended March
31, 2009, CNM used its remaining hours.





In August
2007, the Company and CNM executed a new note agreement which converted an
outstanding note obligation of approximately $7,000,000 into a term loan payable
monthly over three years and bearing interest at 10% per annum. CNM also
assumed a promissory note due to Wells Fargo Bank for $2,900,000 which was
included as part of this new note agreement. The Company accounted for this
conversion in accordance with EITF Issue No. 98-14, “Debtor’s Accounting
for Changes in Line-of-Credit or Revolving-Debt Arrangements.” Borrowings
outstanding under these arrangements at March 31, 2009 totaled approximately
$4.5 million.


15





Midsouth
Services, Inc.





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





On July
31, 2008, the Company entered into two new Floor Plan Finance Agreements (each,
an “Agreement” and collectively "the Agreements"), pursuant to which MidSouth
has agreed to extend credit to the Company in an amount not to exceed $5,345,000
under each Agreement ($10,690,000 in total for the Agreements), for an initial
term of three months for each Agreement. Indebtedness under the Agreements was
used by the Company to fund the purchase of new Piaggio P-180 aircraft. The
Company renewed the Agreements for three consecutive additional one month terms
at the expiration of the initial term and on a month-to-month basis thereafter.
The effective dates of the two Agreements are July 31, 2008, and August 1, 2008,
respectively.  The Company has agreed to pay to the Lender a monthly
facility fee of $75,000 under each Agreement. In connection with the entry into
the Agreements, on July 31, 2008, the Company terminated the prior Floor Plan
Finance Agreements dated March 3, 2008 and October 3, 2007 between the Company
and Midsouth.





On
November 18, 2008, the Company entered into an aircraft deposit agreement with
MidSouth, for a term of twelve months, which provides for up to approximately
$0.6 million of financing for the payment to the aircraft manufacturer of
deposits on future deliveries. As consideration for providing the deposit for
the aircraft during the term of this agreement, the Company has agreed to pay
MidSouth a monthly transaction fee of $9,000 commencing December 2008.
Borrowings outstanding under this arrangement at March 31, 2009 totaled $0.6
million.





Further,
on April 2, 2009, the Company entered into two Floor Plan Agreements with
Midsouth to replace the Lender’s existing Floor Plan Agreements dated
July 31, 2008 and August 1, 2008. See “Note 7- Subsequent Events”
below.




Century
Bank, F.S.B.





On May
29, 2008, the Company entered into a Promissory Note (“Note”) with Century Bank,
F.S.B. (“Lender”), pursuant to which Lender agreed to provide financing to the
company in the amount of $5,200,000 to be used towards the purchase of a new
Piaggio P-180 aircraft. The Company paid the following fees for the Note: (1)
$37,500 on the effective date of the Note and (2) $75,000 on the 30th day of the
each month thereafter until repayment in full of the principal amount of the
Note (“Term”). In July 2008, the Company repaid the full amount of the Note with
Century Bank, F.S.B. and paid a fee of $26,000, constituting 0.5% of the
principal balance.





On
January 9, 2009, the Company entered into a new Note with the Lender, pursuant
to which Lender agreed to provide financing to Borrower in the amount of
$5,200,000 to be used towards the purchase of new Piaggio P-180 aircraft.
Borrower will pay the following fees for the Note:  (1) $75,000 on the
effective date of the Note and (2) $75,000 on the 9th day of each month
thereafter until repayment in full of the principal amount of the
Note.  The principal amount of the Note shall be paid in full within
120 days from the effective date of the Note.  Borrower shall make
partial payments to Lender in $325,000 increments upon the closing of each
fractional interest and Lender shall provide partial lien releases as to the
respective fractional interests sold.  Additionally, Borrower will
also pay a fee of $52,000 at the time of repayment in full of the principal
amount of the Note, constituting a fee of 1% of the principal
amount.  If repayment is made in full within 90 days after the
effective date of this Note, the fee will be reduced to $26,000, constituting a
fee of 0.5% of the principal amount. Borrowings outstanding under this
arrangement at March 31, 2009 totaled $5.2 million.


16





Financing
Commitments- Long-term notes payable





Wells
Fargo Equipment Finance, Inc.





