**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-K/A**

**Amendment No. 1**

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

For the fiscal year ended:  October 31, 2008

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 000-27011

**ALPINE AIR EXPRESS, INC.**

*(Exact Name of registrant as specified  in its Charter)*
| Delaware

33-0619518

*(State or other Jurisdiction of Incorporation or organization)*

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

1177 Alpine Air Way

Provo, UT 84601

* (Address of Principal Executive Offices)*

(801) 373-1508

*(Registrant’s Telephone Number, including area code)*

Securities registered pursuant to Section 12(b) of the Act: None 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001

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

Indicate by check mark if  the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [  ]   No [X]

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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. 

(1) Yes [X] No [  ]     (2) Yes [X] No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated 

filer or a smaller reporting company:

 

 

Large accelerated filer       [   ]

Accelerated filer                   [   ]

Non-accelerated filer         [   ]

Smaller reporting company [X]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

State the aggregate market value of the voting and non-voting common stock held by non-affiliates computed by reference to the price at which the common stock was last sold, or the average bid and asked price of such common stock, as of the last business day of the Registrant's most recently completed second fiscal quarter.

April 30, 2008 - $2,107,393  There are approximately 6,021,122 shares of common voting stock of the Registrant beneficially owned by non-affiliates.  There is a limited public market for the common stock of the Registrant, so this computation is based upon the bid price of $0.35 per share of the Registrant's common stock on the OTC Bulletin Board as of April 30, 2008.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Not applicable.

Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date: 

January 28, 2009:  Common – 36,200,801

January 28, 2009:  Preferred – 840,000

**EXPLANATORY NOTE**

**     Alpine Air Express (the “Company) is filing this Amendment to its Form 10-K for the fiscal year ended October 31, 2008, which was originally filed  with the Securities and Exchange Commission on January 29, 2009.**

**     This Form 10-K/A amends and restates its Report of Independent Registered Public Accounting Firm, all Consolidated Financial Statements, and Notes to Consolidated Financial Statements for the fiscal years ended October 31, 2007 and October 31, 2008.  This amendment corrects errors in the reporting of current and deferred income tax expense and the recording of deferred tax assets.  These errors are restated in Note 13-Income Taxes.  This amendment also adds a restatement footnote as Note 18 to the financial statements.  No other information included in the original Form 10-K is amended herein.**

**PART I**

**ITEM 1. DESCRIPTION OF BUSINESS**

Background.

     Alpine Air Express, Inc., a Delaware corporation ("Alpine Air"), is engaged in the air cargo business through its wholly owned subsidiary, Alpine Aviation, Inc., a Utah corporation ("Alpine Aviation").  Alpine Aviation was organized on October 7, 1975, in the state of Utah.  Alpine Aviation has been operated by the same management since 1986.  Alpine Aviation is an air cargo operator, transporting mail packages and other time-sensitive cargo to more than 20 cities in the western portion of the mainland United States and in the Hawaiian Islands. Alpine Aviation began its operations in the 1970's with the intent of being a regional charter and cargo carrier.  After present management acquired control in 1986, Alpine Aviation began to focus less on the charter or passenger services and more on the cargo aspects of the airline industry.  Since the 1990's, Alpine Aviation has focused on hauling mail for the United States Postal Service and carrying packages for United Parcel Service because of their favorable contracts, routes and payment practices.  As a result of this focus, approximately 87% of Alpine Aviation's revenues now come directly from these two customers.

     Alpine Air Express was formed in April, 1994, under the name "Riverside Ventures, Inc."  Prior to its acquisition of Alpine Aviation in June, 2000, Alpine Air Express had no business operations and was actively looking for a business with which to merge or acquire in an effort to create an operation that would provide value to our shareholders.

     On June 12, 2000, Alpine Air Express, under its former name, entered into an agreement and plan of reorganization with Alpine Aviation, pursuant to which Alpine Air acquired all of the outstanding shares of Alpine Aviation.  Pursuant to the terms of the reorganization, Alpine Air Express issued 9,895,000 shares of its common stock to the stockholders of Alpine Aviation in exchange for all of the issued and outstanding shares of Alpine Aviation.  As a result of the reorganization, Alpine Aviation became a wholly owned subsidiary of Alpine Air Express.  As a further result of the reorganization, the management of Alpine Aviation assumed control over Riverside Ventures and changed the company's name from "Riverside Ventures, Inc." to the current name of "Alpine Air Express, Inc."  The reorganization has been treated as a "reverse merger," with Alpine Aviation as the surviving entity for accounting purposes and Alpine Air the surviving entity for corporate purposes. At the time of the reorganization, Alpine Air Express had 1,000,000 shares of common stock outstanding.  Following the reorganization, Alpine Air had 10,895,000 shares outstanding, which was composed of the 1,000,000 shares outstanding prior to the issuance of shares for Alpine Aviation and the 9,895,000 newly issued shares to the Alpine Aviation stockholders.  Alpine Air subsequently issued an additional 105,000 shares, bringing the total outstanding shares to 11,000,000 as of 2003. During 2004 and 2005 the Company issued 122,000 shares, bringing the total outstanding shares to 11,122,000 at 2005.  In 2006, we effected a 3 for 1 stock split and issued additional shares for compensation during 2006 resulting in a total of 36,271,461 outstanding shares at both October 31, 

2006 and 2007. During 2008 the Company purchased 70,660 shares to hold as Treasury Stock bringing the total shares outstanding to 36,200,801.

Routes and Delivery.

     Alpine Aviation currently has 16 air cargo routes covering 29 cities in six western states in the mainland U.S. and 2 routes covering several of the Hawaiian Islands. Alpine also provides contract cargo charter flights for other carriers and for the public.  Most routes are flown every day and some multiple times per day.  In fiscal 2008, Alpine Aviation transported 11,162 tons of cargo.  The largest component of Alpine Aviation's cargo mix is U.S. mail, which accounted for approximately 80% of our fiscal 2008 revenue. The USPS delivers and picks up all cargo we carry at the aircraft, unless other arrangements are called for separately by the contract.  When the USPS delivers and picks up the mail at the side of our aircraft, we are able to reduce our costs significantly.

     

     Alpine currently operates 28 aircraft on two national certificates (one is inactive).  The largest aircraft in our fleet is a Beechcraft 1900, which holds approximately 6,000 pounds of cargo.  Our other aircraft type is the Beechcraft 99, which holds approximately 3,400 pounds of cargo. The Company also owns 2 Beechcraft 1900-D aircraft (passenger configuration) and currently leases them on an annual lease basis.

Industry overview.

     The package delivery and air cargo business has evolved rapidly over the last two decades, driven by the integration of world markets, the rationalization of corporate supply chains and the implementation of enterprise software and internet-based information technology solutions. The ability to provide time-definite delivery options and transfer information increasingly determines success.  Customer demands for real-time information processing and worldwide distribution and logistics capabilities favor companies with integrated services. 

     Customers increasingly focus on the timing and predictability of deliveries rather than the mode of transportation. As customers re-engineer the total distribution process, which includes order processing, administration, warehousing, transportation and inventory management, they attempt to reduce the most expensive and fastest growing component, inventory carrying costs. Time-definite transportation, which is no longer limited to air express, has become a critical part of just-in-time inventory management and improving overall distribution efficiency.

     Technology advances have made it easier for companies to analyze and compare distribution options.  As a result of these changes, individual shipments are generally smaller but more frequent and a greater proportion of products are being delivered directly to end-users, particularly as e-commerce takes hold.  Customers expect high performance levels and broad product offerings as they seek to optimize supply chain solutions.

 

    There has been dramatic growth in the utilization of e-commerce by both consumers and businesses for the transfer of goods.  Consumers who use the internet for home shopping and other services shop across borders and require global delivery capabilities.

     Delivery of packages to a specific destination at a guaranteed time has been the growth engine for the package delivery industry over the past decade. The industry has become increasingly dominated by large integrated carriers such as UPS and FedEx that provide seamless services, including pick-up and delivery, shipment via air and/or road transport and customs clearance. The pace of consolidation in the package delivery industry has increased on a global scale.

     Industry participants are acquiring, merging with or forming alliances with partners that can expand global reach, breadth of services or technological capabilities in order to better enable those participants to compete in a rapidly changing global environment.  In particular, government-run post offices have made several recent alliances with and acquisitions of private-sector companies.  Post offices, which still maintain numerous advantages over private-sector companies, create significant challenges for competitors worldwide.

     With the growth in cargo and e-commerce taking a greater hold, we feel the need for companies like Alpine Air will only continue to expand.  We offer the ability to deliver mail and cargo to smaller markets without many of the associated capital costs.

Employees.

     The Company has 122 employees, 67 of which are full time, including 10 in administration and 46 in flight operations, which includes 32 pilots.  No employees belong to any labor union or have employment contracts.

**Risk Factors**

     There is always a risk that our contracts with the USPS will not be renewed or extended when they expire, however, we have been contracting with them for nearly 20 years and we have always been able to renew or win bids on the routes which we wanted to keep. Management is hopeful that the current routes will continue to be flown by Alpine aircraft.

**Unresolved Staff Comments**

     Not Applicable

**ITEM 2. DESCRIPTION OF PROPERTIES**

     Alpine Air is headquartered in its owned facility located in Provo, Utah.  This facility is on leased property at the Provo Municipal Airport. Our hangar consists of approximately 25,000 square feet with attached corporate offices.  The hangar and offices have been valued at a cost of approximately $1,200,000. 

     The company also leases a 10,403 square foot hangar in Billings, Montana at the Logan International Airport and has permits to lease and use hangar and office space with the State of Hawaii, Department of Transportation for our air cargo operations serving the Hawaiian Islands.

     We carry extensive insurance coverage on all facilities as well as aircraft.  Management believes our insurance coverage is adequate to cover any damage to our facilities or aircraft and any resulting liabilities.  

**ITEM 3. LEGAL PROCEEDINGS**

     Alpine Air has been named in a lawsuit by a former employee for claims of approximately $50,000 related to wrongful termination. The plaintiff is not actively pursuing prosecution and we believe the case may be dismissed for lack of prosecution. 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS**

     Not Applicable

**PART II**

**ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

     Alpine Air's common stock is currently quoted on the National Association of Securities Dealers Electronic Bulletin Board under the symbol "APNX" (a change in the previous "ALPE" symbol took place during the current fiscal year). Set forth below are the high and low closing bid prices for our common stock for each quarter.  These bid prices were obtained from Yahoo Finance (available on the internet ). All prices listed herein reflect inter- dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions. 

Quarter Ended

High Bid

Low Bid

October 31, 2006

$0.44

$0.44

January 31, 2007

$0.35

$0.35

April 30, 2007

$0.35

$0.35

July 31, 2007

$0.35

$0.35

October 31, 2007

$0.42

$0.42

January 31, 2008

$0.40

$0.35

April 30, 2008

$0.55

$0.50

July 31, 2008

$0.30

$0.30

October 31, 2008

$0.07

$0.05

     We cannot guarantee that the present market for our common stock will continue or be maintained, and the resale of "unregistered" and "restricted" shares pursuant to Rule 144 of the Securities and Exchange Commission may substantially reduce the market price of our common stock. 

Holders.

     As of January 28, 2009, there were 36,200,801 post split shares of common stock outstanding held by approximately 682 active holders of record, including broker-dealers and clearing corporations holding shares on behalf of their customers, as reported by the Company's transfer agent.  This figure does not include an indeterminate number of stockholders who may hold their shares in street name. 

Dividends.

     Since its inception, Alpine Air has paid no dividends on its common stock, and we do not anticipate that we will pay any dividends in the foreseeable future.

Recent Sales of Unregistered Securities.

     Except as indicated below, Alpine Air has not sold any equity securities during the period covered by this Annual Report that were not registered under the Securities Act of 1933, as amended.  

