A.O.G. Air Support Inc. - Delay in Filing/Related Party Transactions/ Extended Audit Procedures

About this update from Transatlantic Mining Corp.

LOWNA, BC, March 27 /CNW/ - A.O.G. Air Support Inc. ("The Company") has not yet filed its annual financial statements for the year ended September 30, 2005 and as a consequence the B.C. Securities Commission has issued a Management Cease Trade Order against the Company's directors, officers and insiders. As a result of the delay in filing the annual financial statements, the Company wishes to provide a comprehensive news release setting out the current status of the Company. In addition to the delays caused by the Company's decision not to extend the employment contract of the previous Chief Financial Officer, there were significant delays in filing the audited financial statements due to the Company's auditors, BDO Dunwoody LLP, Chartered Accountants having to extend their audit procedures. These procedures were initiated based on allegations made by the Company's previous Chief Financial Officer against David Barron, and Debbie Barron, directors, officers and founding shareholders of the Company. BDO Dunwoody had to investigate these allegations. On January 23, 2006 BDO Dunwoody reported their findings as audit committee for consideration. These findings raised concerns regarding related party transactions, lack of internal controls and questions over the ownership of the technology related to the Company's Caravan Hot Wings project (the "Caravan Project") with Hot Wings International Inc. ("HWI"). The Caravan Project is a joint project for the development, manufacturing and marketing of a proprietary retrofit modification for Cessna Caravan aircraft. In addition to the concerns set out above, conflicts between a related parties and Xpress Management Inc. ("Xpress", one of the shareholders of HWI), has limited the immediately available time and capital of the Company and has jeopardized the ongoing development of the Caravan Project. Consequently, the funding for the testing of the Caravan Project has been interrupted and the Company has a shortage of working capital which creates a going concern risk. Progress is being made in addressing these serious concerns. With the exclusion and subsequent resignation of Ms. Barron from the audit committee, the independent directors of the audit committee are continuing to consider the matters raised by the auditors and have engaged expertise to assist them in addressing these matters. Following a recent meeting of the independent directors, the Board unanimously adopted a turnaround plan presented by the consultant engaged by AOG for the benefit of the independent directors. Constructive discussions have occurred with Xpress in respect of the continued funding of the Caravan Project. Limited funding will be provided to restart time critical testing for the Caravan Project and corporate governance changes are being implemented. The independent directors are committed to the long term success of the Company; however there are no assurances of success. Related Party Transactions -------------------------- Concerns were raised about the disclosure of related party transactions, potential conflicts of interest and the ownership of the technology associated with the Caravan Project and the related manufacturing and marketing rights. The Company determined that HWI, formerly 456 DB Inc., is a Delaware corporation; whose shareholders are Debbie Barron, a director and officer of the Company, and Xpress. Each shareholder has a fifty percent (50%) interest in HWI. Debbie Barron is the sole director and officer of HWI. Debbie Barron is also the sole shareholder, director and officer of DB Aerospace Industries Inc. ("DBA Inc."), a British Columbia corporation that acted in the capacity as a manager between HWI and the Company for the administration of the Caravan Project. DB Aerospace Industries was engaged by the Company to carry out the development of the Caravan Project. The Company invoiced DBA Inc and DBA Inc, in turn, invoiced HWI. DBA Inc retained a 5% fee. Most of the funding for the development of the Caravan Project and the Supplementary Type Certificate ("STC") testing conducted by the Federal Aviation Agency in the United States, were advanced directly or indirectly by the owner of Xpress to HWI. The Board relied on agreements, documentation and representations some of which were signed by Debbie Barron on behalf of HWI in arriving at its understanding of the Company's rights in the Caravan Project. The independent directors understood that the rights to exploit the technology related to the Caravan Project belonged to the Company. From a review of the existing documentation there is concern that a considerable amount of time and legal resources could be expended clarifying these rights. Although the documentation exists, Xpress questions its validity. The auditors also identified transactions and relationships for which the auditor "did not understand the business reason from AOG's point of view". The liquidity problems of the Company have been building over time, and may be traceable to some imprudent actions of senior individuals in management. In addition to the related party transactions and the ownership of the technology related to the Caravan Project the auditors also raised several other issues concerning its internal controls within the Company's accounting systems and insufficient corporate governance protocols. Addressing the Extended Audit Procedures ---------------------------------------- David and Debbie Barron were provided with copies of the results of the extended audit procedures on February 2, 2006 and invited to reply to the issues raised by the auditors. The independent directors on the audit committee met to consider their written and verbal responses on February 15, 2006. The independent directors have carefully considered these responses and have determined, in the first instance, to seek a recovery from Debbie Barron and/or DBA Inc. of any amounts or benefits due the Company. The audit committee