In
February 2005, the Company entered into financing arrangements for the purchase
of three aircraft under various notes payable with Wells Fargo Equipment
Finance, Inc. In January 2008, the Company sold one of these aircraft and repaid
the outstanding balance on the related note payable. The notes outstanding at
March 31, 2009 in the amount of $3,195,374 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 provides for seven monthly installments of $145,867 and 53 monthly
installments of $45,867, including interest at 7% per year. On April 15, 2008,
the Company entered into a payment arrangement with JSSI by means of a $5.5
million promissory note. The note matures on April 1, 2011 and bears
interest at the rate of 10% per annum, with 35 monthly payments of
principal and interest in an amount of $185,127 beginning on June 2, 2008.
The note covers the balance of the aforementioned $3.4 million promissory note,
other costs and fees to be paid by the Company under service agreements with
JSSI and related deferred financing costs of approximately $1.0 million which
will be amortized over the life of the note using the effective interest method.
In connection with the parties entering into this payment arrangement and the
$5.5 million promissory note, the parties terminated the airframe maintenance
contract and have agreed to apply the unamortized prepayment under the airframe
maintenance contract to the engine maintenance program and will amortize this
amount over the remaining 37 month term of that program. Borrowings outstanding
under this arrangement at March 31, 2009 totaled $4.1 million.





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





JMMS,
Inc.





On
August 11, 2006, the Company entered into a sale and leaseback agreement
with JMMS, LLC. The lease transaction has been accounted for as a finance lease
under FASB Statement No. 13 “Accounting for Leases,”
(“SFAS 13”) and provides for monthly payments of $39,500 through July 11,
2011. JMMS, LLC notified the Company that it is terminating the sale and
leaseback agreement between the parties effective March 1, 2009, at which date,
pursuant to the agreement, the Company was required to purchase the aircraft at
a cost of no more than $4.2 million. The Company is currently in negotiations to
obtain financing and pursuing alternative options relating to the JMMS
termination and as a result the closing date of the transaction was extended
past March 1, 2009, but no later than June 30, 2009. In consideration for
extending the period to close, the Company will make monthly payments for three
consecutive months or until the closing of the aircraft, whichever occurs first
and is payable on the first business day of the month beginning April 1, 2009 in
the amount of $200,000. The total amount of the monthly payments made to JMMS by
the Company shall be deducted from the purchase price on the closing
date.




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, 2009 in the
amount of $1,965,468 is payable in monthly installments of $27,175 with interest
of 8.25% per annum, through July 1, 2011. The note is collateralized by the
aircraft.





Wachovia 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 charter card of 100 hours). Financing was
obtained from Wachovia through a note payable of $3.9 million. This debt will be
repaid monthly over 7 years at an interest rate of the LIBOR rate plus 4.0%.
Borrowings outstanding under this arrangement at March 31, 2009 totaled $3.1
million.


17





Midsouth
Services, Inc.





On
October 10, 2007, Avantair acquired a core aircraft (the “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% 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 under this agreement at March 31, 2009 totaled
approximately $4.4 million.





NOTE
5 – DEFERRED COMPENSATION PLAN





Effective
January 1, 2009, the Company adopted the Avantair Leadership Deferred
Compensation Plan (“Deferred Compensation Plan”) approved by the Board of
Directors that provides specified benefits for a select group of management,
highly compensated employees, and non-employee Directors. The Deferred
Compensation Plan is a nonqualified, unfunded deferred compensation plan that
provides participants with supplemental retirement benefits determined by the
Company at its complete discretion (which amounts may vary by participant and
which are subject to a vesting requirement) and allows participants to defer
compensation in excess of the amounts permitted under the Avantair Inc. 401(k)
Profit Sharing Plan & Trust. As of March 31, 2009, no liabilities were
recorded in the accompanying Condensed Consolidated Balance Sheets as all
amounts were fully paid. Administrative expenses related to these plans, which
is included in “General and administrative” costs in the accompanying Condensed
Consolidated Statements of Operations, was $42,707 for both of the three and
nine months ended March 31, 2009. As of March 31, 2009, the Company made no
contributions to the plan.




NOTE
6 – WARRANTS





On
November 14, 2008, the Company commenced a warrant retirement program, which
offered the holders of its 13,800,000 publically traded warrants the opportunity
to exercise those warrants on an amended term for a limited time. Pursuant to a
tender offer that expired on December 12, 2008, the Company announced the
completion of the warrant retirement program. Under the tender offer, no
warrants were exercised and the Company decided not to extend the offer. The
original terms of the warrants were reinstituted and the warrants expired on
February 23, 2009.





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





NOTE
7 – SUBSEQUENT EVENTS





On April
2, 2009, Avantair, Inc. (the "Company") entered into two Floor Plan Agreements
with Midsouth Services, Inc. (“Lender”) to replace the Lender’s existing Floor
Plan Agreements dated July 31, 2008.  The new Floor Plan
Agreements extend credit to the Borrower in an increased amount of
$11,600,000 to be used towards the purchase of new Piaggio P-180
aircraft.  Each of the new Floor Plan Agreements is similar to the
prior Floor Plan Agreements and covers an amount not to exceed
$5,800,000 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 Lender a monthly fee of
$82,500 for each Floor Plan Agreement during the term.