**ITEM 6.  SELECTED FINANCIAL DATA**

Not Applicable

**ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS**

General.

     Alpine Aviation Inc. provides air cargo transportation services in the United States in Hawaii, Montana, North Dakota, South Dakota, Wyoming, Nebraska, and Colorado.  While the USPS is our primary customer, we also provide contract cargo and charter services for other package delivery and cargo carriers. We continue to offer package delivery services for local businesses between the islands in Hawaii. In addition to air cargo transportation, the Company provides maintenance service on aircraft owned or operated by third parties, leasing of  passenger aircraft, and operates a First Officer Training Program.

     Revenues were nearly $20 million in 2008, a nearly 8% increase from the $18.4 million in 2007.  The primary increase in revenues came from several places; contract changes in the Hawaii USPS contract, wherein the USPS extended the contract and added fuel escalators to the contract, acquiring additional contracts with UPS, and the acquisition and subsequent leasing of 2 1900-D passenger aircraft. 

     The new agreement with the Hawaii USPS commenced in January 2006 and expired in June 2008. The USPS has elected to extend the contract and has notified the Company that it has elected to bid the contract out in February/March 2009 . If the Company were unable to be the successful bidder on this contract, it would have a significant impact on earnings and revenues. However, management has had substantial success in renewing contracts with the USPS over the past 20 years. 

     The Montana/South Dakota USPS contract currently runs through June 2009 with two 1-year extensions available to the USPS. Based on USPS contract renewal history, the Company expects the USPS to take advantage of the extensions. Again, if the Company were unable to renew this contract, it would have a significant impact on earnings and revenues. However, management has had substantial success in renewing contracts with the USPS over the past 20 years.

     In 2008, the Company carried over 11,162 tons of cargo as compared to 10,877 tons in 2007. This increase is directly attributable to the addition of more UPS contracts in March 2008. The Company has experienced lighter cargo loads in their Charter flights in Hawaii, which have been offset by the addition of the UPS routes in Montana.

     The Company continued to experience rising costs in fuel, insurance, contract labor costs and professional services fees. Public fuel prices increased over 120% during the current fiscal year. These costs along with the need to continue maintenance and repair of our aircraft place a strong demand on our cash resources.

     Liquidity and Capital Resources.

October 31, 2008 and 2007.

     The Company has a working capital position on October 31, 2008 of $1,839,462, as compared to working capital on October 31, 2007, of $2,321,323. The decrease in working capital has been the direct result of significant reductions in operating expenses, negotiated increases in contract revenues, and re-allocation of aircraft resources, offset by capital expenditures and higher fuel prices. 

     The Company's decrease in working capital was a result of multiple factors, including decreases in cash balances of $388,035 and increases in Accounts Receivable of $245,533 and in Inventory of $410,779. There was also an increase in Accounts Payable of $174,389. An increase of $677,268 was also noted in the current portion of the notes payable accounts, as the Company has entered into additional debt for the purchase of additional aircraft.  The Company presently has no material off-balance sheet financing arrangements.

     Total assets increased to $25,413,758 on October 31, 2008 from $23,222,030 on October 31, 2007. Total liabilities also increased to $11,916,143 from $9,109,622 during the same period. Our stockholders' equity has also decreased from $14,112,408 to 13,497,615 for October 31, 2007 and October 31, 2008, respectively.

     For the year ended October 31, 2008 there was a net profit from operations before income taxes and preferred stock dividends of $1,811,113. This is a significant decrease from the previous year’s net income of $3,918,184. The difference is mostly derived from the significant increase in fuel prices to the Company and start-up costs related to our new contracts with UPS, which commenced on March 1, 2008. Depreciation was $2,218,710 for an increase of $332,217 over last year. This increase is mostly due to the acquisition of aircraft to the fleet and additional ground equipment purchases.

    During the year ended October 31, 2008, the company has continued to reduce the tax NOL carryforward created in prior years and accordingly, there was a decrease in the deferred tax benefits of $434,812.  

     Investing activities for the year ended October 31, 2008, included receiving $1,889,870 in net cash receipts primarily from the proceeds of the sale of property and equipment. Additional equipment purchases during the current year totaled $5,695,764.

     For the year ended October 31, 2008, net cash received from financing activities was $445,448, which includes new funds made available of $4,000,000 and subsequent use primarily from payments of $1,459,580 towards notes payable and the redemption of $1,456,640 of Preferred Stock in the Company. All Alpine aircraft are currently pledged as collateral on the line of credit, Notes Payable and Preferred Stock of the Company.

     For the year ended October 31, 2007, net cash used in financing activities was $1,666,001, which includes new funds made available of $6,000,000 and subsequent use primarily from payments of $4,119,168 towards notes payable and $2,194,443 from payments to related party notes payable. For the year ended October 31, 2006, financing activities used net cash of $1,689,506, with $1,417,879 paid on notes payable and $369,627 towards notes payable related parties.

     For the years ended October 31, 2008 and 2007, net increases (uses) in cash and cash equivalents were $(388,035) and $573,295, and ending cash and cash equivalents was $691,296 and $1,079,331, respectively. 

Results of Operation.

     During the year ended October 31, 2008 total operating revenues were $19,840,376, representing a nearly 8% increase from the 2007 revenues of $18,380,301.  This increase is a attributable to the addition of the UPS flights and continuation of the modifications made to the Hawaii USPS contract which reduced overall aircraft flights. Total direct costs continued to increase to $16,378,631 from $12,468,243 for the years 2008 and 2007, respectively. This 32% increase in total direct costs was driven by a combination of actions including the significant increases in fuel prices to the Company combined with the additional start-up costs for the UPS contracts in Billings. These increases are combined with a more effective deployment of Company assets and successful cost management initiatives implemented by management. 

     Alpine's revenue from Public Services which include its First Officer Training Program, aircraft leasing and aircraft maintenance provided to outside entities decreased slightly in 2008 to $204,494 from $249,240 in 2007, while expenses for Public Services also increased to $216,254 from $162,101 in 2007.

     Operating expenses decreased to $1,025,618 from $1,415,100 for the years ended October 31, 2008 and 2007 respectively.  During the year ended October 31, 2008 and 2007, gain on disposal of assets was $499,623 and $397,918, respectively. 

     During the year ended October 31, 2008, Other Income (expense) was $625,014 compared to the previous year total of $578,774. The increase was the direct result of additional interest paid by the Company due to additional financing and the required amortization of the Company’s recent granting of Stock Options. 

     Total income tax expense for the year ended October 31, 2008 and 2007 was $434,812 and $1,163,183, respectively.   

     For the year ended October 31, 2008 and 2007, income before preferred dividends was $1,376,301 and $2,755,001, or $0.04 per share and $0.08 per share and, respectively. For the same periods net income available to shareholders was $120,193 and $1,445,001, and $0.00 per share and $0.04 per share, respectively. The difference of $1,256,108 and $1,310,000 ($0.03 and $0.04 per share), respectively, is related to dividends declared on preferred stock and the amortization of a preferred stock discount analogous to a preferred stock dividend. The amortization portion of the preferred stock discount will end in December 2008.

Critical Accounting Policies and Estimates.

     The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the U.S. requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company's estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. The most significant estimates made by management include allowance for doubtful accounts receivable, reserves for excess and obsolete inventories, deferred tax asset valuation, revenue recognition and valuation of long-lived assets. 

     Following is a discussion of critical accounting policies and related management estimates and assumptions. 

     Allowance for Doubtful Accounts. An allowance for doubtful accounts receivable in the amount of $22,540 and $19,390, respectively, as of October 31, 2008 and 2007, and was established based on management's estimates of the collectability of accounts receivable. The required allowance is determined using information such as customer credit history, industry information, credit reports, customer financial condition and the collectability of outstanding accounts receivables associated with a discontinued business segment. The estimates can be affected by changes in the financial strength of the aviation industry, customer credit issues or general economic conditions. 

     Inventories. The Company's parts inventories are valued at the lower of cost or market. Reserves for excess and obsolete inventories in the amount of $52,525 and $47,489, respectively, as of October 31, 2008 and 2007, are based on assessment of the marketability of slow-moving and obsolete inventories. Estimates are subject to volatility and can be affected by reduced equipment utilization, existing supplies of used inventory available for sale, the retirement of aircraft or ground equipment and changes in the financial strength of the aviation industry. 

     Deferred Taxes. Net deferred tax assets of $160,000 and $594,812 are shown net of valuation allowance in the amount of $120,000 and $314,255, as of October 31, 2008 and 2007, respectively, to reflect the likelihood of the recoverability of these assets. Company judgment of the recoverability of these assets is based primarily on estimates of current and expected future earnings and tax planning. The balance of net deferred tax assets will continue to decrease as the Company continues to perform well. 

     Revenue Recognition. Cargo revenue is recognized upon completion of contract terms and maintenance revenue is recognized when the service has been performed. These contracts vary in length but average three years, with some having options for an additional year(s). 

     Valuation of Long-Lived Assets. The Company assesses long-lived assets used in operations for impairment when events and circumstances indicate the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amount. In the event it is determined that the carrying values of long-lived assets are in excess of the fair value of those assets, the Company then will write-down the value of the assets to fair value.

 

Safe Harbor Statement.

     Statements made in this Form 10-K which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of the Company, including, without limitation, (i) our ability to retain existing commercial relationships and to obtain additional profitable sources of revenue, and (ii) statements preceded by, 

followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets" or similar expressions.

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

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

**ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

     Not Applicable

**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

ALPINE AIR EXPRESS, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2008

ALPINE AIR EXPRESS, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

 

PAGE

Report of Independent Registered Public Accounting Firm

2

Consolidated Balance Sheets at October 31, 2008 and 2007

3 - 4

Consolidated Statements of Operations for the years ended October 31, 2008 and 2007

5 - 6

Consolidated Statement of Stockholders' Equity for the years ended

October 31, 2008 and 2007

7 – 9

Consolidated Statements of Cash Flows, for the years ended October 31, 2008 and 2007

10 - 11

Notes to Consolidated Financial Statements

12 - 26

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

Provo, Utah

We have audited the accompanying balance sheets of Alpine Air Express, Inc. and Subsidiary as of October 31, 2008 and 2007 and the related statements of operations, stockholders' equity and cash flows for each of the years in the two-year period ended October 31, 2008. Alpine Air Express, Inc. and Subsidiary’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Alpine Air Express, Inc. and Subsidiary as of October 31, 2008 and 2007 and the results of its operations and its cash flows for each of the years in the two-year period ended October 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

As described in Note 18 to the financial statements, the financial statements for the years ended October 31, 2008 and 2007 have been restated to correct errors in the reporting of current and deferred income tax expense and the recording of deferred tax assets.

