Edgar Filing: PRIME AIR INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 1

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002

[ ] 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: 333-28249

PRIME AIR, INC.
(Exact name of Registrant as specified in charter)

Nevada Not Applicable
------ --------------------------
State or other jurisdiction of I.R.S. Employer I.D. No.
incorporation or organization

Suite 601 - 938 Howe Street, Vancouver, British Columbia, V6Z 1N9
---------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

Issuer's telephone number, including area code: (604) 684-5700

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

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

Check whether the Issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such fling requirements for the past 90 days.
Yes [X ] No [ ]

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year: -0-

Documents Incorporated by Reference: None

TABLE OF CONTENTS
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PRIME AIR, INC.

INDEX

PART I PAGE NO
--------

ITEM 1 Description
General 3
ITEM 2 Description of Property 12
ITEM 3 Legal Proceedings 13
ITEM 4 Submission of Matters to a Vote of Security Holders 14

PART II

ITEM 5 Market for Common Equity and Related Stockholder Matters 14
ITEM 6 Management's Discussion and Analysis or Plan of Operation 14
ITEM 7 Financial Statements 16
ITEM 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 31

PART III

ITEM 9 Directors, Executive Officers, Promoters and Control Persons 31
ITEM 10 Executive Compensation 32
ITEM 11 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 33
ITEM 12 Certain Relationships and Related Transactions 34
ITEM 13 Exhibits and Reports on Form 8-K 34
ITEM 14 Principal Accounting Fees 35

FORWARD-LOOKING STATEMENTS

Some of the information presented in or incorporated by reference into this
report constitutes "forward-looking statements." Although the Company believes
that its expectations are based upon reasonable assumptions within the bounds of
its knowledge of its proposed business and operations, it is possible that
actual results may differ materially from its expectations. Factors that could
cause actual results to differ from expectations include but are not limited to
the inability of the Company to raise the additional capital necessary to fund
its principal operations, dependence on a limited number of persons, and ability
to attract tenants and air service to its terminal facility at the Permberton,
British Columbia airport.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

Prime Air, Inc, a Nevada corporation (the "Company") is engage in the
business of managing and operating a commercial and local air terminal facility
in the Whistler - Pemberton, British Columbia, Canada, area. Thereafter, it
intends to operate aircraft service out of the facility. The Company conducts
its operations through its subsidiary, Prime Air, Inc. ("Prime Air (BC)"), a
company originally incorporated under the laws of the Province of British
Columbia, Canada, on March 10, 1989, under the name "High Mountain Airlines
Inc." Prime Air (BC) has entered into a lease and operating agreement with the
Village of Pemberton, British Columbia, Canada, to plan, develop, construct,
manage, and operate a terminal facility at the Pemberton Airport. Prime Air
(BC) has constructed the basic terminal building and proposes to facilitate air
service to Pemberton Airport to serve the nearby resort community of Whistler.
In addition, on September 26, 2003, the Company entered into an agreement with
Galvin Flying Service, Inc. to provide Fixed Basic Operations (FBO) services in
anticipation providing air service to Permberton. Previously, the Company
entered into a Memorandum of Understanding with Voyageur Airways Limited
("Voyageur") to provide scheduled and charter passenger and cargo service from
Vancouver International Airport. That Memorandum of Understanding has expired,
although the parties continue to have discussions. Currently, there is no
commercial passenger service to Pemberton Airport.

History

Prime Air, Inc. was incorporated in the State of Nevada on November 10,
1996, for the purpose of changing the domicile of the Company from the State of
Delaware. The predecessor to the Company was incorporated in the State of
Delaware on April 4, 1995. The change of domicile was completed on December 15,
1997.

Prior to incorporation in the State of Delaware, the Company was originally
incorporated pursuant to the laws of the State of Utah on August 30,1993, under
the name "Astro Enterprises, Inc." (referred to hereafter as "the Utah
Corporation"). The Utah corporation changed its name to "Prime Air, Inc." on
June 28, 1994.

In June 1994, the Utah Corporation entered into a Merger Agreement with
Prime Air (BC). Pursuant to the terms of the Merger Agreement, the shareholders
of Prime Air (BC) exchanged all of their outstanding Prime Air (BC) shares for a
controlling number of shares of the Utah corporation, such that upon completion
of the exchange, the shareholders of Prime Air (BC) owned approximately 90% of
the outstanding shares of the Utah Corporation and Prime Air (BC) became a
wholly owned subsidiary of the Utah Corporation. The transaction was not a
statutory merger. Management believes that the closing of such agreement was
effected on June 28, 1994. In connection with the exchange of shares, the Utah
Corporation effected a one-for-one hundred reverse split of its outstanding
shares effective June 28, 1994, immediately prior to such closing. As a result
of the stock-for-stock exchange, the former shareholders of Prime Air (BC)
received 2,700,000 post-reverse spit shares, the 170 existing shareholders of
the Utah Corporation retained 120,000 post-reverse split shares, and the
Worthington Company, an entity controlled by Mr. Paul Parshall, retained 180,000
post-reverse split shares. In addition, the Worthington Company received
consulting fees totaling $70,000 US from Prime Air (BC) for services performed
in connection with the reorganization. Also, as a part of the reorganization,
Mr. Parshall resigned as the sole director of the Utah Corporation and appointed
Mr. Blaine Haug as the sole director. Also in connection with the
reorganization, the name of the Utah Corporation was changed to Prime Air, Inc.
and the number of authorized shares of Common Stock of the Utah Corporation was
changed to 25,000,000 shares, par value $0.001. At the time of the
stock-for-stock exchange between the Utah Corporation and Prime Air (BC), the
Utah Corporation had no assets. The reorganization was entered into because
Prime Air (BC) wanted controlling interest in a public shell corporation.

On or about April 4, 1995, the Utah Corporation effected a change of
domicile to the State of Delaware by incorporating another corporation in such
state, acquiring all of the assets and liabilities of the Utah Corporation, and
issuing shares of the Delaware corporation to the shareholders of the Utah
Corporation on a one-for-one basis. The Utah Corporation was voluntarily
dissolved by the State of Utah on May 18, 1995. The change of domicile was
initiated and completed based upon the recommendations of Mr. Paul Parshall, an
officer and director of the Utah Corporation at such time.