On April
2, 2009, the Company also entered into two additional capital lease transactions
accounted for under SFAS 13 with Lender as follows:





First,
the Company amended the Lease Agreement previously accounted for as an operating
lease under SFAS 13, dated as of July 31, 2006 between the Company and
Lender.  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 for $2,950,000 the leased aircraft
from Lender within sixty days following the expiration of the term of the Lease
Agreement.





Second,
the Company also entered into a new Lease Agreement, effective April 6, 2009,
pursuant to which Lender will lease a Piaggio P-180 aircraft to the Company for
a ten year lease term at a rate of $75,000 per month, plus taxes if
applicable.  The aircraft covered by the lease was previously financed
under the Floor Plan Agreements.  The Company is required to provide
Lender with 100 hours of flight time per year during the lease
term.  Lender 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 $3,797,000 within ninety days after the end of the fifth year of
the term.  If this option is not exercised by Lender, 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 Lender
for $300,000.


18





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





Overview





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 time cards (either individually or through the
Company’s Axis Club Membership program). According to AvData, Avantair is the
fifth largest company in the North American fractional aircraft industry. As of
March 31, 2009, Avantair’s aircraft fleet was comprised of:




Aircraft
      for Fractional
                                Ownership
                              
                              Company
      Owned
                                and
      Managed
                              
                              
                              Leased
      and
                                Company
      Managed
                              
                              
                              Total46
                              
                              4
                              
                              
                              2
                              
                              
                              52





At March
31, 2009, Avantair had 57 additional Piaggio aircraft on order. Avantair
operates fixed flight based operations (FBO) in Camarillo, California and
effective August 1, 2008, in Caldwell, New Jersey. The Company also provides
aircraft maintenance, concierge and other services to customers and services to
the Avantair fleet from hangars and office locations in Clearwater, Florida,
Camarillo, California and Caldwell, New Jersey.





Avantair
generates revenues primarily through the sale of fractional ownership shares of
aircraft, by providing operations, maintenance and management services related
to these aircraft, and from the sale of charter cards providing either 15 or 25
hours of flight time per year of access to its aircraft fleet without the
requirement of purchasing fractional ownership shares (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 1/16th
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 charter
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 charter
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 blocks of 25 hours of flight time 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. As of March 31, 2009, Avantair had contractual commitments to
purchase 57 additional Piaggio Avanti II aircraft through 2013. The total
commitment, including a recently proposed vendor escalation, is valued at
approximately $364 million. The Company has been able to defer
aircraft deliveries to bring them in line with sales expectations based upon
existing economic conditions and the contract provides flexibility to defer
aircraft deliveries in the future. The Company expects delivery of six aircraft
during the remainder of calendar 2009, valued at $37.2 million, which will
primarily be utilized to satisfy fleet demands of the growing charter card
product line. At March 31, 2009, the Company had 38 fractional aircraft shares
available for sale. In addition to the cost of acquiring aircraft, Avantair’s
primary expenses have been related to fuel, aircraft repositioning (i.e., moving
an aircraft to another location to accommodate a customer’s need and
demonstration flights for sales purposes), maintenance, charters and
insurance.





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, charter cards and, effective January 2009, Axis
Club Memberships. Sales by product category follow:





Unit
      Sales for the Three Months EndedSeptember 30, 2008
                  
                  
                  December 31, 2008
                  
                  
                  March 31, 2009
                  
                  
                  TotalNew
      Fractional shares
                  
                  
                  19.5
                  
                  
                  
                  17
                  
                  
                  
                  -
                  
                  
                  
                  36.5Charter
      cards
                  
                  
                  27
                  
                  
                  
                  53
                  
                  
                  
                  29
                  
                  
                  
                  109Axis
      Club Memberships
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  
                  
                  
                  2
                  
                  
                  
                  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
charter cards and Axis Club Memberships sold. In connection with future
financing of growth, the Company may obtain additional funds through equity
financing, including the sale of additional shares of common stock, assets
sales, accelerated payments of maintenance and management fees, debt financing,
or a combination thereof. In addition, the Company is in active discussions of
options to secure financing of future aircraft deliveries for use in satisfying
the demand of the growing charter card product line. The Company believes that
its capital on hand, as may be augmented by these means to fund future growth,
is sufficient to continue operations for the foreseeable
future.


19





Results
of Operations





Three Months Ended March 31,
2009 Compared with Three Months Ended March 31, 2008





Revenues
for the three months ended March 31, 2009were $34.7 million, an
increase of 15.7% from $30.0 million for the three months ended March 31, 2008.
This increase was the result of a 12.8% increase in the revenue generated from
the sale of fractional aircraft shares to $12.6 million for the three months
ended March 31, 2009from $11.2 million for
the comparable 2008 period, an increase of 20.2% in maintenance and management
fees to $18.0 million for the three months ended March 31, 2009from $15 million for
the comparable 2008 period, an increase of 49.7% in charter card and Axis Club
Membership revenue to $2.9 million for the for the three months ended March 31,
2009from $1.9
million for the comparable 2008 period, and a decrease of 39.1% in other
revenues to $1.1 million for the three months ended March 31, 2009from $1.8 million for
the comparable 2008 period.