**PRITCHETT, SILER & HARDY, P.C.**

Salt Lake City, Utah

January 28, 2009, except for Notes 13 and 18

as to which the date is January 26, 2010

2

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

** CONSOLIDATED BALANCE SHEETS**

**ASSETS**

 

October 31,

2008

(As Restated)

October 31,

2007

(As Restated)

** CURRENT ASSETS:**

 

 

 

   Cash and cash equivalents

**$**

720,794

$1,108,829

   Trade accounts receivable, net

 

2,254,241

2,008,708

   Inventories

 

1,795,119

1,384,340

   Prepaid expenses

 

658,874

557,936

   Deposits

   Cash Value Life Insurance

   Income Taxes Receivable

   Other Current Assets

 

86,667

70,005

23,894

80,082

10,130

-

-

-

   Deferred tax asset, current

 

133,000

116,497

      Total Current Assets

 

5,822,676

5,186,440

 

 

 

 

**PROPERTY AND EQUIPMENT,**net

 

19,389,082

17,302,275

 

 

 

 

**OTHER ASSETS**

 

175,000

255,000

 

 

 

 

**DEFERRED TAX ASSETS,**long-term

 

27,000

478,315

 

 

 

 

**TOTAL ASSETS**

$

25,413,758

$23,222,030

[*Continued*]

3

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

**CONSOLIDATED BALANCE SHEETS**

**[*Continued*]**

**LIABILITIES AND STOCKHOLDERS' EQUITY**

 

October 31, 2008

(As Restated)

October 31,

2007

(As Restated)

**CURRENT LIABILITIES:**

 

 

 

   Trade accounts payable

$

1,074,971

$900,582

   Accrued liabilities

 

925,458

584,508

   Deferred Revenue

 

11,148

16,992

   Dividends Payable

 

29,961

98,627

   Current portion of notes payable

 

1,941,676

1,264,408

      Total Current Liabilities

 

3,983,214

2,865,117

**DEFERRED GAIN ON SALE OF ASSETS**

 

95,997

270,725

 

 

 

 

**NOTES PAYABLE,**net of current portion

 

7,836,932

5,973,780

**      **Total Liabilities

 

11,916,143

9,109,622

**STOCKHOLDERS' EQUITY:**

 

 

 

Preferred stock, $.001 par value, $9.104 stated value, 1,000,000 shares

 authorized 840,000 and 1,000,000 shares issued and outstanding, net of discount

 of $89,780 and $808,019 for the years ending 2008 and 2007, respectively

 

7,557,580

8,295,981

Common stock, $.001 par value, 100,000,000 shares authorized, 

 36,271,461 issued and 36,200,801 and 36,271,461 shares 

 outstanding for the years ended 2008 and 2007, respectively

Treasury Stock

 

36,271

(31,797)

36,271

-

dditional paid-in capital

 

2,385,315

2,350,103

Retained earnings

 

3,550,246

3,430,053

    Total Stockholders’ Equity

 

13,497,615

14,112,408

Total Liabilities and Stockholders’ Equity

$

25,413,758

$23,222,030

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

4

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

** CONSOLIDATED STATEMENTS OF OPERATIONS**

 

 

For the years ended 

October 31,

(As Restated)

 

2008

 

   2007

**OPERATING REVENUE:**

 

 

 

 

 

 

**   **Operations

 

$

  19,635,882

 

$

18,131,061

**   **Public services

 

 

       204,494

 

 

249,240

**      **Total Operating Revenues

 

 

  19,840,376

 

 

18,380,301

**DIRECT COSTS:**

 

 

 

 

 

 

**   **Operations

 

 

  16,162,377

 

 

  12,306,142

**   **Public services

 

 

        216,254

 

 

        162,101

**      **Total Direct Costs

 

 

16,378,631

 

 

  12,468,243

**      **Gross Profit

 

 

3,461,745

 

 

    5,912,058

**OPERATING EXPENSES:**

 

 

 

 

 

 

   General and administrative

 

 

1,525,241

 

 

   1,813,018

   (Gain) loss on disposal of assets

 

 

(499,623)

 

 

(397,918)

**      **Total Operating Expenses

 

 

1,025,618

 

 

   1,415,100

Operating income (loss)

 

 

2,436,127

 

 

   4,496,958

**OTHER INCOME (EXPENSE):**

 

 

 

 

 

 

**   **Interest income

 

 

48,381

 

 

         44,082

   Interest expense

 

 

     (673,395)

 

 

     (622,856)

**      **Total Other Income (Expense)

 

 

(625,014)

 

 

(578,774)

**INCOME (LOSS) BEFORE TAXES AND PREFERRED STOCK DIVIDEND**

 

 

1,811,113

 

 

3,918,184

**   **Current income tax expense (benefit)

 

 

-

 

 

29,498

**   **Deferred income tax expense (benefit)

 

 

434,812

 

 

1,133,685

**INCOME (LOSS) BEFORE PREFERRED STOCK DIVIDEND**

 

$

1,376,301

 

$

2,755,001

 

 

 

 

 

 

 

(continued)

5

**      ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

**  CONSOLIDATED STATEMENTS OF OPERATIONS**

**[*Continued*]**

 

For the Years Ended

 October 31,

(As Restated)

 

2008

 

2007

**Preferred Stock dividend declared and**

 

 

 

 

 

  Amortization of preferred stock discount analogous to a preferred stock dividend of a Subsidiary

 

-

 

 

   (655,000)

**NET INCOME (LOSS)**

$

1,376,301

 

$

2,100,001

**Preferred Stock dividend declared and**

Amortization of preferred stock discount analogous to a preferred stock dividend     

 

(1,256,108)

 

 

(655,000)

**NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS**

$

120,193

 

$

1,445,001

**NET INCOME (LOSS) PER COMMON SHARE**

 

 

 

 

 

   Basic

$

0.00

 

$

0.04

   Diluted

$

0.00

 

$

0.02

 

 

 

 

 

 

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

6

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED OCTOBER 31, 2008 AND 2007

 

Preferred Stock

In Parent

 

Preferred

Stock

 

Common Stock

 

 

Shares

 

Amount

 

Discount

 

Shares

 

Amount

 

BALANCE, October 31, 2006

-

 

 

-

 

 

-

 

 

36,271,461

 

 

36,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Preferred Stock in Parent

1,000,000

 

 

9,104,000

 

 

(1,167,139)

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year ended October 31, 2007

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and amortization of preferred stock discount analogous to a preferred stock dividend

-

 

 

-

 

 

359,120

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock subscription Receivable

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt forgiveness on early N/P redemption

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, October 31, 2007

1,000,000

 

$

9,104,000

 

$

(808,019)

 

 

36,271,461

 

$

36,271

 

Net income for the year ended October 31, 2008

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redemption of Preferred stock

(160,000)

 

 

(1,456,640)

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and amortization of preferred stock discount analogous to a preferred stock dividend

-

 

 

-

 

 

718,239

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of Stock options

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Stock

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, October 31, 2008

840,000

 

$

7,647,360)

 

$

(89,780)

 

36,271,461

 

$

36,271

 

                                                                               (continued)

7

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED OCTOBER 31, 2008 AND 2007

 

 

 

 

 

 

 

Additional Paid-in Capital

 

Stock Subscription Receivable

 

Treasury Stock

 

Retained Earnings

 

Accumulated Total

 

BALANCE, October 31, 2006

$2,198,452

 

 

($260,834)

 

 

-

 

 

$1,985,052

 

 

$3,958,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Preferred Stock in Parent

-

 

 

-

 

 

-

 

 

-

 

 

7,936,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year ended October 31, 2007 (As Restated)

-

 

 

-

 

 

-

 

 

2,100,001

 

 

2,100,001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and amortization of preferred stock discount analogous to a preferred stock dividend

-

 

 

-

 

 

-

 

 

(655,000)

 

 

(295,880)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock subscription Receivable

-

 

 

260,834

 

 

-

 

 

-

 

 

260,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt forgiveness on early N/P redemption

151,651

 

 

-

 

 

-

 

 

-

 

 

151,651

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, October 31, 2007 (As Restated)

$2,350,103

 

$

-

 

$

-

 

 

$3,430,053

 

$

14,112,408

 

Net income for the year ended October 31, 2008 (As Restated)

-

 

 

-

 

 

-

 

 

1,376,301

 

 

1,376,301

 

Redemption of Preferred Stock

-

 

 

-

 

 

-

 

 

-

 

 

(1,456,640)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and amortization of preferred stock discount analogous to a preferred stock dividend

-

 

 

-

 

 

-

 

 

(1,256,108)

 

 

(537,869)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

Amortization of Stock Options

35,212

 

 

-

 

 

-

 

 

-

 

 

35,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Stock

-

 

 

-

 

 

(31,797)

 

 

-

 

 

(31,797)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, October 31, 2008 (As Restated)

$2,385,315

 

$

-

 

$

(31,797)

 

$

3,550,246

 

$

13,497,615

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

9

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

For the Year Ended October 31,

 

2008

(As Restated)

 

2007

(As Restated)

**Cash flows from operating activities:**

 

 

 

 

 

Net income (loss)

$

1,376,301

 

$

2,100,001

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

   Realized gain on sale of fixed assets

 

(499,623)

 

 

(397,918)

   Deferred tax expense (benefit)

 

        434,812

 

 

1,133,685

   Depreciation and amortization

 

2,218,710

 

 

1,886,493

   Change in allowance for bad debt

 

3,150

 

 

                  5,720

   Change in Inventory Valuation

    Non-Cash Items

 

5,036

35,212

 

 

-

260,834

   Preferred Stock Dividends and related amortization

 

-

 

 

655,000

 

 

 

 

 

 

   Changes in operating assets and liabilities:

 

 

 

 

 

      Trade accounts receivable

 

(248,683)

 

 

(199,250)

      Inventories

 

(415,815)

 

 

32,731

      Income taxes receivable

 

(23,292)

 

 

-

      Deposit

 

-

 

 

5,760

      Cash Surrender Value of Officer Life Insurance Policy

      Other Current Assets

      Prepaid expenses

 

(70,005)

(82)

(101,540)

 

 

-

-

61,485

      Trade accounts payable

 

174,389

 

 

(861,391)

      Accrued expenses

 

340,950

 

 

54,333

      Deferred gain amortization

      Refundable Deposits

 

(174,728)

(76,537)

 

 

(174,729)

-

      Deferred Revenue

 

(5,844)

 

 

16,992

          Total adjustments

 

1,596,110

 

 

2,479,745

              Net cash provided by (used in) operating activities

 

2,972,411

 

 

4,579,746

 

 

 

 

 

 

**Cash flows from investing activities:**

Purchase of Marketable Securities

 

(80,000)

 

 

-

Proceeds from sale of property and equipment

 

1,889,870

 

 

556,900

Purchase of property and equipment

 

(5,695,764)

 

 

(2,867,852)

Proceeds from reduction in Security Deposits

 

80,000

 

 

-

             Net cash provided by (used in) investing activities

 

(3,805,894)

 

 

(2,310,952)

 

 

 

 

 

 

**Cash flows from financing activities:**

 

 

 

 

 

Payment on notes payable

Payment on dividends payable

 

(1,459,580)

(606,535)

 

 

(4,119,168)

(2,194,443)

Payment on notes payable - related party

Purchase of Treasury Stock

Payment for Redemption of Preferred Stock

 

-

(31,797)

(1,456,640)

 

 

(1,254,390)

-

Line of Credit Increase

 

-

 

 

(98,000)

Proceeds from Notes payable

 

4,000,000

 

 

6,000,000

            Net cash provided by (used in) financing activities

 

445,448

 

 

(1,666,001)

 

 

 

 

 

 

**Net change in cash and cash equivalents**

 

(388,035)

 

 

602,793

 

 

 

 

 

 

**Beginning cash and cash equivalents**

 

1,108,829

 

 

506,036

 

 

 

 

 

 

**Ending cash and cash equivalents**

$

720,794

 

$

1,108,829

 [*Continued*]

10

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**[*Continued*]**

 

For the Year Ended October 31,

 

2008

 

2007

**Supplemental disclosures of cash flow information:**

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

   Interest

$

625,014

 

$

703,317

   Income taxes

$

                -

 

$

29,498

Non-cash investing and financing activities:

For the year ended October 31, 2008:

The Company redeemed 160,000 shares of Preferred Stock with a value of $9.104 per share, for a total of $1,456,640 in cash.

The Company had preferred dividend expense of $1,256,108 which is comprised of $537,868 in dividends and $718,240 of amortized discount on preferred stock analogous to a preferred stock dividend. 

The Company purchased 70,660 shares of its own stock to hold as Treasury Stock. Total value of $31,797.

As required by SFAS123R, the Company has established the amortization of the value of Stock Options issued during the year. Total cost recorded this year is $35,212 which is a non-cash item.