The original purpose of the Utah Corporation incorporated in 1993 as set
forth in its articles of incorporation, was to acquire the assets and certain
liabilities of another Utah corporation incorporated in 1985 and previously
dissolved by the State of Utah on May 1, 1990, and also incorporated under the
name "Astro Enterprises, Inc." Current management of the Company, none of whom
were affiliated with the Utah Corporation prior to the share exchange in June
1994, believe that the former management of the Utah Corporation at the time of
its incorporation issued approximately 120,000 shares of the company's common
stock to the shareholders of the corporation dissolved in 1990 with the same
name thus creating approximately 170 shareholders of the Utah Corporation.
Management does not believe that any other relationship existed between the two
entities or with former management of the corporation dissolved in 1990 and
known as Astro Enterprises, Inc.

Commencing February 1998, the Company attempted to offer and sell up to
2,000,000 units (the "Units"), each Unit consisting of one share of common stock

of the Company and one Class A Warrant and one Class B Warrant. The Units were
offered by British West Indies Securities Company Limited as selling agent for
the offering. The offering terminated March 31, 1998, and no Units were sold.
The selling agreement with British West Indies Securities Company Limited also
expired on such date.

On April 23, 1998, the shareholders approved a forward split of the
outstanding shares of common stock of the Company at the rate of two shares for
each one share outstanding. The forward stock split was effective on May 15,
1998. In addition, the shareholders approved a stock option plan on April 23,
1998, known as the 1998 Stock Option and Stock Appreciation Right Plan (the
"Plan"). The Plan provides for the issuance of options to acquire up to
1,000,000 shares of common stock of the Company. No options have been granted
pursuant to the Plan - that plan has subsequently been rescinded in its
entirety.

Commencing June 1998, the Company attempted to offer and sell up to
8,000,000 common shares. This offering terminated August 31, 1998. No shares
were sold. Commencing October 1998, the Company engaged the Investment Banking
firm of Chanen, Painter & Company Ltd. for the purpose of providing equity
financing to enable start up of air services. That engagement was not completed
and all associations thereto expired and were terminated in February 2000.

The Company entered into a "Memorandum of Proposed Agreement" with 519222
Ontario Limited, a corporate entity associated with Voyageur Airways Limited,
which, subject to the final approval of Voyageur and the Company, will allow a
merger which combines 25% of the assets of Voyageur with 70% of the assets of
the Company. No definitive agreement was ever entered into and no transaction
with Voyageur is contemplated at this time. However, although no agreement was
entered into, Voyageur continues to work with the Company for the purpose of
establishing an air service. See "Proposed Air Service" contained in the Item
1.

Prime Air, Inc., does not intend to own or directly operate aircraft.
However, Prime Air, Inc. intends to derive income from the Company, "wet
leasing" aircraft for the purpose of transporting passengers from and to the
Pemberton facility and intends to derive income from leasing/operating the
Terminal Building as a rental property for retail space available and collect
and receive passenger fees from individuals utilizing the facility as described
and permitted in the "Airport Lease and Operating Agreement" discussed below.

Airport Lease And Operating Agreement

On October 29, 1993, Prime Air (BC) entered into a Lease and Operating
Agreement (the "Airport Agreement") with the Corporation of the Village of
Pemberton, British Columbia, Canada (hereinafter the "Village of Pemberton"), in
which Prime Air (BC) agreed to undertake the planning, development,
construction, management, and operation of a terminal facility at the Pemberton
Airport. In return, the Village of Pemberton granted to Prime Air (BC) an
exclusive lease involving certain lands located at the Pemberton Airport
(registered under the Land Title Act, KN056037 under Parcel Identification
Number 002-606-801, being that part of District Lot 4769, Lillooet District,

Except Plan KAP 44479) to enable Prime Air (BC) to undertake the planning,
development, construction, management, and operation of a terminal facility.

There are no competing facilities at the Pemberton airport. The Lease
between the Village of Pemberton and Prime Air Inc., provides Prime Air the
exclusive use of the terminal facility and lands to:

(a) operate the terminal facilities as an international airport
terminal serving passengers and cargo arriving at and departing from the
airport; and

(b) operate, or cause to be operated, from the terminal facilities,
such services, concessions, agencies and businesses as it, in its discretion,
determines necessary or desirable for the proper and efficient operation of the
airline business, including without limitation: (i) ground transportation
service to and from the Airport; (ii) motor vehicle rentals; (iii) food and
beverage outlets; (iv) souvenir sales; and (v) air and ground transportation
ticket sales.

Construction of the air terminal building was completed in 1996. To that
extent, the overall size of the building is in excess of 10,000 square feet,
with approximately 6,240 square feet presently being fully habitable. The
remaining area requires "finishing" with anticipated construction costs to cost
approximately $50/square foot to $100/square foot depending on requirements.
Management intends to defer that cost to tenant improvement until it has signed
a lease with tenants who will ultimately occupy the space.

The Company's priority is to establish an air services related activity
base, then lease a portion of the terminal facility to related potential
tenants. Until there is air service activity at the site, it is unlikely that
the undeveloped space would reach its highest and best use.

Once operational, there are three potential sources of revenues; commercial
air services, Pemberton airport services and Fixed Base Operations. Commercial
air services include the actual operation of charter or scheduled air services
to the site. It is anticipated that the Company would contract with an aircraft
company to provide these services. However, in order to realize potential
revenues from this source, additional amounts must be invested in
infra-structure which may be shorthanded depending on the type of aircraft
operations. The Company anticipates that it will not initiate commercial air
services activities until it is satisfied that sufficient capital for this
purpose is in place. No assurance can be given that the Company will be able to
provide commercial aircraft services. The second source of potential income,
Pemberton Airport services, is largely predicated on the existence of air
services. This income source would include baggage handling and other passenger
related services. Rental of commercial space at the terminal facility also
falls into this category. The third source of income is rent derived from
Galvin Flying (or alternative experienced FBO) which will perform the Fixed Base
Operations (FBO) activities that include providing fuel, logistics,
hangar/tie-down rental, accommodation, and other services, to both the
commercial and privately operated aircraft. It is Prime Air's intention to
assign that function to an established FBO company; in that event Prime Air
would earn certain amounts from ancillary activities related to FBO activities.