Revenue
from the sale of fractional aircraft shares increased primarily due to an
increase in the average number of fractional shares sold through March 31,
2009from
fractional shares sold through March 31, 2008. The increase in the number of
fractional shares sold reflected the results of enhanced sales initiatives,
including an emphasis on a national market, the marketing of the fuel efficiency
of the Piaggio aircraft and the cost value of an Avantair fractional share
compared to light-jet fractional shares of competitors.





The
increase in revenue from maintenance and management fees is primarily due to a
14.0% increase in the average number of fractional shares sold through March 31,
2009from
fractional shares sold through March 31, 2008, coupled with an increase in the
average monthly management fee per shareowner.





Charter
card and Axis Club Membership revenue increased $1.0 million primarily as a
result of an increase in charter card revenue due to increased charter card
sales as a result of the greater acceptance of time card travel in the existing
turbulent economy compared to fractional ownership and the timing of charter
card flight hour utilization by owners during the three months ended March 31,
2009 from the comparable 2008 period.





Other
revenue decreased $0.7 million primarily as a result of the $0.6 million
decrease in demonstration revenue as a result of the reduction in fractional
share sales activity during the three months ended March 31, 2009 from the
comparable 2008 period.





Operating
expenses for the three months ended March 31, 2009were 10.5% lower than
the three months ended March 31, 2008, with total operating expenses of $31.4
million compared to $35.1 million, respectively. The cost of fractional aircraft
shares sold increased to $10.6 million for the three months ended March 31,
2009from $9.4
million for the three months ended March 31, 2008, due to an increase in the
average number of fractional shares sold through March 31, 2009from fractional shares
sold through March 31, 2008. The cost of flight operations, together with the
cost of fuel and vendor service reimbursement, decreased 29.3% to $12.8 million
for the three months ended March 31, 2009from $18.1 million for
the three months ended March 31, 2008, primarily due 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 January
      2009. As a result of the termination of their services, the former engine
      service vendor reimbursed the Company approximately $1.1 million during
      March 2009, representing amounts paid by the Company for related services
      not performed. In addition, a $1.85 million liability to the former engine
      service provider included in accounts payable in the Company’s condensed
      consolidated balance sheet at December 31, 2008 is no longer due as a
      result of this termination and was credited in March 2009 against
      operating expenses. This reduction is operating expense is partially
      offset by $0.2 million increase in additional pilot expenses resulting
      from additional pilot salaries and training costs.


§
            a
      $1.8 million decrease in cost of fuel due to a 33% decrease in the per
      gallon cost of fuel (as a result of Avantair negotiating lower fuel rates
      in fiscal year 2009 and also due to the global decrease in fuel costs)
      coupled with improved aircraft utility;
and


§
              an
      $0.8 million reduction in chartering expenses as a result of the increased
      use of the Company's core aircraft to alleviate scheduling conflicts, use
      of enhanced flight optimization software and flight staff
      training.




20




General
and administrative expenses increased 8.4% to $6.0 million for the three months
ended March 31, 2009from $5.5 million for
the three months ended March 31, 2008, primarily due to a $0.3 million increase
in payroll tax and employee benefit expenses due to increased payroll and rate
increases, a $0.2 million increase in bad debt expense and increases of other
expenses due to company growth.





Selling
expenses decreased 27.2% to $0.7 million for the three months ended March 31,
2009from $1.0
million for the three months ended March 31, 2008 primarily due to a decrease of
$0.2 million in marketing expenses as a result of a more directed approach to
marketing implemented during fiscal year 2009.




Income
from operations was $3.2 million for the three months ended March 31, 2009, an
increase of 163% from the $5.2 million loss from operations for the three months
ended March 31, 2008 for the reasons set forth above.





Interest
expense was $1.4 million for the three months ended March 31, 2009 compared to
$0.7 million for the three months ended March 31, 2008, primarily due to an
increase in floor plan borrowing agreements incurred to acquire aircraft and
$0.2 million of interest relating to the financing arrangements with Jet Support
Services, Inc., partially offset by reductions in interest due to principal pay
downs. The decrease of $0.4 million in interest and other income is due to the
reduction in notes receivable outstanding as of March 31, 2009 from the
comparable 2008 period. The gain recognized on the sale of an aircraft during
the 2008 period was nonrecurring.




Net
earnings increased to $1.8 million for the three months ended March 31,
2009compared to a
$5.4 million net loss for the three months ended March 31, 2008 due to the
decrease in loss from operations partially offset by the increase in total other
expense discussed above.