For the year ended October 31, 2007:

In April 2007, the Company issued 1,000,000 shares of new Preferred Stock with a value of $9.104 per share (see Note 11). This new issuance was exchanged share for share for the outstanding Preferred Shares issued from the company’s subsidiary, Alpine Aviation, Inc. This transaction had no effect on the Company’s cash.

In July 2007 the Company restructured most of its outstanding debt and paid all outstanding Related Party Notes Payable. As part of the restructuring, the related party involved agreed to discount the balances due by $151,651. This amount was properly recorded as forgiveness of debt and booked as increase to Paid In Capital.  

The Company had preferred dividend expense from a subsidiary of $655,000 which is comprised of $295,880 in dividends and $359,120 of amortized discount on preferred stock analogous to a preferred stock dividend. The Company also had preferred dividend expense of $655,000 which is comprised of $295,880 in dividends payable and $359,120 of amortized discount on preferred stock analogous to a preferred stock dividend. 

Stock subscription balance was reduced to $0 from $260,834. These were related to a services contract which was in its second and final year and has been amortized over the past two years.

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

11

 **ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

** NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

This summary of significant accounting policies of Alpine Air Express, Inc. and subsidiary (the "Company") is presented to assist in understanding the Company's financial statements. These accounting policies conform to accounting principles generally accepted in the United States of America (USGAAP) and have been consistently applied in the preparation of the consolidated financial statements.

**Organization and business description** - Alpine Aviation, Inc. (Alpine) was incorporated in the state of Utah on October 7, 1975.  On June 12, 2000 Alpine entered into a transaction that was accounted for as a reverse merger with Riverside Ventures, Inc., a Delaware corporation incorporated on April 20, 1994. At the time of the transaction, Riverside Ventures, Inc. was inactive. All of the outstanding common stock of Alpine was exchanged for 29,685,000 shares of common stock of Riverside Ventures, Inc.  The transaction, accounted for as a reverse acquisition, resulted in a recapitalization of Alpine, inasmuch as it was deemed to be the acquiring entity for accounting purposes. Riverside Ventures, Inc. changed its name to Alpine Air Express, Inc.  The Company is an air cargo operator, transporting mail, packages and other time-sensitive cargo between cities in the western portion of the United States. 

**Principles of consolidation** – The consolidated financial statements include the accounts and operations of Alpine Air Express, Inc., and its wholly-owned subsidiary Alpine Aviation, Inc. as of October 31, 2008 and 2007 (together referred to as the Company). All material inter-company transactions and accounts have been eliminated in the consolidation.

**Cash and cash equivalents** - The Company considers demand deposits at banks and money market funds at other financial institutions with an original maturity of three months or less to be cash equivalents.  At October 31, 2008, the Company had cash balances in excess of federally insured limits in the amount of $642,049. 

 

**Other assets -**At October 31, 2008, the Company had three restricted cash time deposits totaling $175,000 held as collateral for debt of a third party and is included in other assets. (See Note 5)

**Trade accounts receivable** - The Company grants credit to its customers, substantially all of whom are businesses located in the United States. The Company does not require collateral on any of its trade accounts receivable.

**Inventories** - Inventories consist of aircraft parts and fuel stated at the lower of cost or market, determined using the first-in, first-out method (FIFO).

  

**Property and equipment** - Provision for depreciation for financial reporting purposes of property and equipment is computed on the straight-line method over their estimated useful lives ranging from three to forty years. (See Note 5) Maintenance, repairs, and renewals, which neither materially add to the value of the property and equipment nor appreciably prolong the useful lives are charged to expense as incurred.  Gains and losses on dispositions are included in operations.

**Engine overhauls** - The Company had previously used the direct expense method to account for engine overhauls and has elected to make a change in accounting method during the year ended October 31, 2006. The Company has elected to make a "Change in Accounting Method" in order to use the deferral method of accounting for our major engine and airframe component overhauls and which provides for major engine and airframe component overhaul costs to be capitalized and depreciated over the estimated useful life of the engine and airframe components. This method will provide a more consistent approach to accounting for major engine and airframe component overhauls. 

12

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

** NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [*CONTINUED*]**

**Impairment of long-term assets** - The Company reviews all long-term assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable through undiscounted future cash flows. If an impairment loss has occurred, such loss is recognized in the determination of net income.  

**Income taxes** - The Company utilizes the liability method of accounting for income taxes.  Under the liability method, deferred tax assets and liabilities are determined based on the difference between financial accounting and tax bases of assets and liabilities using enacted tax rates in effect during the years in which the differences are expected to reverse.  An allowance against deferred tax assets is recorded in whole or in part when it is more likely than not that such tax benefits will not be realized. (See note 13)

**Use of estimates** - In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period.  Actual results could differ from those estimates.

**Fair value of financial instruments** - Cash and cash equivalents, marketable securities, accounts receivable, and accrued liabilities are reflected in the financial statements at fair value because of the short-term maturity of these instruments.  Management is not able to practicably estimate the fair value of the notes receivable from related parties due to the related party nature of the underlying transactions.

**Income (Loss) per common share** - The Company follows the provisions of Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No. 128).  SFAS No. 128 requires the presentation of basic and diluted earning per share.  Basic earnings per share are calculated by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are similarly calculated, except that the weighted-average number of common shares outstanding includes common shares that may be issued subject to existing rights with dilutive potential. Potential common shares having an anti-dilutive effect on periods presented are not included in the computation of dilutive earning per share. (See note 12)

**Revenue and cost recognition** - The Company utilizes the accrual method of accounting whereby revenue is recognized when earned. Air freight revenue is recognized upon delivery of cargo to its destination.  Public services revenue consists of charter income, pilot training fees, and customer maintenance services.  Charter income and customer maintenance services income is recognized when the service is performed.  Pilot training revenue is recognized over the course of the program, based on the pro rata share of the course completed to date. The tuition revenue received, but not yet earned, is deferred and recorded as "refundable deposits" on the balance sheet.

  

**Recently Enacted Accounting Standards -**Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”, SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115”, SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements” (as amended), SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133”, SFAS No. 162, “The Hierarchy of GAAP Sources for Non-governmental entities”, and SFAS No. 163, “ Accounting for Financial Guarantee Insurance Contracts” were recently issued.  SFAS No. 157, 159, 160, 161, 162 and 163 have no current applicability to the Company or their effect on the financial statements would not have been significant.

13

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

** NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [*CONTINUED*]**

**Stock Based Compensation** - The Company currently accounts for its stock based compensation in accordance with Statement of Financial Accounting Standards ("SFAS") No. 123 (as revised in 2004) "Accounting for Stock-Based Compensation." This statement establishes an accounting method based on the fair value of equity instruments awarded to employees as compensation. Equity instruments issued to non-employees are valued based on the fair value of the services received or the fair value of the equity instruments given up which ever is more reliably measurable.  Beginning in February 2006, the Company adopted the Provisions of SFAS No. 123 as revised in 2004 which will require that options issued to employees as compensation be valued at fair value. 

During 2007, the Company issued options to purchase 425,278 shares of common stock to employees and directors. During 2008 the Company has issued options to purchase 575,000 shares of common stock to employees and directors. All of these options were issued under the Company’s established equity incentive plan. 

14

** ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**NOTE 2 - TRADE ACCOUNTS RECEIVABLE**

  Trade accounts receivable consist of the following at: 

 

October 31,

 

2008

 

2007

 

 

 

 

 

 

Trade accounts receivable

$

2,276,781

 

$

2,028,098

 

 

 

 

 

 

   Less allowance for doubtful accounts

 

(22,540)

 

 

(19,390)

 

 

 

 

 

$

2,254,241

 

$

2,008,708

Bad debt (recovery) expense for the year ended October 31, 2008 and 2007 was $3,150 and $(6,912), respectively.

**NOTE 3 - PREPAID EXPENSES**

  Prepaid expenses consist of the following at: 

 

October 31,

 

2008

 

2007

(As Restated)

 

 

 

 

 

 

Prepaid expenses and credits

$

490,975

 

$

274,719

Prepaid other taxes

 

167,899

 

 

283,217

 

 

 

 

 

$

658,874

 

$

557,936

**NOTE 4 - INVENTORIES**

  The composition of inventories is as follows at: 

 

October 31,

 

2008

 

2007

 

 

 

 

 

 

Aircraft Parts

$

1,363,116

 

$

1,000,025

Work in Process

Fuel

438,884

45,644

 

405,844

25,960

Allowance

 

(52,525)

 

 

(47,489)

 

 

 

 

 

$

1,795,119

 

$

1,384,340

15

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

** NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 5 – PROPERTY PLANT & EQUIPMENT**

Property and equipment consists of the following at:

 

Estimated life in years

 

2008

2007

Building and improvements

10 - 40

 

$

1,286,989

$1,280,391

Aircraft

15

 

 

17,090,688

15,764,364

Engines

7 - 10

 

 

9,160,569

7,235,864

Equipment

3 - 10

 

 

290,292

201,875

Furniture and fixtures

3 - 10

 

 

356,082

338,145

Vehicles

5 - 7

 

 

136,340

135,811

 

 

 

 

28,320,960

24,956,450

Less: Accumulated depreciation and amortization

 

 

 

(8,931,878)

(7,654,175)

 

 

 

$

19,389,082

$17,302,275

Depreciation expense amounted to $2,218,710 and $1,886,493 for the years ended October 31, 2008 and 2007, respectively.  

All of the Company's aircraft are held as collateral on various notes payable and related party notes payable at October 31, 2008 and 2007.

**Sales/Leasebacks** - In April 2004, the Company entered into a sale/leaseback agreement with a third party, wherein, the Company sold an aircraft for $650,000 and entered into an operating lease (See Note 6).  The Company has recorded a deferred gain of $355,716 which will be amortized over the life of the lease as an offset to lease expense.  

In June 2004, the Company entered into a sale/leaseback agreement with a third party, wherein, the Company sold an aircraft for $650,000 and entered into an operating lease (See Note 6).  The Company has recorded a deferred gain of $517,929 which will be amortized over the life of the lease as an offset to lease expense.  In addition, $80,000 of the proceeds from this sale are invested in a time deposit as collateral on the lease.  These funds are recorded as a restricted time deposit on the Company's records. 

In April 2006, the Company entered into a sale/leaseback agreement with a third party, wherein, the Company sold an aircraft for $675,000 and entered into a six month operating lease. The Company has recorded a gain on the sale of the aircraft during the second quarter of 2006 in the amount of $594,586. There is no continuing commitment on the part of the Company to continue the operating lease beyond six months. In addition, $95,000 of the proceeds from this sale are invested in a time deposit as collateral on the lease. These funds are recorded as a restricted time deposit on the Company records.

Aircraft Dispositions - In January 2008 and again in May 2008 there were two separate incidents involving the Company’s aircraft. In both cases, the aircraft were damaged beyond repair or unrecoverable. However, both of the aircraft were fully insured and the Company does not expect either incident to have a significant effect on operations or its financial position. 

16

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

** NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 6 - OPERATING LEASES**

On March 20, 2001, the Company entered into a 30-year lease agreement with two five-year extension options for real property at the Provo, Utah Airport. The Company also leases a hangar in Billings, Montana at the Logan International Airport. The lease is for a term of five years ending October 31, 2012. These operating lease agreements contain scheduled rent escalation clauses based on changes in the consumer price index that are being amortized over the term of the lease using the straight-line method. In addition to the operating leases reported above, the Company has two revocable permits (month-to-month leases) with the State of Hawaii, Department of Transportation to use hangar and office space for its air cargo operations and the permits are renewed on an annual basis.

  

Future minimum lease payments for the years ending October 31, are as follows: 

2009

$

31,311

2010

 

27,302

2011

 

27,302

2012

 

27,302

2013

 

7,356

Thereafter

 

125,054

 

$

245,627

Total Rental expense for the period ending October 31, 2008 and 2007 was $199,254 and $163,302 respectively.