Subsequent to year ended December 31, 2001, on September 26, 2003, a
Memorandum of Understanding was entered into between Prime Air, Inc., and Galvin
Flying Service, Inc., of Seattle Washington in which Galvin intends to provide
Fixed Based Operation Services at the Pemberton Airport. Under the Memorandum,
the Company will engage Galvin to operate as its exclusive FBO for all aircraft
services not related to any proposed transaction with Voyageur Airways. The
engagement of Galvin is subject to the Company and Galvin entering into a
definitive agreement. No assurance can be given that a definitive agreement
will be entered into. Further during the later part of 2003, an aviation
excursion trip operator tenant entered into a month to month agreement with
Prime Air to use the terminal for Cdn $500 per month. Management continues to
meet with individuals and businesses with respect to developing the prospect of
charter or scheduled air service operations. No commitments, to the date, have
been received with respect to this item.

Based on its Memorandum of Understanding with Galvin Flying, Prime Air
Inc., the Company intends to provide notice to the Village of Pemberton with
respect to the exercise of its option to use lands for purposes of future FBO
activity. The lands specified are physically detailed within the Lease between
the Village of Pemberton and Prime Air Inc. and are appropriately filed in the
Land Registry office of the Province of British Columbia.

The term of the lease commenced as of the Effective Date (June 1, 1995) and
is set to continue in full force and effect for an initial term ending on the
second anniversary of the Terminal Opening Date. Effective October 31, 1996 a
further notice was provided to complete the Extension of Term for three years,
completed by delivering to Pemberton written notice of extension of the Term
prior to the second anniversary of the Terminal Opening Date and a further five
years to October 31, 2005 by delivering to Pemberton written notice of extension
of the Term. An additional ten years may be exercised by delivering to
Pemberton written notice of extension of the Term not less than six months prior
to the tenth anniversary of the Terminal Opening Date; and a final additional
ten years by delivering to Pemberton written notice of the extension of the Term
not less than six months prior to the twentieth anniversary of the Terminal
Opening Date. Therefore, provided that the Company is not in default under the
lease, it will have the right to use the terminal facility until 2025.

Payment of terminal rent to the Village of Pemberton is described as
follows. Prime Air shall pay to Pemberton as a basic rent for the Terminal
Lands for each and every year without set-off, deduction or abatement the amount
calculated and paid in accordance with the following: (a) the Terminal Rent
payable for the first, second, third, fourth, fifth and sixth years shall be the
full amount of Cdn$100; and (b) for each year subsequent to the sixth year, an
amount equal to five percent (5%) of the gross receipts for such year, but no
less than Cdn $2,500.

The Pemberton Airport is approximately 20 miles north of Whistler Resort on
Highway 99. Whistler Resort is a ski resort located at the base of Whistler
Mountain and Blackcomb Mountain approximately 75 miles north of Vancouver,
British Columbia, Canada. The resort has approximately 8,000 permanent
residents and attracts approximately 3,000,000 visitors annually. Currently
only ground transportation is available to the resort, except for private
flights into Pemberton Airport. The nearest airport facility to Whistler Resort

is Pemberton Airport. There is presently no regular air service into Pemberton
Airport.

The Airport Agreement provided that Prime Air (BC) must construct a
terminal facility on or before October 21, 1994, which date was extended to June
1, 1996, by the Council for the Village of Pemberton. Prior to such extended
date, Prime Air (BC) completed the terminal facility at the Pemberton Airport.
The terminal constructed by Prime Air (BC) has a total square footage of 10,240
square feet, of which approximately 6,240 of interior space has been finished
and is ready for its intended use as an airport terminal. The finished portion
consists of an arrival and departure lounge, baggage holding area, office, two
public washrooms with a total of 14 cubicles, reception area, and a utility
room. There is also a water and a waste treatment plant housed in a separate
building. The total construction costs of the facility were $647,126 ($595,335
for the terminal building, $20,989 for engineering and design, $18,699 for
environmental work; and $12,103 for insurance and permits) and were financed
through the sale of the Company's stock. During calendar year 1996, the Company
sold 1,510,558 shares of its common stock at $0.50 per share for total proceeds
of $755,279. The limited offering was conducted pursuant to Rule 504 of
Regulation D promulgated by the Securities and Exchange Commission. The
offering was conducted for the purpose of raising funds for the completion of
construction of the airport terminal facility at Pemberton. At the time of such
offering the Company was not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, and was not an
investment company. The aggregate offering price of all securities sold within
the twelve months preceding the start of and during the offering did not exceed
$1,000,000. There is currently no debt against the terminal building. The
initial term of the Airport Agreement, and the right of Prime Air (BC) to
operate the terminal facility, was two years with provisions allowing Prime Air
(BC) to extend such initial term for addition terms totaling in the aggregate
thirty years, provided that Prime Air (BC) shall continue to fulfill its
obligations under the Airport Agreement, including the payment of rent in the
amount of $100 per year for the first five years, and the payment of property
taxes imposed by municipal authorities plus 5% of the gross receipts derived
from the operation of the terminal facility for each year thereafter. The
Airport Agreement also grants to Prime Air (BC) the option to lease and use
certain other lands at the Pemberton Airport for fixed base operations. The
Airport Agreement may be terminated by the Village of Pemberton in the event of
a material default by Prime Air (BC) or if Prime Air shall become bankrupt. The
terminal facilities shall become the property of the Village of Pemberton at the
expiration of the Airport Agreement. Prime Air (BC) has submitted a request
under the Airport Agreement for a five year extension beginning October 31,
1999. The Airport Agreement provides for two additional ten year extensions of
the lease following the five year extension. The Company believes that it is
in compliance with the terms of lease.