has also recommended that David and Debbie Barron resign their directorships as well as certain offices they hold. The Company expects the full cooperation of all parties to the examined transactions to diligently work towards resolving this matter. The potential amount and probability of any recovery has not been determined at this time but is being carefully considered by the Board. The independent directors and the Company's advisors have identified significant concerns about the Company's governance and control practices and therefore the Company announces that effective immediately, the following management changes and new measures: - David Barron has stepped down as Chairman and Chief Executive Officer and has also resigned as a director of the Company. Mr. Barron will remain the President of the Company while the Board concludes a search for a new President. He will now reinvigorate his focus on core sales and continue his substantial technical contribution. - To replace Mr. Barron as Chairman, James Rogers, an independent director with over 35 years aviation experience and a co-founder of Kelowna Flight Craft, has been appointed Chairman of the Board. The President will report directly to Mr. Rogers. - Debbie Barron has resigned as a director and as Vice President, and will resign as an employee of the Company by April 28, 2006. The Company has eliminated the position of Vice President, Finance. Her long term knowledge to the Company will be available as an external consultant. - Doug Kobayashi CD., B.Eng, MSc., P.Eng with many years experience in the aerospace industry, who recently resigned as President and a director of the Company, has accepted an appointment to rejoin the Board as an independent director. Doug has worked at VP Engineering at CAE Aviation, VP Technical Services and Corporate Planning at Conair Aviation, President and CEO of Dee Howard, VP and General Manager of Spar Aerospace (Western Operations). He attended the Executive MBA program at the University of Virginia. - The Board intends to increase the number of independent directors by recruiting members with relevant experience, and has invited the owner of Xpress to nominate a Board member with relevant expertise. - A new CFO, Gerry Stevenson, a Chartered Accountant, has been hired. His first priority will be providing enhanced, timely and reliable financial information to management and the Board. Mr. Stevenson has also been appointed Treasurer of the Company. - Theresa Greene, the Company's Human Resources Manager, has been appointed as the Corporate Secretary. - As an interim measure, the new Chairman and the CFO will be the only two officers with signing authority for the bank and material contracts, and will approve all press releases. - McLeod & Company LLP, the Company's corporate counsel, has been engaged to recommend improvements to the Company's corporate governance policies and practices within 30 days. Working Capital Shortage and Conditions of Future Funding --------------------------------------------------------- A program has been introduced to address the Company's working capital shortage. Immediate steps include: - An increased focus on sales led by David Barron of traditional products and services; - Incentives for sales concluded and pre payments in the next 45 days; - A plan to protect customer deposits and prepayments; - A definitive payment plan to catch up on 100% of overdue payables over time; - Placing internal R&D expenditures on hold; - A review of all existing expenditures; - Accelerated collection of receivables and additional discounts for rapid payment; and - Possible disposing and leasing back of non core assets. Management believes that the impact of this plan will stabilize working capital within 90 days. The plan will not provide funding for the advancement of the Caravan Project. The independent directors and Xpress believe that once the organizational structure, related party transactions and relationships are addressed to their satisfaction that they and other parties would be prepared to provide additional funding to bring the Caravan Project to market. The Company's banks have been advised of the plan. The annual financial statements have been reviewed and approved by the Board subject to changes to the notes and subsequent events to make them consistent with this press release. It is expected that the annual financial statements will be filed and released this week. The Way Forward --------------- The Company is actively implementing the turnaround plan approved by the Board. Representatives of the Company met with representatives of Xpress on March 19, 2006. They are of similar minds that a corporate structure can be devised that would bring together all shareholder interests and bring certainty regarding the technology rights and funding. It is anticipated by management that Xpress will start directly funding the time critical portion of the STC testing for the Caravan Project. Discussions to achieve this goal are ongoing. The Company's banks, customers and employees are being informed of the progress. The Company has signed a letter of agreement with Debbie Barron dated March 18, 2006 to purchase all shares, loans and other rights Ms. Barron holds in HWI. The purchase price shall not exceed $198,353, less all outstanding obligations to the Company. One-third of the purchase price will be paid by shares of the Company or cash, at the Company's discretion. The balance of the purchase price shall be paid based on the sales of the Company's Caravan kits. The transaction is conditional upon satisfactory resolution of the Caravan technology ownership, and any necessary regulatory approvals. The Board regrets the time required to advise you of this complex matter. We appreciate your patience and would like to assure you that we are working diligently to address the serious matters at hand. Authorized by the Chairman of the Board of Directors THE TSX VENTURE EXCHANGE DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

View stock analysis, news, and events for Transatlantic Mining Corp.