**Aircraft** - In April and June of 2004 and again in April of 2006, the Company entered into certain sale/leaseback agreements (See Note 5).  The Company has agreed to lease two aircraft for sixty months.  It has also agreed to lease a third aircraft on a month to month basis. The Company is also required to pay an additional amount to the Lessor based on the aircraft’s actual flight time. The Lessor is responsible for engine and propeller overhauls and certain qualifying improvements to all leased aircraft.

Future minimum lease payments are as follows for the periods ending October 31:

 

 

 

2009

$

66,000

 

$

66,000

Total Lease expense for the years ending October 31, 2008 and 2007 was $475,582 and $348,378, respectively.

**NOTE 7 - RELATED PARTY TRANSACTIONS**

The Company performed maintenance and certain qualified repairs on an aircraft owned by a related party.  The Company charges the related party cost plus ten percent markup on all parts and a fixed rate of $55 per hour for labor.  Total related party sales and cost of sales related to aircraft maintenance are as follows for the year ended October 31:

 

2008

 

2007

Total related party sales

$

-

 

$

5,849

Total related party cost of sales

 

-

 

 

5,264

Gross margin on related party transactions

$

-

 

$

585

17

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED)**

At October 31, 2008 and 2007, the Company had a receivable of $0 and $0, respectively, related to these repairs, reported under accounts receivable - related parties on the balance sheet. 

**Personal Guarantee** - The Company's major shareholder/officer has personally guaranteed several notes which are also collateralized by certain aircraft of the Company.  (See Notes 5 and 9)

**Aircraft Purchase**- In December 2003, the Company acquired 16 aircraft from an entity related to an officer and majority shareholder of the Company for $9,900,000.  The consideration paid included $9,104,000 in preferred stock of the Company's subsidiary Alpine Aviation, Inc. and the assumption of the underlying debt on the aircraft totaling $709,981.  The remaining $86,019 was recorded as a payable to the entity related to an officer and majority shareholder of the Company.  As the aircraft were purchased from a related party they have been recorded at their carryover basis of $4,111,485.  A discount on preferred stock in the amount of $3,591,195, net of tax effect of $2,197,320, has been recorded and is being amortized as dividends over a five year period.  The preferred stock provides for monthly dividends at an annual rate of 6.5%, and is not convertible. The Company can redeem the subsidiary's preferred stock any time and the entity related to an officer and majority shareholder of the Company can call for redemption of the subsidiary's preferred stock any time after December 31, 2011.

**Notes Payable - Related Party** - In connection with the purchase of the aircraft in July 2003 the Company issued a note to an entity related to an officer and majority shareholder of the Company in the amount of $1,476,381.  The note payable dated July 31, 2003, bears an interest rate of 6.5% and called for payments of $33,624 due for 14 monthly installments with the balance due November 1, 2004. The entity related to an officer and majority shareholder of the Company previously agreed to forestay future payment until required by the note's balloon payment which was due November 1, 2004 but later agreed to defer all payments of principal, interest and balloon payments until November 1, 2006. Subsequently, all unpaid and accrued interest and the remaining principal balance was rolled into a new note at 6.5% interest and a 5-year term. On October 31, 2008 the balance of this note was $0.

In connection with the purchase of aircraft in December 2003 from an entity related to an officer and majority shareholder of the Company, the Company has entered into a Note Payable in the amount of $86,019.  This note bears interest at 6.5%.  The note holder had agreed to defer all payments of principal and interest until November 1, 2006. Subsequently, all unpaid and accrued interest and the remaining principal balance were rolled into a new note at 6.5% interest and a 5-year term. On October 31, 2008 the balance of this note was $0.

During May 2004, lease payments due to an entity related to an officer and majority shareholder of the Company in the amount of $667,115 were converted into a demand note payable with interest to accrue at six and one-half (6.50%) percent on the principal balance. No principal or interest payments were required to be paid until November 1, 2006. Subsequently, all unpaid and accrued interest and the remaining principal balance was rolled into a new note at 6.5% interest and a 5-year term. On October 31, 2008 the balance of this note was $0.

During February 2007, preferred stock dividends due to an entity related to an officer and majority shareholder in the amount of $1,849,250 was converted into a demand note payable with interest to accrue at six and one-half (6.50%) percent on the principal balance. On October 31, 2008 the balance of this note was $0.

The following is a summary of notes payable to related parties at October 31,:

 

2008

 

2007

Notes payable - related party

$

-

 

$

-

 

 

 

 

 

 

18

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 8 – LINE OF CREDIT**

During the year ended October 31, 2006, the Company initiated an overdraft line of credit with a Lender. The balance is currently reported as a separate line item in current liabilities on these financial statements. It is a $100,000 10-year revolving line maturing August 25, 2016. Interest rate at Lender's Prime plus 1% with a $0 balance on October 31, 2008 and 2007. Secured by same three aircraft as Note payable #1 in Note 9 below. 

**NOTE 9 – LONG TERM DEBT**

Notes payable arose from the purchase of aircraft during July 2003 [See Note 7], 

which were subsequently refinanced and consisted of the following at:

                                                                                                                                                                  October 31,
                                                                                                                                                    2008                              2007
                                                                                                                                                __________                     ____________

Note payable issued August 28, 2006 for $1,936,193 due August 28,  

2009. Interest rate of  9.5% at October 31, 2008.  Secured by three Aircraft. 

Reg #N-17ZV, N-955AA, and N-99GH.  

Personally guaranteed by an officer/shareholder.                                                         $1,209,653

       $1,563,407

Lease Obligation issued July 31, 2007 for $6,000,000 due Sept 30, 2012.

Implied interest rate of 9.33%. Secured by seven Aircraft Reg#N95WA, 

N24BH, N950AA, N99CA, N197GA, N127BA, and N192GA.                                        4,641,387

        5,674,781

Lease Obligation issued in August 2008 for $4,000,000 due September 2013

Stated Interest Rate of 7.33%. Secured by three aircraft Reg#N219VP, N155CJ,

And N60MJ.                                                                                                                          3,927,568                                     -

                                                                                                                                            _________
                                                                                                                                                                                    _________
                                                                                                                                               $9,778,608

      $7,238,188

                                                                                              Less current portion             (1,941,676)                     (1,264,408)

                                                                                                                                         __________

   _________

                                                                                              Long-term portion                $7,836,932                      $5,973,780

                                                                                                                                          __________

   _________

The estimated aggregate maturities required on long-term debt for each of the individual years at October 31, 2008 are as follows:

2009

$

1,941,676

2010

 

2,112,795

2011

 

2,209,440

2012

 

1,627,811

2013

 

613,253

Thereafter

 

1,273,633

 

$

9,778,608

19

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 10 - PREFERRED STOCK - SUBSIDIARY**

The Company's subsidiary Alpine Aviation, Inc. is authorized to issue 1,000,000 shares of preferred stock with a stated value of $9.104. At October 31, 2007, 1,000,000 shares are issued and outstanding.  The preferred stock provides for monthly dividends at an annual rate of 6.5%, and is not convertible. The Company can redeem the subsidiary’s preferred stock any time and the Holder can call for redemption of the subsidiary's preferred stock any time after December 31, 2008.  Effective May 1, 2007 the Company became the Holder of 100% of the Preferred Stock of its subsidiary, Alpine Aviation, Inc. when it exchanged its own Preferred Stock in return for the Alpine Aviation, Inc. outstanding Preferred Stock. Due to the intercompany relationship, the Alpine Aviation, Inc. Preferred Stock is now eliminated in the consolidation process.

**NOTE 11 – STOCKHOLDERS’ EQUITY**

Common Stock - The Company is authorized to issue 100,000,000 shares of $.001 par value common stock. As of October 31, 2008, 36,271,461 shares are issued and 36,200,801 are outstanding.  

Preferred Stock - The Company is authorized to issue 1,000,000 shares of $.001 par value preferred stock. In April 2007 the Board of Directors authorized the issuance of 1,000,000 shares of Preferred Stock with a stated value of $9.104. At October 31, 2007, 1,000,000 shares are issued and outstanding. The preferred stock provides for monthly dividends at an annual rate of 6.5%, and is convertible at any time by the holder based on the current market price of the Company’s stock. The Company can redeem the preferred stock any time and the Holder can call for redemption of the preferred stock any time after December 31, 2011. During the year ended October 31, 2008, the Company has redeemed 160,000 shares of the outstanding Preferred Stock. As a subsequent event, the Company redeemed an addition 20,000 shares on November 12, 2008.

Stock Option Plan - In August 2001, the stockholders approved the adoption of an equity incentive plan. The plan allows the Company to issue incentive stock options (ISO's), non-statutory stock options and restricted shares to employees, directors, and consultants of the Company. Annually, commencing January 2002, the aggregate number of shares of the Company's common stock available for award under the plan shall increase by the lesser of 250,000 or seven percent of the outstanding stock less the number of shares previously authorized for the plan, respectively. As of October 31, 2007 and  2008, a total of 1,278,540 shares and 1,637,009 shares, respectively, of the Company's common stock have been reserved for issuance under the plan. After August 18, 2011, the plan terminates and no further options may be granted. The exercise price of options granted under the terms of the plan must not be less than 100% of the fair market value of the shares as of the date of grant. Additionally, no individual may be granted more than 100,000 options in any given year. All options issued under the plan are exercisable for ten years and vest after two years. The Company has not received and does not intend to request a determination from the Internal Revenue Service that the options issued under the plan will qualify under the Code for treatment as qualified incentive stock options.

The Company previously adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). During 2007, the Company issued options to purchase 425,278 shares of common stock to employees and directors. During 2008 the Company has issued options to purchase 575,000 shares of common stock to employees and directors.

The fair value of these new options was estimated at the date of grant using the Black-scholes option-pricing model with the following weighted-average assumptions, an interest rate of four and 00/100 percent  for the period ended October 31, 2008; expected life is ten years for the outstanding options. It is assumed that no dividends will be paid during the periods of calculation.  At the date of grant, volatility is calculated to be one hundred twenty eight, resulting in a respective weighted-average fair value per option of $0.29. Option pricing models require the best-input assumptions available were used to value the options and management believes the resulting option values are reasonable.

The current value for the amortization of the options on the financial statement were calculated using the value at the date of issue, and discounting for the fact that the options issued in 2006 had a 38% forfeiture rate and using a 

20

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 11 – STOCKHOLDERS’ EQUITY (CONTINUED)**

25% discount derived from the fact that in the past 7 years there have never been any options exercised. These discounts were applied and the financial statements will reflect a $35,212 expense to amortize the values for options issued in 2007 and 2008. The total tax benefit is calculated to be $13,366.