Nine Months Ended March 31,
2009 Compared with Nine Months Ended March 31, 2008





Revenues
for the nine months ended March 31, 2009 were $102.7 million, an increase of 22%
from $84.2 million for the nine months ended March 31, 2008. This increase was
the result of a 24.8% increase in the revenue generated from the sale of
fractional aircraft shares to $39.5 million for the nine months ended March 31,
2009 from $31.6 million for the comparable 2008 period, an increase of 25.4% in
maintenance and management fees to $52.8 million for the nine months ended March
31, 2009 from $42.1 million for the comparable 2008 period, an increase of 19.0%
in charter card and Axis Club Membership revenue to $6.5 million for the for the
nine months ended March 31, 2009from $5.5 million for
the comparable 2008 period, and a decrease of 21.1% in other revenues to $4.0
million for the nine months ended March 31, 2009from $5.0 million for
the comparable 2008 period.





Revenue
from the sale of fractional aircraft shares increased due to an increase in the
average number of fractional shares sold through March 31, 2009 from fractional
shares sold through March 31, 2008. The sale of fractional shares during the
nine months ended March 31, 2009 reflected the results of enhanced sales
initiatives, including an emphasis on a national market, the marketing of the
fuel efficiency of the Piaggio aircraft and the cost value of an Avantair
fractional share compared to light-jet fractional shares of
competitors.





Maintenance
and management fee revenue increased due to an increase in the average number of
fractional shares sold through March 31, 2009 from fractional shares sold
through March 31, 2008, coupled with an increase in the average monthly
management fee per shareowner.





Charter
card and Axis Club Membership revenue increased $1.0 million primarily as a
result of the greater acceptance of time card travel in lieu of fractional
ownership due to the current economic conditions and the timing of charter card
flight hour utilization by owners.





Other
revenue decreased $1.1 million primarily as a result of the decrease in
demonstration revenue as a result of the reduction in fractional share sales
activity during the nine months ended March 31, 2009 from the comparable 2008
period.


21





Operating
expenses for the nine months ended March 31, 2009 were 3.4% higher than the nine
months ended March 31, 2008, with total operating expenses of $102.0 million
compared to $98.7 million, respectively. The cost of fractional aircraft shares
sold increased to $33.6 million for the nine months ended March 31, 2009 from
$26.3 million for the nine months ended March 31, 2008, due to an increase in
the average number of fractional shares sold through March 31, 2009 from
fractional shares sold through March 31, 2008. The cost of flight operations,
together with the cost of fuel and vendor service reimbursement, decreased 12.3%
to $44.6 million for the nine months ended March 31, 2009 from $51.2 million for
the nine months ended March 31, 2008, primarily due to:




§
                a
      $3.3 reduction in chartering expenses due to the use of the Company’s core
      aircraft to alleviate scheduling conflicts and use of enhanced flight
      optimization software and flight staff training;
 §
                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 January
      2009. As a result of the termination of their services, the former engine
      service vendor reimbursed the Company approximately $1.1 million during
      March 2009, representing amounts paid by the Company for related services
      not performed. In addition, a $1.85 million liability to the former engine
      service provider included in accounts payable in the Company’s condensed
      consolidated balance sheet at December 31, 2008 is no longer due as a
      result of this termination and was credited in March 2009 against
      operating expenses;
 §
                a
      $1.8 million decrease in cost of fuel due to a 33% decrease in the per
      gallon cost of fuel (as a result of Avantair negotiating lower fuel rates
      in fiscal year 2009 and also due to the global decrease in fuel costs)
      coupled with improved aircraft utility; and
 §
              a
      $1.6 million increase in additional pilot expenses resulting from
      additional pilot salaries and training
costs.




General
and administrative expenses increased 17.5% to $17.4 million for the nine months
ended March 31, 2009 from $14.9 million for the nine months ended March 31,
2008, primarily due to $1.2 million of increases in payroll benefits and
employee training expenses, $0.1 million of system improvements, $0.3 million in
aggregate increases related to fixed based operations including fuel, equipment
rental and hangar rent expense partially related to the addition of the new
fixed based operation in Caldwell, New Jersey which became effective August 1,
2008, $0.2 million increase in bad debt expense and aggregate increases of other
expenses due to company growth.





Selling
expenses decreased 19.5% to $2.8 million for the nine months ended March 31,
2009 from $3.4 million for the nine months ended March 31, 2008 due to a
decrease of $0.5 million in marketing expenses as a result of a more directed
approach to marketing implemented during fiscal year 2009.





Income
from operations was $0.7 million for the nine months ended March 31, 2009, an
increase of 105.0% from the $14.5 million loss from operations for the nine
months ended March 31, 2008 for the reasons set forth above.