Proposed Air Service

Prime Air (BC) initially intends to establish scheduled and charter passenger
and cargo air service between Vancouver International Airport and Pemberton
Airport by contracting with an aircraft services company. Prime Air (BC) has
entered into a Memorandum of Agreement dated January 5, 1995 (the "Voyageur

Agreement"), with Voyageur Airways Limited, an Ontario corporation ("Voyageur")
to provide the initial service by supplying, operating, and maintaining
DeHavilland Dash-7 aircraft to provide scheduled and charter passenger and cargo
service, from Vancouver International Airport, to the Pemberton Airport. The
Voyager Agreement provides that Prime Air (BC) will operate the terminal
facility at Pemberton Airport and the scheduled and charter passenger and cargo
service, and will market the air services. Voyageur will provide the
certifications, authorizations, expertise, facilities, personnel, and resources
necessary to operate, maintain and service the aircraft. The Voyageur Agreement
expired under its terms. However, Prime Air (BC) and Voyageur are continuing to
have discussion with Voyageur to provide aircraft services to Pemberton.

Government Regulation And Licensing

Any corporation conducting commercial air service operations in Canada must
possess a valid operating certificate and other licenses, permits,
accreditations and certificates that are issued and administered by Transport
Canada. For the purpose of this Report, initially Voyageur is identified as the
corporation intended for conduct commercial air service operation in Canada and
it is the understanding of Prime Air, Inc. that Voyageur satisfies all of the
following criteria. Qualification for the required operating certificate
requires that:

1. the operator (being the entity actually providing the air service
operations) must have at least one aircraft registered under its operating
certificate. This aircraft may either be owned directly or dry leased by the
operator;

2. the aircraft utilized by the operator must be approved and certified
in Canada;

3. in respect of a domestic Canadian air service, the operator must
satisfy the statutory Canadian ownership criteria which essentially requires
that 75% of the voting interest in the operator is controlled by Canadian
citizens or permanent residents of Canada;

4. the management of the operator must include a chief pilot who holds
appropriate Canadian certification;

5. all of the operator's pilots must meet proficiency standards and
hold sufficient ratings to operate the type of aircraft being utilized;

6. the operator must demonstrate and certify that it will be able to
carry out maintenance of its aircraft according to regulated standards. Such
maintenance can either be conducted directly by the operator or subcontracted to
a qualified maintenance facility; and

7. an operations manual must be prepared for the operator and approved
by Transport Canada.

It will be a condition of any definitive agreement that the aircraft
servicing company meets all of the criteria set forth above.

Marketing

Prime Air (BC) intends to conduct a marketing program through a third
marketing company as soon as sufficient funds are available. Advertising and
promotion would focus both on the Whistler area as the destination, and on
creating an image of convenience, quality and reliability for the air service.
Final approval of all advertising and promotion would remain with Prime Air
(BC). The corporate name and logo would be used throughout the companies
advertising materials in order to develop consumer and travel agency
familiarity.

Through a marketing company, Prime Air (BC) plans to prepare promotional
materials that would introduce the new air service, first to travel agents and
tour wholesalers, and then to the consumer. Promotion would constitute a major
portion of Prime Air (BC)'s overall marketing strategy. Familiarization flights
would be offered to select travel agencies, tour operators, and others,
potentially in conjunction with the ski areas, hotels, Whistler's Trade and
Convention Center, and the Whistler Resort Association. The objective would be
for the industry to become familiar enough with the service so that when a
customer books travel to Whistler, the travel agent would suggest that the
customer make airline reservations all the way to the Whistler area by using
Prime Air (BC)'s services.

Prime Air (BC) also plans to contact travel industry journals to introduce
and promote the service.

Prime Air (BC) also plans to focus much of its advertising on accessibility
to Whistler. Advertising would include direct mail to the travel industry and
specific potential corporate clients, brochures, schedules, and various forms of
media advertising, including magazines and newspapers. Whenever possible, Prime
Air (BC) would participate in cooperative advertising in order to develop and
reinforce the consumer's associating Prime Air (BC) with easy access to
Whistler.

Prime Air (BC) intends also to provide hotels at Whistler and the Whistler
Resort Association with schedule support materials to generate airline ticket
sales in conjunction with hotel bookings.

Prime Air (BC) plans to begin marketing and sales of its services in
advance of operating its first flight. The objective would be to generate sales
on all flights from the very beginning of flight operations. Prime Air (BC)
also plans to focus initially on creating awareness of the service within the
travel industry. Specifically, marketing staff would contact tour wholesalers,
travel agencies, convention and meeting planners and other groups that currently
book clients to Whistler.

A major component of Prime Air (BC)'s sales strategy would include the
integration of the flight schedules and fares into all of the major worldwide,
computerized reservations systems. Such networks allow travel agencies to book
their clients directly through the computerized system. To do this properly,
Prime Air (BC) would engage Voyageur management to provide the appropriate
expertise in the development of flight schedules and fares, which would include
assisting Prime Air (BC) in making the final selection of a computerized
reservation system to join.

In order to generate sales in the local Seattle and Vancouver markets,
Prime Air (BC) intends to plan several types of promotional programs. These
would likely include ticket packages (purchasing tickets for ten flights for the
price of nine), special introductory fares, and/or joint promotions with other
advertisers in the area.

Prime Air (BC) intends to maximize the use of the Internet as a tool to
reach the consumer with specific marketing and sales related information about
the service. As more and more airlines and computerized reservations systems
make their flight schedules and fares available on the Internet, management
believes the general public will become more adept at using the Internet as a
ready source of up-to-date marketing and sales related information about the
product. The target market group for this air service would be frequent users
of computers and the Internet. Prime Air (BC) intends to seek the services of a
marketing firm to exploit this new area of marketing potential.

Competition

Regarding certain aspects of Prime Air (BC)'s business model, Prime Air
(BC) does not have any competition regarding the exclusive lease with the
Village of Pemberton through December 31, 2025 concerning the operation of the
airport because Prime Air (BC) has the exclusive right conveyed under the terms
of the lease.