A summary of the status of the options outstanding under the Company's stock option plans at October 31, 2008, is presented below:

 

October 31, 2008

 

October 31, 2007

 

Shares

 

Weighted Average Exercise Price

 

Shares

 

Weighted Average Exercise Price

Outstanding at beginning of period

1,211,106

 

$

1.75

 

881,620

 

$

1.75

Granted

575,000

 

 

0.30

 

425,278

 

 

0.40

Exercised

-

 

 

-

 

-

 

 

-

Forfeited

  149,097

 

 

0.38

 

95,792

 

 

0.48

Expired

-

 

 

-

 

-

 

 

-

Outstanding at end of period

1,637,009

 

$

1.11

 

1,211,106

 

$

1.40

Weighted average fair value of options granted during the year

575,000

 

 

0.30

 

425,278

 

$

0.40

A summary of the status of the options outstanding under the Company's stock option plans and employment agreements at October 31, 2008 is presented below:

Options Outstanding

 

Options Exercisable

Range of Exercise Prices

 

Number

of Outstanding

 

Weighted Average Remaining Contractual Life

 

Weighted Average Exercise Price

 

Number Exercisable

 

Weighted Average Exercise Price

$2.50 - $2.75

 

   556,620

 

2.8 years

 

$

2.53

 

556,620

 

$

2.53

$0.50

$0.40

$0.30

 

   220,000

   337,889

   522,500

 

7.7 years

8.6 years

9.7 years

 

$

$

$

0.50

0.40

0.30

 

220,000

           -

           -

 

$

$

$

0.50

0.40

0.30

 

 

1,637,009

 

6.9 years

 

$    1.11

 

776,620

 

$     1.96

**NOTE 12 - INCOME (LOSS) PER COMMON SHARE**

The following data show the amounts used in computing net income (loss) per common share, for the years ended October 31: 

 

 

For the Year Ended

 October 31,

 

 

2008

(As Restated)

2007

 (As Restated)

Net income (loss) available to common shareholders

 

$

120,193

 

$

1,445,001

Weighted average number of common shares used in basic EPS

 

 

36,245,398

 

 

36,271,461

Dilutive effect of preferred stock

 

 

21,676,190

 

 

26,776,471

 

 

 

 

 

 

 

21

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

** NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 12 - INCOME (LOSS) PER COMMON SHARE (continued)**

Dilutive effect of stock options

 

 

-

 

 

586,620

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

 

 

57,921,588

 

 

63,634,552

For the year ended October 31, 2008 and 2007, 1,637,009 and 1,226,898 outstanding options, respectively, were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.  During December 2003 the Company issued 1,000,000 series A, 6.5% preferred shares of the Company's subsidiary Alpine Aviation, Inc. with a stated value of $9.104 per share, for the purchase of aircraft.  These preferred shares have no voting rights and are not convertible into common stock and thus are not included in the calculations of earnings per share. During April 2007 the Company issued 1,000,000 series A, 6.5% preferred shares with a stated value of $9.104 per share.  These preferred shares have no voting rights and are convertible into common stock at the current market value. They do have a dilutive effect and are included in the computation of EPS.

**NOTE 13 – INCOME TAXES**

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes [SFAS No. 109].  SFAS No. 109 requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards.  At October 31, 2008 and October 31, 2007, respectively, the total of all deferred tax assets was approximately $3,213,000 and $3,411,000 and the total of the deferred tax liabilities was approximately $3,053,000 and $2,816,000.  The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company's future earnings, and other future events, the effects of which cannot be determined.

 

The components of income tax expense (benefit) from continuing operations for the year ended October 31,

 

2008

(As Restated)

 

2007

(As Restated)

Current income tax expense (benefit):

 

 

 

 

 

        Federal

$

-

 

$

29,498

        State

 

-

 

 

-

           Current tax expense (benefit)

$

-

 

$

29,498

 

 

 

 

 

 

Deferred tax expense (benefit) arising from:

 

 

 

 

 

        Excess of tax over financial accounting depreciation

$

116,136

 

$

1,177,546

        Deferred gain

 

69,217

 

 

59,877

        Allowance for bad debt

 

(640)

 

 

4,151

        Inventory Shrinkage

 

(1,973)

 

 

(1,003)

        Reserve for accrued vacation

 

(13,817)

 

 

(8,944)

        Accrued interest

 

(73)

 

 

12,800

        Deferred Compensation due to Stock Options Amortized

 

(13,000)

 

 

-

        Foreign net operating loss carryforward

 

-

 

 

-

        Net operating loss carryover

        Alternative Minimum Tax Credits

 

289,557

(10,595)

 

 

(77,799)

(32,943)

        Valuation allowance

 

(194,255)

 

 

(232,148)

        Capital loss carryover

 

194,255

 

 

232,148

    Net deferred tax expense (benefit)

$

434,812

 

$

1,133,685

22

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

** NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 13 - INCOME TAXES [CONTINUED]**

Deferred income tax expense results primarily from the reversal of temporary timing differences between tax and financial statement income. 

     

A reconciliation of income tax expense from continuing operations at the federal statutory rate to income tax expense at the company's effective rate is as follows as of October 31:

 

2008 

(As Restated)

 

2007

(As Restated)

Computed tax at the expected federal statutory rate

34.00%

 

34.00%

State and local income taxes, net of federal benefit

3.96%

 

3.96%

Capital loss carryover

-

 

-

Valuation allowance

(10.73)%

 

(5.92)%

Other Items

(3.22)%

 

(2.35)%

      Income tax expense

24.01%

 

29.69%

The temporary differences, tax credits and carryforwards gave rise to the following deferred tax asset (liability) for the year ended October 31, 2008 and at October 31, 2007:

 

October 31,

 

October 31,

 

2008

(As Restated)

 

2007

(As Restated)

Allowance for bad debt

$

8,000

 

$

7,360

Reserve for accrued vacation

 

104,000

 

 

90,183

Accrued interest

 

1,000

 

 

927

Inventory Shrinkage

 

20,000

 

 

18,027

             Net current tax assets

$

133,000

 

$

116,497

Capital Loss carryforward

$

120,000

 

$

314,255

 Net operating loss carryforward

 

2,827,000

 

 

3,116,557

Valuation allowance

 

(120,000)

 

 

(314,255)

Alternative minimum tax credits

 

79,000

 

 

68,405

Excess of tax over book accounting depreciation

 

(2,932,000)

 

 

(2,815,864)

Deferred Compensation due to Stock Options

Deferred sales

 

13,000

40,000

 

 

-

109,217

Foreign net operating loss carryforward

 

-

 

 

-

             Net deferred tax (liability)

$

27,000

 

$

478,315

As of October 31, 2008 the Company has capital  loss carryforwards of approximately $317,000 that expire in 2010 and a net operating loss carryforward of approximately $7,446,000 that expires in 2025. A valuation allowance in the amount of approximately $317,000 was recorded at October 31, 2008, due to uncertainty of whether the company is more than likely not to generate sufficient capital gains to utilize the benefit of this loss carryforward before its expiration.  The change in the valuation allowance for the year ended October 31, 2008 and 2007 was approximately ($194,000) and ($232,000) , respectively.

23

**ALPINE AIR EXPRESS, INC. AND SUBSIDIARY**

** NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 14 – CONCENTRATIONS**

**U.S. Postal Service Contracts**- The Company receives the majority of its revenues from contracts with the U.S. Postal Service (USPS).  For the year ended October 31, 2008 and 2007, the revenues from contracts with the USPS represented 71% and 78% of total revenues, respectively.  At October 31, 2008 and 2007, accounts receivable from the USPS totaled $1,236,412 and $1,257,995 or 55% and 63%, respectively. The contracts currently in effect for USPS routes will expire between July and November 2009 for mainland US operations and in January 2009 for Hawaii. The loss of this customer would have a material negative effect on the operations of the Company.   

**NOTE 15 – COMMITMENTS AND CONTINGENCIES**

Lawsuit - The Company has been named in a lawsuit by a former employee for claims of approximately $50,000 related to wrongful termination. The plaintiff is not actively pursuing prosecution and the Company believes the case may be dismissed for lack of prosecution.

   

FAA Matters - Several allegations and proposals have been put forth by the FAA and are currently being reviewed by the Company. None of these assertions have resulted in any enforcement action against the Company, nor does the Company expect any actions as a result of their allegations. Management believes that the ultimate resolution of these matters will not have a material impact on the financial condition of the Company.

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

**NOTE 16 – SUBSEQUENT EVENTS**

Preferred Stock Redemption - On November 12, 2008 the Alpine Air Express Board of Directors voted to redeem 20,000 shares of the Preferred Stock issued on May 1, 2007.

**NOTE 17 –OTHER CURRENT ASSETS**

In October, 2008, the Company purchased two contracts for heating oil due in June 2009. The Company recognized an $84 gain on the market value of the contracts through October 31, 2008.

**NOTE 18 –RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS**

The financial statements for the years ended October 31, 2007 and 2008 were restated to correct errors in the reporting of current and deferred income tax expense and the recording of deferred tax assets.  The following financial statement line items for the year ended October 31, 2007 were affected by the corrections:

24

 

As Originally Reported

Restated

Difference

**Consolidated Balance Sheet for the year ended October 31, 2007**

 

 

 

Prepaid Expenses

Total Current Assets

**DEFERRED TAX ASSETS, long term**

**TOTAL ASSETS**

Retained Earnings

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

$         587,434

5,215,938

850,364

23,623,577

3,831,600

14,513,955

23,623,577

$             557,936

5,186,440

478,315

23,222,030

3,430,053

14,112,408

23,222,030

$        (29,498)

(29,498)

(372,049)

(401,547)

(401,547)

(401,547)

(401,547)

**Consolidated Statement of Operations for the year ended October 31, 2007**

Current income tax expense (benefit)

Deferred income tax expense (benefit)

**INCOME (LOSS) BEFORE PREFERRED STOCK DIVIDEND**

**NET INCOME (LOSS)**

**NET INCOME (LOSS) AVAILABLE TO COMMMON SHAREHOLDERS**

**NET INCOME (LOSS) PER COMMON SHARE**

**   **Basic

   Diluted

**Consolidated Statement of Stockholders’ Equity for the year ended October 31, 2007**

**Retained Earnings:**

**   **Net income for the year ended October 31, 2007

   BALANCE, October 31, 2007

**Accumulated Total:**

**   **Net income for the year ended October 31, 2007

   BALANCE, October 31, 2007

**Consolidated Statement of Cash Flows for the year ended October 31, 2007**

**Cash Flows from Operating Activities:**

**  **Net Income (Loss)

**Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:**

**  **Deferred tax expense (benefit)

  Prepaid Expenses

  Total adjustments

  

$                    -

761,636

3,156,548

2,501,548

1,846,548

0.05

0.03

$    2,501,548

3,831,600

2,501,548

14,513,955

$    2,501,548

761,636

31,987

2,078,198

$            29,498

1,133,685

2,755,001

2,100,001

1,445,001

0.04

0.02

$     2,100,001

3,430,053

2,100,001

14,112,408

$     2,100,001

1,133,685

61,485

2,479,745

$           29,498

372,049

(401,547)

(401,547)

(401,547)

(0.01)

(0.01)

$    (401,547)

(401,547)

(401,547)

(401,547)

$    (401,547)

372,049

29,498

401,547

 

 

 

 

 

 

 

 

25

The following financial statement line items for the year ended October 31, 2008 were affected by the corrections.

 

As Originally Reported

Restated

Difference

**Consolidated Balance Sheet for the year ended October 31,2008**

 

 

 

Income Taxes Receivable

Deferred tax asset, current

Total Current Assets

**DEFERRED TAX ASSETS, long term**

**TOTAL ASSETS**

Retained Earnings

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

$                  53,392

                  133,126

5,852,300

341,967

25,758,349

3,894,837

13,842,206

25,758,349

$                      23,894

133,000

5,822,676

27,000

25,413,758

3,550,246

13,497,615

25,413,758

$                (29,498)

(126)

(29,624)

(314,967)

(344,591)

(344,591)

(344,591)

(344,591)

**Consolidated Statement of Operations for the year ended October 31,2008**

Deferred income tax expense (benefit)

**INCOME (LOSS) BEFORE PREFERRED STOCK DIVIDEND**

**NET INCOME (LOSS)**

**NET INCOME (LOSS) AVAILABLE TO COMMMON SHAREHOLDERS**

**NET INCOME (LOSS) PER COMMON SHARE**

**   **Basic

   Diluted

**Consolidated Statement of Stockholders’ Equity for the year ended October 31, 2008**

**Retained Earnings:**

**   **Net income for the year ended October 31, 2008

   BALANCE, October 31, 2008

**Accumulated Total:**

**   **Net income for the year ended October 31, 2008

   BALANCE, October 31, 2008

**Consolidated Statement of Cash Flows for the year ended October 31, 2008**

**Cash Flows from Operating Activities:**

**  **Net Income (Loss)

**Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:**

**  **Deferred tax expense (benefit)

  Total adjustments

**  **

$        491,768

1,319,345

1,319,345

63,237

0.00

0.02

$    1,319,345

3,894,837

1,319,345

13,842,206

$    1,319,345

491,768

1,653,066

$            434,812

1,376,301

1,376,301

120,193

0.00

0.00

$     1,376,301

3,550,246

1,376,301

13,497,615

$     1,376,301

434,812

1,596,110

$        (56,956)

56,956

56,956

56,956

-

(0.02)

$    56,956

(344,591)

56,956

(344,591)

$    56,956

(56,956)

(56,956)

**PART III**

**ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

There are have been no changes in our independent accountants during the past two fiscal years or any disagreements with independent accountants on accounting and financial disclosure.