Interest
expense was $4.2 million for the nine months ended March 31, 2009 compared to
$1.9 million for the nine months ended March 31, 2008, primarily due to an
increase in floor plan borrowing agreements incurred to acquire aircraft and
$0.6 million of interest relating to the financing arrangements with Jet Support
Services, Inc. The decrease of $0.7 million in interest and other income is due
to the reduction in notes receivable outstanding as of March 31, 2009 from the
comparable 2008 period. The gain recognized on the sale of an aircraft during
the 2008 period was nonrecurring.




Net loss
decreased to $3.4 million for the nine months ended March 31, 2009 compared to
$15.5 million for the nine months ended March 31, 2008 due to the decrease in
loss from operations partially offset by the increase in total other expense
discussed above.


22





Liquidity
and Capital Resources





Avantair’s
primary sources of liquidity have been cash provided by operations, cash raised
from its equity offering with Ardent Acquisition Corp., cash provided from its
debt facility with CNM, Inc., cash raised in the preferred stock offering, and
other asset based borrowing. The Company uses its cash primarily to fund losses
from operations, deposits made on fractional aircraft, leasehold improvements,
and the purchase of core aircraft and aircraft which are to be fractionalized
but which have not yet been pre-sold. Cash generated from operations has not
been sufficient to provide for all the working capital needed to meet Avantair’s
present requirements. At March
31, 2009and June 30, 2008, Avantair had a working capital deficit of
approximately $42.7 million and $30.2 million, respectively, and an accumulated
deficit of approximately $80.4 million and $77.0 million, respectively. As of
March 31, 2009, cash and
cash equivalents amounted to approximately $5.9 million and total assets to
$168.1 million. The cash and cash equivalent balance decreased $13.2 million
from June 30, 2008 and total assets decreased $36.3 million. The decrease in
cash and cash equivalents occurred primarily payment of $1.8 million for
deposits on future aircraft deliveries, and $9.6 million repayment of debt, in
addition to expenditures for the cost of operations, including amounts accrued
at June 30, 2008, insurance and capital and leasehold improvements.




Avantair’s
Axis Club Membership program, designed to bridge the gap between the financial
commitment of a fractional share and charter cards, may require the Company to
acquire aircraft to satisfy the increased flight hour demands on its core
aircraft fleet if its core utility is strained. However, there can be no
assurance that membership program sales will be sufficient to compensate for a
decrease in fractional share sales, or that financing of additional aircraft
acquired to service this program will be available.





As of
March 31, 2009, the Company’s recurring losses resulted in an accumulated
deficit of approximately $80.4 million and a working capital deficiency of
approximately $42.7 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, charter cards and,
effective January 2009, Axis Club Memberships. Sales by product category
follow:





Unit
      Sales for the Three Months EndedSeptember 30, 2008
                  
                  
                  December 31, 2008
                  
                  
                  March 31, 2009
                  
                  
                  TotalNew
      Fractional shares
                  
                  
                  19.5
                  
                  
                  
                  17
                  
                  
                  
                  -
                  
                  
                  
                  36.5Charter
      cards
                  
                  
                  27
                  
                  
                  
                  53
                  
                  
                  
                  29
                  
                  
                  
                  109Axis
      Club Memberships
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  
                  
                  
                  2
                  
                  
                  
                  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
charter cards and Axis Club Memberships sold. In connection with future
financing of growth, the Company may obtain additional funds through equity
financing, including the sale of additional shares of common stock, assets
sales, accelerated payments of maintenance and management fees, debt financing,
or a combination thereof. In addition, the Company is in active discussions of
options to secure financing of future aircraft deliveries for use in satisfying
the demand of the growing charter card product line. The Company believes that
its capital on hand, as may be augmented by these means to fund future growth,
is sufficient to continue operations for the foreseeable future.





The Company continuously reviews its
cost structure for means to optimize cash expenditures, such as by establishing
more favorable fuel arrangements with suppliers.As a component of the
Company’s overall cost curtailment initiatives, in January 2009, a nationally
recognized, FAA certified engine maintenance vendor replaced another vendor (the
former engine service vendor) in providing engine maintenance service for
certain Piaggio aircraft engines. As a result, the former engine service
provider reimbursed the Company approximately $1.1 million, which represents
amounts paid by the Company where the related services were not performed. In
addition, the condensed consolidated balance sheet at December 31, 2008 included
a liability in the amount of $1.85 million to the former engine service
provider, which is no longer due as a result of this termination. The Company
recorded the transaction as a reduction of operating expenses in the three and
nine months ended March 31, 2009.





Financing
Arrangements





Avantair’s
financing arrangements at March
31, 2009, are described below:





Wells
Fargo Equipment Finance, Inc.: In
February 2005, the Company entered into financing arrangements for the purchase
of three aircraft under various notes payable with Wells Fargo Equipment
Finance, Inc. In January 2008, the Company sold one of these aircraft and repaid
the outstanding balance on the related note payable. The notes outstanding at
March 31, 2009 in the amount of $3,195,374 are payable in monthly installments
ranging from $10,644 to $38,480 with interest ranging from 5.96% to
6.12% per annum, through 2012. The notes are collateralized by the
aircraft.