However, regarding other facets of Prime Air (BC)'s business model, Prime
Air (BC) will compete with other charter and airline companies based in the
Vancouver and the Seattle area which currently service customers whose final
destination is Whistler Resort. However, the other competing airlines still
have to conduct operations at the airport and Prime Air (BC) will derive income
from other competitors' use of the airport. To a limited degree Prime Air (BC)
will compete with buses chartered or owned by tour operators. Most of these
entities are more established companies having much greater financial resources,
experience, and personnel resources than Prime Air (BC).

Employees

The Company, including Prime Air BC, had one full-time and two part-time
employees as of December 31, 2001. In addition, Messrs. Horsley and Koch spend
approximately 1-2% and 10% of their respective time on Prime Air related work as
consultants.

Risk Factors

An investment in the Company involves certain risks. Before investing in
the Company's common shares, potential investors should consider the following:

NO SALES REVENUES; UNCERTAIN PROFITABILITY; DEVELOPMENT STAGE COMPANY. Since
its inception, the Company has been principally engaged in developmental and
organizational activities. To date, the Company has not yet initiated
activities which would bring revenues to the air terminal facility and,

consequently, has had no sales revenues. No sales revenues are expected until,
and only if, the Company secures adequate funds to complete the infrastructure
required to commence either charter or scheduled commercial air service
activities.

The Company is in the development stage, and its business is subject to all of
the risks inherent in the establishment of a new business enterprise. The
likelihood of success of the Company must be considered in light of the
problems, expenses, complications and delays frequently encountered in
connection with the formation of a new business, the development of new
products, the competitive and regulatory environment in which the Company is
operating and the possibility that its activities will not result in the
development of any commercially viable activities. There can be no assurance
that the Company's activities will ultimately result in the development of
commercial charter or scheduled air service.

NEED FOR FUTURE FINANCING. The Company will be required to raise additional
funds through public or private financing including grants that may be available
to complete the infrastructure requirements to allow air service operations.
There can be no assurance, however, that the Company will be able to obtain
additional financing on terms favorable to it, if at all. If adequate funds are
not available to satisfy short-term or long-term capital requirements, the
failure of the Company to obtain any other acceptable financing would have a
material adverse effect on the plans and operations of the Company. Without
additional financing, the Company would become unable to maintain its current
operations and would be unable to carry out its business plan. The Company has
no current understandings or commitments to obtain any additional financing from
the sale of its securities or otherwise. Additional financing from the sale of
its securities may result in dilution of the Company's then current
stockholders.

DEPENDENCE UPON A KEY OFFICER; ATTRACTION AND RETENTION OF KEY PERSONNEL. The
business of the Company is highly dependent upon the active participation of its
founder and Chief Executive Officer, Blaine Haug. The loss or unavailability to
the Company of Mr. Haug would have a material adverse effect on the Company's
business prospects and potential earning capacity. The recruitment of skilled
airline personnel is critical to the Company's success. There can be no
assurance that it will be able to attract and retain such personnel in the
future.

The process of obtaining required regulatory approvals required to commence air
service operations can be time-consuming and expensive and other regulatory
requirements can be burdensome. Moreover, there can be no assurance that the
required regulatory clearances will be obtained.

DEPENDENCE ON THIRD PARTY CONTRACTORS. The Company intends to provide
commercial air services, fixed based operations, and marketing of its services
through third party contractors. Therefore, a substantial part of the Company's
business will depend on third parties.

ITEM 2. DESCRIPTION OF PROPERTY

See Item 1. Description of Business - Airport Lease and Operating
Agreement.

ITEM 3. LEGAL PROCEEDINGS

Neither the Company nor any of its properties is a party to any material
pending legal proceedings or government actions, including any material
bankruptcy, receivership, or similar proceedings.

In December 1994 the U.S. Securities and Exchange Commission filed a
complaint in the United States District Court for the District of Columbia (Case
Number 1:94CV02633) against an entity known as "Astro Enterprises, Inc.," and
against Ernst Hiestand, Thomas Hiestand, Elizabeth Kuriger, Henry Strubin, Peter
Thaler, and Leonard Gotshalk, all of whom were allegedly affiliated with such
entity. The basis for such complaint was the dissemination to the public from
approximately March 1989 through May 1990, of false and misleading information
concerning the business of such entity. The entity referenced in such action
was incorporated in the State of Utah on May 23, 1985, and was involuntarily
dissolved on May 1, 1990, for failure to file an annual report with the State of
Utah. In 1995 Mr. Paul Parshall executed a consent and settlement of the
foregoing action, ostensibly as the president, director, and authorized agent of
the entity named in such action. Management does not believe such action in any
way involved the Utah Corporation which was subsequently incorporated under the
same name on August 30, 1993, and which subsequently changed its name to Prime
Air, Inc. and changed its domicile to the State of Delaware. Management does
not believe there is or was any legal relationship between the "Astro
Enterprises, Inc." incorporated on May 23, 1985, and the "Astro Enterprises,
Inc." which was incorporated in 1993 and was the predecessor to the Company. In
addition, management does not believe that Mr. Parshall was authorized to
execute such consent on behalf of either entity. Management is unaware whether
Mr. Parshall ostensibly executed such consent on behalf of the original Astro
Enterprises, Inc. or the predecessor to the Company by the same name. However,
the allegations contained in such action reference events all of which occurred
prior to the incorporation of the predecessor to the Company in 1993. Mr.
Parshall provided and the company accepted his resignation as a director on
February 1, 1996, at which time Mr. Haug became the sole director of the Utah
Corporation.

In May 1996 the Company entered into a settlement agreement and undertaking
with the Alberta Securities Commission (file number 100164) in which the Company
agreed to be more diligent in complying with the requirements of the Alberta
Securities Act and the rules made thereunder. In addition, the Company paid
$2,000 to the commission toward the costs of the investigation conducted by the
Commission. In February 1996 the Company announced an offering of its common
shares in Alberta newspapers. Between February 1 and March 1, 1996, the Company
received $93,040 from fifteen investors in Alberta. The investors received an
offering document which did not conform with the form of an offering memorandum
required pursuant to the Alberta Securities Act and the distribution to the
investors did not qualify for an exemption under such act. Upon being contacted
by the staff of the securities commission, the Company placed all investment
monies in trust pending the disposition of the matter. Thereafter the Company
sent an offering memorandum in the required form and an offer of rescission to
all of the investors. After the return of monies to investors who either did
not qualify for an exemption or who elected rescission, and the filing of a
proper report with the securities commission, no further action was taken by the
securities commission.