**ITEM 9A(T):  CONTROLS AND PROCEDURES**

The Company’s management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report.  Based on that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures as of the end of the period covered by the Annual Report were effective such that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding disclosure.  A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

The Company’s management, with the participation of the principal executive officer and the principal financial officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of October 31, 2008.  In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework. Based on this evaluation, our management, with the participation of the President and Vice President, concluded that, as of October 31, 2008, our internal control over financial reporting was effective.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Security and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

**Changes in Internal Control Over Financial Reporting**

There have been no changes in internal control over financial reporting during the fourth fiscal quarter of the fiscal year covered by this Annual Report.

**ITEM 9B:  OTHER INFORMATION**

None, not applicable.

**PART III**

**ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT**

Directors and Executive Officers.

     The members of the Board of Directors of Alpine Air serve until the next annual meeting of stockholders, or until their successors have been elected. The officers serve at the pleasure of the Board of Directors.  The following are our directors and executive officers.

Name

Age

Position

Held Position Since

Eugene R. Mallette

59

CEO

1986

Rick C. Wood

37

Accounting Manager and Principal Financial Officer

2008

Max A. Hansen

59

Secretary/Treasurer and Director

1986

Joseph O. Etchart

60

Chairman

2005

Kenneth D. Holliday

63

Director

2002

Michael Brown

67

Director

2006

Ronald L. Pattison

51

Director

2006

     Mr. Mallette began his career with Alpine Aviation in 1979 as its Sales Manager, then became General Manager later in 1979.  He became Chief Executive Officer and Director upon acquiring Alpine Aviation in 1986.  Prior to his employment by Alpine Aviation, he was employed by the State of Montana as a staff auditor.  He received a B.A. in Business Administration from Carroll College in 1971.  Mr. Mallette holds a private pilot's license and maintains his proficiency.  He devotes time to civic and charitable causes and was previously Chairman of the Better Business Bureau of Utah County and Vice-President of the Provo Chamber of Commerce.

     Rick C. Wood was named the Accounting Manager of Alpine Air in February 2008 after serving as the Senior Accountant since February 2006.  He received a Bachelor of Science degree in Accounting from the University of Utah and has served in various accounting capacities for the last nine years.  Prior to coming to Alpine Air he worked as the controller of a local computer company where he began as an accounting clerk and sales consultant. Prior to his accounting career, Mr. Wood had a successful sales career with CompUSA, Gateway Computers, American Express, and Qwest Communications.  He currently volunteers at his local church keeping track of donations and expenses.

     Max Hansen has been a director since 1986.  He has been practicing law since 1976 and has owned his own firm, Max A. Hansen & Associates, P.C. since 1980.  Mr. Hansen provides legal services to Alpine Air.  From 1988 to 1989, he was President of the Montana Bar Association and is currently a member of the American Bar Association House of Delegates. Mr. Hansen has received distinguished service awards from the Montana State Bar Association and the Montana Supreme Court.  He received a JD degree from the University of San Diego in 1976, where he was a member of the law review.  He received a BA in Political Science from Carroll College in 1971. 

     Joseph O. Etchart has been a member of our Board of Directors since April, 2002.  He formerly served as Alpine Air's Director of Public and Investor Relations.  He is also the President and CEO of Hinsdale Land Company, a real estate and agricultural enterprise in Montana.  Since 1985, Mr. Etchart has served on the Board of Directors, and is a former Chairman of the Board, of Montana Livestock Ag Credit, one of the premier agricultural lending institutions in the Pacific Northwest.  He served two terms as President of the Washington, D.C. based National Public Lands Council, where he was involved in the legislative and regulatory process associated with federal land commodity production.  In addition, Mr. Etchart has held numerous civic, political and appointed posts, including Campaign Finance Chairman during the first successful election of Montana Governor Marc Racicot.  Mr. Etchart received a Bachelor of Arts degree in Sociology from Carroll College in 1970 and is an active member of numerous organizations, including the Knights of Columbus.

     Kenneth D. Holliday joined our Board of Directors in September, 2002.  He has extensive experience in the aviation industry and currently serves as President and CEO of Avcon, Inc., a consulting company assisting airlines, aviation and travel related companies.  He was formerly the President and CEO of TransMeridian Airlines, an air carrier contracted to fly A-320 aircraft for one of the nation's largest tour operators.  Mr. Holliday also has served as President and CEO of Private Jet Expeditions, Inc., where he directed airline growth from one B-727 aircraft to 16 MD-80 aircraft over a two-year period.  Mr. Holliday received a Bachelor of Science degree in Industrial Management from Clemson University and USAF undergraduate pilot training at Williams Air Force Base in Arizona.

     Michael Brown was most recently the Managing Director and Head of Mergers and Acquisitions in the Investment Banking Group of Wells Fargo Securities where he completed numerous mergers and acquisitions, 

private placements and initial public offerings for companies in various segments of the consumer and technology industries. Mr. Brown was a member of the Investment Banking Commitment Committee of Wells Fargo Securities and coordinated the firm's investment banking activities in Southern California. Prior to joining the predecessor of Wells Fargo Securities, in September 2000, Mr. Brown was a Managing Director in Sutro & Co.'s Investment Banking Department and Head of Mergers and Acquisitions. Before joining Sutro, Mr. Brown was the founding Managing Director of Drexel Burnham Lambert's West Coast Mergers and Acquisitions Department. During his seven-year tenure at Drexel, Mr. Brown's transactions included arranging the $1.6 billion sale of Jack Kent Cooke's cable properties to a consortium of cable operators, Turner Broadcasting's $1.2 billion purchase of MGM, the sale of the Beverly Wilshire Hotel to Regent International, the sale of the Desert Inn and Sands Casinos to MGM Grand, and T. Boone Pickens' attempted takeovers of Gulf Oil and UNOCAL. Mr. Brown was a member of Turner Broadcasting's Board of Directors. Prior to joining Drexel, Mr. Brown was a Partner specializing in mergers and acquisitions at Kidder Peabody & Co. in Los Angeles and Vice President of Mergers and Acquisitions in the New York office of Goldman Sachs. Mr. Brown was a member of the faculty of Harvard Business School. Mr. Brown is a graduate of Harvard University (M.B.A.) and the Wharton School of the University of Pennsylvania (B.S.&E.). He has served with the U.S. Army Special Forces.

     Ronald L. Pattison received his CPA Certificate in August of 1984 after graduating with a B.A. in Business Administration, specializing in Accounting. Ron has specialized in the design and administration of defined contribution plans, but also has a working knowledge of the requirements for defined benefit plans. He was the manager of the Defined Contribution practice group in the Albuquerque, New Mexico office of a national consulting firm. Ron left that practice in December of 1990 to start Pattison Pension Specialists, Inc., where he is currently a principal.

     Alpine Air established a standing audit committee in the first quarter of its 2002 fiscal year.  The committee has adopted a charter and currently consists of three members, Ron Pattison (Chair), Joe O. Etchart and Michael Brown.  Alpine Air does not have standing nominating or compensation committee. 

     Except as indicated below, to the knowledge of management, during the past five years, no director, person nominated to become a director, executive officer, promoter or control person of Alpine Air:

     (1) was a general partner or executive officer of any business entity that filed any bankruptcy petition, either at the time of the bankruptcy or two years prior to that time;

     (2) was convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

     (3) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities;

     (4) was found by a court of competent jurisdiction in a civil action, the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated any federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. 

Code of Ethics.

     We filed our Code of Conduct for our executive officers with our Amended 10KSB dated October 31, 2003, and filed with the Securities and Exchange Commission on March 19, 2004. 

Compliance with Section 16(a) of the Exchange Act.

     Alpine Air believes all forms required to be filed under Section 16 of the Exchange Act have been timely filed.

     On January 9, 2004, our Board of Directors adopted an Insider Trading Policy.  The purpose of this Policy is to ensure that our directors, executive stockholders and 10% stockholders comply with Section 16(a) of the Exchange Act and to establish procedures by which our insiders may buy and/or sell our common stock without violating the securities laws' prohibition against insider trading. 

 

**ITEM 11.  EXECUTIVE COMPENSATION**

     The following tables set forth certain summary information concerning the compensation paid or accrued for each of Alpine Air's last three completed fiscal years to Alpine Air or its principal subsidiary Chief Executive Officer and each of its other executive officers that received compensation in excess of $100,000 during such period (as determined at October 31, 2008, the end of Alpine Air's last completed fiscal year). Unless indicated otherwise, all share figures in this Item reflect the three-for-one split of our issued and outstanding common stock in January, 2006.

     Summary Compensation Table.

    **SUMMARY COMPENSATION TABLE**

Name and Principal Position

(a)

Year

(b)

Salary

($)

(c)

Bonus

($)

(d)

Stock Awards

($)

(e)

Option Awards

($)

(f)

Non-Equity Incentive Plan Compensation

($)

(g)

Nonqualified  Deferred Compensation

($)

(h)

All Other Compensation

($)

(i)

Total

Earnings

($)

(j)

Eugene R. Mallette CEO 

10/31/08

10/31/07

10/31/06

97,529

93,997

82,715

541

542

0

0

0

0

534

460

423

0

0

0

0

0

0

25,107

3,992

4,556

123,711

98,991

87,694

Bill Distefano, General Manager

10/31/08

10/31/07

10/31/06

138,986

122,394

126,418

66,368

511

0

0

0

0

534

460

423

0

0

0

0

0

0

6,942

3,884

3,753

212,830

127,249

130,594

Don T. Squire Jr, CFO

10/31/08

10/31/07

10/31/06

82,695

79,125

64,971

10,541

541

0

0

0

10,000

5,339

3,221

423

0

0

0

0

0

0

6,249

4,941

4,871

104,824

87,828

80,265

     Options/SAR Grants.

     During the year ended October 31, 2007 we issued options to purchase 5,000 shares each to the CEO, Eugene Mallette, General Manager Bill Distefano and to the CFO, Don T. Squire Jr.. These were issued as part of the same option grant offered to all full-time employees in June of 2007. In addition to these, the CFO was also awarded 30,000 options to purchase shares as part of an annual bonus. 

During the year ended October 31, 2008 we issued options to purchase 5,000 shares each to the CEO, Eugene Mallette and the General Manager Bill Distefano. These were issued as part of the same option grant offered to all full-time employees in July of 2008. In addition to these, the CFO was also awarded 50,000 options to purchase shares as part of an annual bonus

     Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table.

     No stock options or SARs were exercised during the fiscal year ended October 31, 2008 and 2007.

     Pension Table.

      None.

     Compensation of Directors.

     During the fiscal year ended October 31, 2008, each Director was issued stock options to acquire 10,000 shares of common stock. These options have a two year restriction and an exercise price of $0.30 per share.

     During the fiscal year ended October 31, 2007, each Director was issued stock options to acquire 10,000 shares of common stock. These options have a two year restriction and an exercise price of $0.40 per share.

     During the fiscal year ended October 31, 2006, each Director was issued stock options to acquire 10,000 shares of common stock. These options have a two year restriction and an exercise price of $0.50 per share.