CNM, Inc.: In August 2007, the Company
and CNM executed a new note agreement which converted an outstanding note
obligation of approximately $7,000,000 into a term loan payable monthly over
three years and bearing interest at 10% per annum. CNM also assumed a
promissory note due to Wells Fargo Bank for $2,900,000 which was included as
part of this new note agreement.Borrowings outstanding under these
arrangements at March 31, 2009 totaled approximately $4.5
million.


23





Jet
Support Services, Inc.: On April 24, 2006, Avantair financed an aircraft
maintenance program contract with Jet Support Services, Inc. (“JSSI”) in the
amount of $3.4 million. The promissory note provides for seven monthly
installments of $145,867 and 53 monthly installments of $45,867, respectively,
including interest at 7% per year. On April 15, 2008, the Company entered into a
payment arrangement with JSSI by means of a $5.5 million promissory note. The
note matures on April 1, 2011 and bears interest at the rate of
10% per annum, with 35 monthly payments of principal and interest in an
amount of $185,127 beginning on June 2, 2008. The note covers the balance
of the aforementioned $3.4 million promissory note, other costs and fees to be
paid by the Company under service agreements with JSSI and related deferred
financing costs of approximately $1.0 million which will be amortized over the
life of the note using the effective interest method. In connection with the
parties entering into this payment arrangement and the $5.5 million promissory
note, the parties terminated the airframe maintenance contract and have agreed
to apply the unamortized prepayment under the airframe maintenance contract to
the engine maintenance program and will amortize this amount over the remaining
37 month term of that program. Borrowings outstanding under this arrangement at
March 31, 2009 totaled $4.1 million.





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




JMMS,
Inc.: On August 11, 2006, the Company entered into a sale and leaseback
agreement with JMMS, LLC (JMMS). The lease transaction has been accounted for as
finance lease under SFAS 13 and provides for monthly payments of $39,500 through
July 11, 2011.  JMMS, LLC notified the Company that it is terminating
the sale and leaseback agreement between the parties effective March 1, 2009, at
which date, pursuant to the agreement, the Company was required to purchase the
aircraft at a cost of no more than the $4.2 million. The Company is currently in
negotiations to obtain financing and pursuing alternative options relating to
the JMMS termination and as a result the closing date of the transaction was
extended past March 1, 2009, but no later than June 30, 2009. In consideration
for extending the period to close, the Company will make monthly payments for
three consecutive months or until the closing of the aircraft, payable on the
1st
business day of the month beginning April 1, 2009 in the amount of $200,000. The
total amount of the monthly payments made to JMMS by the Company shall be
deducted from the purchase price on the closing date.




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, 2009 in the amount of $1,965,468 is payable in monthly
installments of $27,175 with interest of 8.25% per annum, through July 1,
2011. The note is collateralized by the aircraft.





Wachovia
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 charter card of 100 hours). Financing
was obtained from Wachovia through a note payable of $3.9 million. This debt
will be repaid monthly over 7 years at an interest rate of the LIBOR rate plus
4.0%. Borrowings outstanding under this arrangement at March 31, 2009 totaled
$3.1 million.





Midsouth
Services, Inc.: On October 10, 2007, Avantair acquired a core aircraft under a
capital lease obligation with Midsouth Services, Inc.  Under the lease
agreement, Midsouth provided funding for the $4.7 million purchase of a
pre-owned Piaggio P-180 aircraft and holds title to the Aircraft.  Midsouth
leases the Aircraft exclusively to Avantair on a five year lease at 15% interest
per annum.  The monthly lease payments for the term of the lease are
$89,000.  At the end of the five year lease, Avantair shall purchase the
Aircraft from Midsouth at the guaranteed residual value in the amount of
approximately $2.3 million.  Avantair also has the option to purchase the
Aircraft anytime during the lease term at the then current guaranteed residual
value as set forth on the amortization schedule without penalty. The
obligation outstanding under this agreement at March 31, 2009 totaled
approximately $4.4 million.




In
addition, on November 18, 2008, the Company entered into an aircraft deposit
agreement with MidSouth, for a term of twelve months, which provides for up to
approximately $600,000 of financing for the payment to the aircraft manufacturer
of deposits on future deliveries. As consideration for providing the deposit for
the aircraft during the term of this agreement, the Company has agreed to pay
MidSouth a monthly transaction fee of $9,000 commencing December 2008.
Borrowings outstanding under this arrangement at March 31, 2009 totaled $0.6
million.





For
additional information regarding these financing arrangements, see Notes 4 and 7
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.


24





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, 2009, the liabilities of
Avantair with exposure to interest rate risk were approximately $3.1
million.