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

No matters were submitted to a vote of the shareholders during the fourth
quarter of the year ended December 31, 2002.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Beginning June 30, 2002, the Company's Common Stock is quoted on the Pink
Sheets under the symbol "PMAR". Previously, the Company's common stock was
quoted on the OTC Bulletin Board under the symbol "PMAR". The market for the
Company's Common Stock is limited, volatile and sporadic. The following table
sets forth the OTCBB high and low sales prices relating to the Company's Common
Stock for the last two fiscal years. These quotations reflect inter-dealer
prices without retail mark-up, mark-down, or commissions, and may not reflect
actual transactions.

FISCAL YEARS ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
HIGH BID LOW BID HIGH BID LOW BID
First Quarter $0.09 $0.01 $0.08 $0.02
Second Quarter $0.01 * $0.01 *
Third Quarter $0.01 * $0.01 *
Fourth Quarter $0.01 * * *
* Less than $0.01

As of March 31, 2004, the Company had approximately 352 holders of its
common stock.

The Company has never paid cash dividends.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Executive Summary

The Company's primary operation is the construction and subsequent
management and operations of an airport facility located in Pemberton, British
Columbia. Through the Company's subsidiary, Prime Air (BC) has entered into a
lease and operating agreement with the Village of Pemberton, British Columbia,
Canada to plan, develop, construct, manage and operate a terminal facility at
the Pemberton Airport.

Prime Air (BC) has constructed the basic terminal building and proposes to
facilitate regular, scheduled air service to Pemberton Airport to serve the
nearby resort community of Whistler. Sufficient funding has not been secured to
provide for costs for completion of certain infrastructure items including
landing lights, airside and groundside related equipment, advance marketing and
working capital requirements. Management estimates the requirement for a
commitment of approximately $3,000,000 to provide a satisfactory start up of the
British Columbia operation.

During 2002, the Company received no revenues. Historically, the Company
has financed its building of terminal and operation through the issuance of
equity securities.

The Company intends to market and provide commercial aircraft services to
the Pemberton airport to provide access to primarily the Whistler, British
Columbia recreational area. To facilitate these services, the Company intends
to provide FBO for both commercial and private aircraft services.

Results Of Operations

During the year ended December 31, 2002 the Company derived no revenues.

Expenses totaled $146,207 consisting of primarily $90,000 for consulting
fees, $18,978 in amortization related to the terminal build at Pemberton and
$9,859 in rent and property taxes paid to the city of Pemberton. Of the $90,000
in consulting services, $80,000 was attributed to directors and officers
consisting of $40,000 to the President for his services, $20,000 in director
fees and $20,000 to an accounting firm controlled by a director for accounting
services rendered.

The Company incurred a loss of $(146,207), a per share loss of $(0.01) for
the year ended December 31, 2002.

Liquidity

As of December 31, 2002 and 2001, the Company had a working capital deficit of
$(323,374) and $(341,507). Included in accounts payable and accrued liabilities
of $213,682 and $231,305 as at December 31, 2002 and 2001 are a substantial
amount of accounts payables and accrued liabilities due to prior year expenses
that the Company has yet been able to pay due to the lack or revenues and
capital. As a result of the lack of revenues, and working capital deficit, the
auditor's report contains a paragraph about the Company's ability to operate as
a going concern. Historically, the Company has received loans and issued its
shares of common stock to finance its operations, and building of and further
expansion of the terminal at Pemberton. It is anticipated that the Company will
continue to issue its equity securities and rely on loans from affiliates to
finance its operations. However, no assurance can be given that the Company
will be able to rely on these sources for capital.

ITEM 7. FINANCIAL STATEMENTS

Auditors' Report

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Shareholders' Equity and Deficit

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Rutherford & Company
Chartered Accountants
________________________________________________
9511 Bates Road, Richmond, B.C.
CANADA V7A 1E3
Telephone (604)272-5454 Fax (604)272-5874

AUDITORS' REPORT

To the Shareholders of
PRIME AIR, INC. (A Nevada Corporation)

We have audited the consolidated balance sheets of PRIME AIR, INC. (A
Development Stage Company) as at December 31, 2002 and 2001 and the consolidated
statements of operations, shareholders' equity and deficit and cash flows for
the years then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We have conducted our audits in accordance with Canadian and United States
generally accepted auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 2002 and 2001
and the results of its operations, the change in stockholders' equity and its
cash flows for the years then ended in accordance with United States generally
accepted accounting principles.

Richmond, Canada /s/ RUTHERFORD & COMPANY
July 23, 2003 CHARTERED ACCOUNTANTS

RUTHERFORD & COMPANY
Chartered Accountants
______________________________________________________________________________
9511 Bates Road, Richmond, B.C.
CANADA V7A 1E3
Telephone (604)272-5454 Fax (604)272-5874

COMMENTS BY AUDITOR FOR U.S. READERS
ON CANADA-U.S. REPORTING DIFFERENCE

In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 2 to the financial statements. Our report to the shareholders dated July
23, 2003 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the auditors' report
when these are adequately disclosed in the financial statements.