     During the fourth quarter of the current year, the Board of Directors fees were increased to $4,000 per quarter from the previous rate of $2,500 per quarter for services rendered.

     Termination of Employment and Change of Control Arrangement.

     There are no compensatory plans or arrangements, including payments to be received from Alpine Air, with respect to any person named in Cash Compensation set out above which would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person's employment with Alpine Air or its subsidiaries, or any change in control of Alpine Air, or a change in the person's responsibilities following a change in control of Alpine Air.

     Stock Option Plan.

     In August 2001, Alpine Air adopted an equity incentive plan.  The plan allows Alpine to issue incentive stock options ("ISOs") within the meaning of section 422A of the Internal Revenue Code of 1986, as amended ("Code"), non- statutory stock options and restricted shares to employees, directors and consultants of Alpine Air.  A total of 770,000 shares of Alpine Air's common stock have been reserved for issuance under the plan.  As of January of each year commencing in the year 2002, the aggregate number of shares of Alpine Air's common stock that may be awarded under the plan shall automatically increase by a number equal to the lesser of (i) 7% of the total number of shares of Alpine's common stock outstanding, minus the number of shares of stock previously authorized for award under the plan at the close of the preceding calendar year or (ii) 250,000 shares of common stock.

     The exercise price of options granted under the terms of the plan must not be less than 100% of the fair market value of the shares as of the date of grant, or 110% of the fair market value for ISOs granted to optionees possessing more than 10% of the total combined voting power of all classes of stock of Alpine Air for ISOs and 85% of the fair market value of the stock for nonqualified options.  In addition, the aggregate fair market value (as determined on the date of each option grant) of shares with respect to which ISOs are exercisable for the first time by an employee during any calendar year shall not exceed $100,000.  Additionally, no individual may be granted more than 100,000 options in any given year.

     Alpine Air has not received and does not intend to request a determination from the Internal Revenue Service that the ISOs issued under the plan will qualify under the Code for treatment as ISOs.

     The plan provides that an option may be exercised by payment in cash or, with the consent of the board of directors, by delivery of common stock of Alpine Air valued at its fair market value on the date of payment.  An option holder shall not have any of the rights of a shareholder with respect to the shares subject to the option until the shares have been fully paid and issued.

     The board of directors or a committee of the directors will initially administer the plan, prescribe the form and content of options to be granted, receive elections for the exercise of stock conversion rights, determine the terms and restrictions on all restricted stock awards granted under the plan, and other items.  No stock option can be granted for a period longer than ten years or for a period longer than five years for ISOs granted to optionees possessing more than 10% of the total combined voting power of all classes of stock of Alpine Air.  The right to exercise an option terminates three months after the termination of an employee’s employment, unless the employee dies or is disabled, in which event the option will remain exercisable for a period of one year after the termination of employment.  The plan terminates, and no further options may be granted after August 18, 2011.

     In August 2001, Alpine Air issued options to acquire 547,185 shares of its common stock at an exercise price of $2.50 per share and an option to purchase 79,998 shares at an exercise price of $2.75 per share.  In 2002, Alpine Air issued options to acquire 2,562 shares of its common stock at an exercise price of $2.50 per share.  All options were issued under the plan.  In addition, a total of 82,251 options have been forfeited through October 31, 2005.

     During 2006, the Company issued options to acquire 325,000 shares of its common stock at an exercise price of $0.50 per share, to employees and directors of the company. To date 105,000 of the 2006 options have been forfeited. During 2007, the Company issued options to acquire 425,278 shares of its common stock at an exercise price of $0.40 per share, to employees and directors of the company. To date 87,389 of the 2007 options have been forfeited. During 2008, the Company issued options to acquire 575,000 shares at an exercise price of $0.30 per share. To date, 52,500 of those options have been forfeited. 

**ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

     The following table sets forth information relating to the beneficial ownership of Alpine Air's common stock as of  October 31, 2008 by each person known by Alpine Air to be the beneficial owner of more than 5% of the outstanding shares of common stock and each of Alpine Air's directors and executive officers.

Name and Address of Principal Stockholders

Common Stock

Percentage

Eugene R. Mallette

1177 Alpine Air Way

Provo, Utah 84601

27,729,465(1)(3)

76.4%

 

 

 

SCS, Inc.

455 East 500 South, #201

Salt Lake City, Utah 84111

2,450,214(2)

6.7%

 

 

 

Officers and Directors

 

 

Eugene R. Mallette, CEO and Director

27,729,465(1)(3)

76.4%

Don T. Squire, Jr. CFO

60,000(4)

Less than 1%

Max Hansen, Secretary/Treasurer, Director

11,874

Less than 1%

Joseph O. Etchart, Director

18,945

Less than 1%

Ronald L. Pattison, Director

42,600

Less than 1%

All officers and directors as a group (5 persons)

27,862,884

76.8%

     (1) IFW St. Croix Group, LLLP dissolved its partnership in February of 2007 and distributed the shares to Mr. Mallette.

     (2) 2,245,464 of these shares were issued as restricted stock as compensation on a consulting contract entered into by the Company. The contract covers a two year period and lifting of the restricted status is dependant on contract performance.

 

     (3) 15,000 of these shares are in the name of Mary Lou Mallette, Mr. Mallette's wife.

 

     (4) These shares were issued 11/22/2005 and are restricted.

     Unless otherwise noted above, Alpine Air believes that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.  For purposes hereof, a person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date hereof upon the exercise of warrants or options or the conversion of convertible securities.  Each beneficial owner's percentage ownership is determined by assuming that any warrants, options or convertible securities that are held by such person (but not those held by any other person) and which are exercisable within 60 days from the date hereof, have been exercised.

Securities Authorized for Issuance under Equity Compensation Plans.

                    Equity Compensation Plan Information

Plan Category

Number of Securities to be issued upon exercise of outstanding options, warrants and rights

Weighted-average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a)

 

(a)

(b)

(c)

Equity compensation plans approved by security holders

556,620

220,000

337,889

$2.53

$0.50

$0.40

            -

            -

            -

Equity compensation plans not approved by security holders

522,500

-0-

$0.30

-0-

            -

            -

Total

1,637,009

$1.11

            -

**ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

     Aircraft Purchase - In December 2003, the Company acquired 16 aircraft from an entity related to an officer and majority shareholder of the Company for $9,900,000.  The consideration paid included $9,104,000 in preferred stock of the Company's subsidiary Alpine Aviation, Inc. and the assumption of the underlying debt on the aircraft totaling $709,981.  The remaining $86,019 is recorded as a payable to the entity related to an officer and majority shareholder of the Company.  As the aircraft were purchased from a related party they have been recorded at their carryover basis of $4,111,485.  A discount on preferred stock in the amount of $3,591,195, net of tax effect of $2,197,320, has been recorded and is being amortized as dividends over a five year period.  The preferred stock provides for monthly dividends at an annual rate of 6.5%, and is not convertible. However, in April 2007 the Board of Directors authorized the issuance of 1,000,000 shares of Preferred Stock in the Parent Company, Alpine Air Express, with a stated value of $9.104, which were exchanged with the holder for the outstanding preferred stock in the subsidiary. The newly issued preferred stock in the Parent Company provides for monthly dividends at an annual rate of 6.5%, and is convertible at any time by the holder based on the current market price of the Company’s stock. The Company can redeem the preferred stock any time and the Holder can call for redemption of the preferred stock any time after December 31, 2011.

     Notes Payable - Related Party - In connection with the purchase of the aircraft the Company issued a note to an entity related to an officer and majority shareholder of the Company in the amount of $1,476,381.  The note payable dated July 31, 2003, bears an interest rate of 6.5% and called for payments of $33,624 due for 14 monthly installments with the balance due November 1, 2004. The entity related to an officer and majority shareholder of the Company previously agreed to forestay future payment until required by the note's balloon payment which was due November 1, 2004 but later agreed to defer all payments of principal, interest and balloon payments until November 1, 2006. Subsequently, all unpaid and accrued interest and the remaining principal balance was rolled into a new note at 6.5% interest and a 5-year term. On October 31, 2008 the balance of this note was $0.  In connection with the purchase of aircraft during 2004 from an entity related to an officer and majority shareholder of the Company, the Company has entered into a Note Payable in the amount of $86,019.  This note bears interest at 6.5%.  The note holder had agreed to defer all payments of principal and interest until November 1, 2006. Subsequently, all unpaid and accrued interest and the remaining principal balance was rolled into a new note at 6.5% interest and a 5-year term. On October 31, 2008 the balance of this note was $0. During May 2004, lease payments due to an entity related to an officer and majority shareholder of the Company in the amount of $667,115 were converted into a demand note payable with interest to accrue at six and one- half (6.50%) percent on the principal balance. No principal or interest payments were required to be paid until November 1, 2006. Subsequently, all unpaid and accrued interest and the remaining principal balance was rolled into a new note at 6.5% interest and a 5-year term. On October 31, 2008 the balance of this note was $0.

     Personal Guarantee - The Company's major shareholder/officer has personally guaranteed loans which are also collateralized by certain aircraft of the Company.  

**ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.**

     The following is a summary of the fees billed to Alpine Air by its principal accountants during the fiscal years ended October 31, 2008, 2007, and 2006:

Fee category

2008

 

2007

 

2006

 

Audit fees

$

100,182

 

$

89,936

 

$

74,411

 

 

 

 

 

 

 

 

 

 

 

Audit-related fees

 

0

 

 

0

 

 

0

 

 

 

 

 

 

 

 

 

 

 

Tax fees

 

0

 

 

0

 

 

0

 

 

 

 

 

 

 

 

 

 

 

All other fees

 

0

 

 

0

 

 

0

 

     Total fees

$

100,182

 

$

89,936

 

$

74,411

 

     Audit fees - Consists of fees for professional services rendered by our principal accountants for the audit of Alpine Air's annual financial statements and the review of financial statements included in Alpine Air's Forms 10-QSB or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.

     Audit-related fees -  Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of Alpine Air's financial statements and are not reported under "Audit fees."

     Tax fees - Consists of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning.  

     All other fees -  Consists of fees for products and services provided by our principal accountants, other than the services reported under "Audit fees," "Audit-related fees" and "Tax fees" above.  The fees disclosed in this category include due diligence, preparation of pro forma financial statements as a discussion piece for a Board  member, and preparation of letters in connection with the filing of Current Reports on Form 8-K. 

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors.

 

     The Company's Audit Committee Charter does not provide for the approval in advance of the performance of professional services to be provided to the Company by its principal accountant.  All services rendered by our principal accountant are performed pursuant to a written engagement letter between us and the principal accountant.

**ITEM 15. EXHIBITS**

     (a) Exhibits.

31.1  302 Certification of Eugene Mallette

31.2  302 Certification of Don T. Squire Jr.

32     906 Certification

SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

                                 Alpine Air Express, Inc.

                                       

                                    

Date: 1/26/2010                  By: /s/Eugene Mallette

                                            Eugene Mallette, Chief Executive Officer and Director

                                                

                                       

     In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: 1/26/2010                     /s/Eugene Mallette 

                                               Eugene Mallette, Chief Executive Officer and Director

Date: 1/26/2010                      /s/Rick C. Wood

                                               Rick C. Wood, Accounting Manager and Principal Financial Officer

Date: 1/26/2010                      /s/Max A. Hansen

                                               Max A. Hansen, Secretary/Treasurer and Director

Date: 1/26/2010                      /s/Joseph O. Etchart

                                               Joseph O. Etchart, Chairman

Date: 1/26/2010                      /s/Kenneth D. Holliday

                                                Kenneth D. Holliday, Director

Date: 1/26/2010                      /s/Michael Brown

                                               Michael Brown, Director

Date: 1/26/2010                      /s/Ronald L. Pattison

                                               Ronald L. Pattison, Director |
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