Item
4T. Controls and Procedures.





The
Company carried out an evaluation required by Rules 13a-15 and 15d-15 under the
Exchange Act, under the supervision and with the participation of its Chief
Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the
effectiveness of its disclosure controls and procedures as defined in Rules
13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”) as of March 31,
2009. Based on the evaluation, the CEO and CFO concluded that the design and
operation of the Disclosure Controls were ineffective to ensure that information
required to be disclosed in reports that are filed or submitted under the
Exchange Act is (i) recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms, and (ii) accumulated and
communicated to its senior management, including its CEO and CFO, to allow
timely decisions regarding required disclosure.





The
control conscience of the Company is a priority, and thus the Company has taken
steps to increase due diligence in all areas. This due diligence included a
formal cultural and environmental assessment of the Company. A review of each
department’s processes and procedures to identify existing controls and assess
their design and effectiveness, training regarding the COSO framework and the
requirements of Sarbanes-Oxley, as well as implementation of a formal internal
control program. Thus far, the Company has hired a Director of Financial
Reporting and Sarbanes-Oxley Compliance to assist in the understanding and
implementation of internal controls; hired additional accounting personnel with
the appropriate level of knowledge to properly record transactions in the
general ledger and prepare financial statements in accordance with accounting
principles generally accepted in the United States of America; engaged
consultants who are assisting the Company in the implementation of a new
back-office accounting software package; and established a Financial Reporting
Committee to assist in the oversight of the integrity, completeness and
presentation of the Company’s financial statements.




However,
the Company’s internal controls over financial reporting, including our internal
control documentation and testing efforts remain ongoing to ensure continued
compliance with the Exchange Act. For our fiscal quarter ended March 31, 2009,
certain internal controls were identified that management believed should be
improved. These improvements include further formalization of policies and
procedures, improved segregation of duties, additional information technology
system controls and additional monitoring controls. The Company is making
improvements to its internal controls over financial reporting as a result of
its review efforts. However, the conclusions as set forth above were reached
notwithstanding those improvements and modifications.





Because
Avantair has not completed its remediation plan, management has concluded that a
material weakness in the operation of our disclosure controls and procedures
exists and that controls are ineffective at March 31, 2009. However, the Company
believes that it is on schedule with its remediation plan and believes that by
the completion of fiscal 2009, it will have achieved sustainable compliance by
building an efficient infrastructure that enables repeatable and reliable
actions. Any failure to effectively address a material weakness or other control
deficiency of Avantair or implement required new or improved controls, or
difficulties encountered in their implementation, could disrupt Avantair’s
ability to process key components of its results of operations and financial
condition timely and accurately and cause Avantair to fail to meet its reporting
obligations under rules of the Securities and Exchange Commission.





There has
been no change, other than those noted above, in the internal controls over
financial reporting during the fiscal quarter ended March 31, 2009, that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.


25





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. At
March 31, 2009, there were no legal proceedings which outside counsel
anticipates would have a material adverse effect on the Company’s financial
position, results of operations or cash flows.





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,
2008.




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





The
Company’s annual meeting of stockholders was held on March 4, 2009. Of the
15,306,666 shares outstanding and entitled to vote at the meeting, 11,850,391
shares were present at the meeting in person or by proxy. At the meeting the
stockholders:





1.
              Voted
      on the election of seven directors - Barry J. Gordon, Arthur H. Goldberg,
      Steven Santo, Stephanie A. Cuskley, A. Clinton Allen, Robert J. Lepofsky,
      and Richard B. DeWolfe - to serve until the next annual meeting of
      stockholders or until their successors are duly elected and qualified. The
      votes on all directors nominated were as
  follows:





Nominee
                      
                      Votes
      For
                      
                      
                      Votes
      Against/WithheldBarry
      J. Gordon
                      
                      11,846,240
                      
                      
                      4,151Arthur
      H. Goldberg
                      
                      11,843,615
                      
                      
                      6,776Steven
      Santo
                      
                      11,846,240
                      
                      
                      4,151Stephanie
      A. Cuskley
                      
                      11,844,590
                      
                      
                      5,801A.
      Clinton Allen
                      
                      11,846,240
                      
                      
                      4,151Robert
      J. Lepofsky
                      
                      11,844,590
                      
                      
                      5,801Richard
      B. DeWolfe
                      
                      11,846,240
                      
                      
                      4,151




2.    
Ratified the appointment of J.H. Cohn LLP, an independent registered public
accounting firm, as our independent auditors for the fiscal year ending June 30,
2009 with 11,846,240 votes for the ratification, 3,951 votes against the
ratification, and 200 votes abstaining.





Item 6. Exhibits.





See
exhibit index.


26




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 15,
2009





Avantair,
      Inc.By:
                  /s/
      Steven SantoSteven
      SantoChief
      Executive Officer









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