Richmond, Canada /s/ RUTHERFORD & COMPANY
July 23, 2003 CHARTERED ACCOUNTANTS

PRIME AIR, INC
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(all figures in US dollars)

December 31 December 31
2002 2001

------------- -------------
ASSETS
Current Assets
Cash and short-term deposits. . . . . . . . . . . . . $ 512 $ 2,089
Prepaid expenses and deposits . . . . . . . . . . . . 1,586 1,550
Goods and Services Tax recoverable. . . . . . . . . . 1,357 1,148
------------- -------------
3,455 4,787

Capital Assets (Note 4) . . . . . . . . . . . . . . . . 427,305 441,251
------------- -------------

$ 430,760 $ 446,038
============= =============

LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities. . . . . . . $ 213,682 $ 231,305
Due to related parties (Note 6) . . . . . . . . . . . 91,846 111,846
Notes and advances payable (Note 5). . . . . . . . . 21,301 3,143
------------- -------------
326,829 346,294
------------- -------------

SHAREHOLDERS' EQUITY
Capital Stock (Note 7)
Authorized:
150,000,000 common shares with a
stated par value of $.001/share
5,000,000 preferred cumulative convertible
shares with a stated par value of $.001/share
Issued:
23,318,666 common shares (2001: 21,978,666 shares) 23,319 21,979

Capital in excess of par value. . . . . . . . . . . . 4,167,192 4,021,532
Accumulated other comprehensive income (loss) . . . . (9,721) (13,115)
Deficit accumulated during development stage. . . . . (4,076,859) (3,930,652)
------------- -------------
103,931 99,744
------------- -------------

$ 430,760 $ 446,038
============= =============

See Accompanying Notes To Financial Statements

PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(all figures in US dollars)

From Inception
March 10, 1989
Year Ended Year Ended to
December 31 December 31 December 31
2002 2001 2002
---------------- ------------- -------------
(Unaudited)

Administrative And General Expenses
Flight operations . . . . . . . . . . . . $ - $ - $ 114,720
Audit and accounting. . . . . . . . . . . 7,328 6,781 111,949
Advertising . . . . . . . . . . . . . . . - 666 18,083
Amortization. . . . . . . . . . . . . . . 18,978 19,154 143,122
Association membership fees . . . . . . . - 5,768 5,768
Automotive. . . . . . . . . . . . . . . . - - 19,164
Bad debts . . . . . . . . . . . . . . . . - - 1,933
Commissions and finders' fees . . . . . . - 3,261 22,311
Consulting. . . . . . . . . . . . . . . . 10,000 9,000 30,791
Consulting to related parties . . . . . . 80,000 60,000 2,719,696
Foreign currency translation loss . . . . - - 60,131
Insurance . . . . . . . . . . . . . . . . 3,059 2,374 31,934
Interest and service charges. . . . . . . 1,635 1,289 22,996
Legal costs . . . . . . . . . . . . . . . 135 - 182,076
Management remuneration . . . . . . . . . - - 77,287
Office and general. . . . . . . . . . . . 628 1,249 165,637
Repairs and maintenance . . . . . . . . . 245 1,420 10,507
Rent and property taxes airport facility. 9,859 8,426 70,658
Telephone and utilities . . . . . . . . . 2,621 4,754 90,661
Transfer agent, listing and filing fees . 5,309 6,405 62,803
Travel, promotion and entertainment . . . 6,410 5,654 114,632
---------------- ------------- -------------
146,207 136,201 4,076,859
---------------- ------------- -------------

Net Loss For The Period . . . . . . . . . . $ (146,207) $ (136,201) $ (4,076,859)
================ ============= =============

Net Loss Per Common Share . . . . . . . . . (0.01) (0.01)
================ =============

Weighted Average Common
Shares Outstanding. . . . . . . . . . . . 22,898,666 21,586,358
================ =============

See Accompanying Notes To Financial Statements

PRIME AIR, INC.
( A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND DEFICIT
( all figures in US dollars )

Capital in Accumulated Accumulated
Excess of Share Other Deficit During
Common Shares (Less than) Subscriptions Comprehensive Development
Shares Amount Par Value Receivable Income (loss) Stage
------------- ------------- --------------- --------------- -------------- -------------

Balance at Inception on
March 10, 1989 (unaudited). . . . - $ - $ - $ - $ - $ -
Issue of common shares for cash
at $.001/share. . . . . . . . . . 1,260,474 1,260 (630) - - -
Net loss for the year ended
March 31, 1990. . . . . . . . . . - - - - - (17,956)
Balance, March 31, 1990 (unaudited). 1,260,474 1,260 (630) - - (17,956)
------------- ------------- --------------- --------------- -------------- -------------
Issue of common shares for cash
at $.001/share. . . . . . . . . . 315,118 315 (157) - - -
Net loss for the year ended
March 31, 1991. . . . . . . . . . - - - - - (49,419)
Balance, March 31, 1991 (unaudited). 1,575,592 1,575 (787) - - (67,375)
------------- ------------- --------------- --------------- -------------- -------------
Net loss for the year ended
March 31, 1992. . . . . . . . . . - - - - - (10,990)
Balance, March 31, 1992 (unaudited). 1,575,592 1,575 (787) - - (78,365)
------------- ------------- --------------- --------------- -------------- -------------
Issue of common shares for cash
at $.13866/share. . . . . . . . . 264,176 264 36,367 - - -
at $.10677/share. . . . . . . . . 34,138 34 3,611 - - -
Net loss for the year ended
March 31, 1993. . . . . . . . . . - - - - - (38,426)
Balance, March 31, 1993 (unaudited). 1,873,906 1,873 39,191 - - (116,791)
------------- ------------- --------------- --------------- -------------- -------------
Issue of common shares for services
at $.07906/share. . . . . . . . . 184,346 184 14,390 - - -
Issue of common shares for cash
at $.001/share. . . . . . . . . . 600,000 600 (300) - - -
at $.05449/share. . . . . . . . . 6,680 7 357 - - -
at $.07707/share. . . . . . . . . 47,268 47 3,596 - - -
at $.13966/share. . . . . . . . . 38,802 39 5,380 - - -
at $.16508/share. . . . . . . . . 46,322 46 7,601 - - -
at $.23111/share. . . . . . . . . 174,890 175 40,243 - - -
at $.34663/share. . . . . . . . . 31,512 32 10,891 - - -
at $.46217/share. . . . . . . . . 15,756 16 7,266 - - -
Net loss for the year ended
March 31, 1994. . . . . . . . . . - - - - - (50,846)
------------- ------------- --------------- --------------- -------------- -------------
Balance, March 31, 1994 (unaudited). 3,019,482 $ 3,019 $ 128,615 $ - $ - $(167,637)
============= ============= =============== =============== ============== =============

See Accompanying Notes To Financial Statements

PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND DEFICIT
(all figures in US dollars )

Balance Forward. . . . . . . . . . . . 3,019,482 $ 3,019 $ 128,615 $ - $ - $ (167,637)
Issue of common shares for services
at $.21124/share. . . . . . . . . . 1,874,956 1,875 394,191 - - -
Issue of common shares for cash
at $.18687/share. . . . . . . . . . 497,384 498 92,448 - - -
at $.23117/share. . . . . . . . . . 608,178 608 139,982 - - -
Net loss for the year ended
June 28, 1994 . . . . . . . . . . . - - - - - (437,013)
Balance, June 28, 1994 (unaudited) . . 6,000,000 6,000 755,236 - - (604,650)
------------- ------------- --------------- --------------- -------------- -------------
Share subscription at $.1835/share . . - - (7,313) (20) -
Net loss for the year ended
March 31, 1994. . . . . . . . . . . - - - - - (135,530)
Balance, December 31, 1994 . . . . . . 6,000,000 6,000 747,923 (20) - (740,180)
------------- ------------- --------------- --------------- -------------- -------------
Issue of common shares for cash
and/or services at $.11711/share. . 1,125,100 1,125 130,630 - - -
Net loss for the year ended
March 31, 1995. . . . . . . . . . . - - - - - (71,266)
Balance, December 31, 1995 (unaudited) 7,125,100 7,125 878,553 (20) (811,446)
------------- ------------- --------------- --------------- -------------- -------------
Issue of common shares for cash
at $.25/share . . . . . . . . . . . 3,021,116 3,021 752,259 - - -
Issue of common shares for services
at $.25/share . . . . . . . . . . . 2,967,346 2,967 738,870 - - -
Net loss for the year ended
December 31, 1996 . . . . . . . . . - - - - - (978,770)
Balance, December 31, 1996 (unaudited) 13,113,562 13,113 2,369,682 (20) - (1,790,216)
------------- ------------- --------------- --------------- -------------- -------------
Issue of common shares for services
at $.26/share . . . . . . . . . . . 656,000 656 169,904 - - -
Issue of common shares for
debt settlements:
at $.25/share . . . . . . . . . . . 248,504 249 61,876 - - -
at $.25205/share. . . . . . . . . . 72,760 73 18,266 - - -
at $.26523/share. . . . . . . . . . 189,600 189 50,098 - - -
Net loss for the year ended
December 31, 1997 . . . . . . . . . - - - - - (359,929)
------------- ------------- --------------- --------------- -------------- -------------
Balance, December 31, 1997 (unaudited) 14,280,426 $ 14,280 $ 2,669,826 $ (20) $ - $ (2,150,145)
============= ============= =============== =============== ============== =============

See Accompanying Notes To Financial Statements

PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND DEFICIT
(all figures in US dollars )

Balance Forward. . . . . . . . . . . . 14,280,426 $ 14,280 $ 2,669,826 $ (20) $ - $(2,150,145)
Issue of common shares for
debt settlements:
at $.19415/share. . . . . . . . . . 20,000 20 3,853 - - -
at $.20082/share. . . . . . . . . . 36,430 37 7,260 - - -
Issue of common shares for services
at $.19790/share. . . . . . . . . . 3,327,454 3,327 655,177 - - -
Issue of common shares for
debt settlements:
at $.25/share . . . . . . . . . . . 64,800 65 16,135 - - -
Issue of common shares for services
at $.25/share . . . . . . . . . . . 290,000 290 72,210 - - -
Transfer agent adjustment. . . . . . . (6,000) (6)
Write off of uncollectable share
subscription receivable . . . . . . - - 7,313 20 - -
Net loss for the year ended
December 31, 1998 . . . . . . . . . - - - - - (880,318)
Balance, December 31, 1998 (unaudited) 18,013,110 18,013 3,431,774 - - (3,030,463)
------------- ------------- --------------- --------------- -------------- -------------
Issue of common shares for
debt settlements:
at $.20/share . . . . . . . . . . . 201,250 202 40,048 - - -
at $.25/share . . . . . . . . . . . 423,200 423 105,377 - - -
Issue of common shares for services
at $.2339/share . . . . . . . . . . 1,010,000 1,010 235,229 - - -
Foreign currency translation . . . . . - - - - 21,491 -
Net loss for the year ended
December 31, 1999 . . . . . . . . . - - - - - (572,477)
Balance, December 31, 1999-(unaudited) 19,647,560 19,648 3,812,428 - 21,491 (3,602,940)
------------- ------------- --------------- --------------- -------------- -------------
Issue of common shares for cash
at $.08/share . . . . . . . . . . . 500,000 500 39,500 - - -
Issue of common shares for
debt settlements:
at $.08/share . . . . . . . . . . . 4,100 4 324 - - -
at $.10/share . . . . . . . . . . . 871,006 871 86,230 - - -
Foreign currency translation . . . . . - - - - (12,225) -
Net loss for the year ended
December 31, 2000 . . . . . . . . . - - - - - (191,511)
------------- ------------- --------------- --------------- -------------- -------------
Balance, December 31, 2000 . . . . . . 21,022,666 $ 21,023 $ 3,938,482 $ - $ 9,266 $(3,794,451)
============= ============= =============== =============== ============== =============

See Accompanying Notes To Financial Statements

PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND DEFICIT
(all figures in US dollars )

Balance Forward . . . . . . . . 21,022,666 $ 21,023 $ 3,938,482 $ - $ 9,266 $(3,794,451)
Issue of common shares for cash
at $.08/share. . . . . . . . 300,000 300 23,700 - - -
Issue of common shares for
debt settlement
at $.08/share. . . . . . . . 250,000 250 19,750 - - -
at $.10/share. . . . . . . . 400,000 400 39,600 - - -
Transfer agent adjustment . . . 6,000 6
Foreign currency translation. . - - - - (22,381) -
Net loss for the year ended
December 31, 2001. . . . . . - - - - - (136,201)
------------- ------------- --------------- --------------- -------------- -------------
Balance, December 31, 2001. . . 21,978,666 $ 21,979 $ 4,021,532 $ - $ (13,115) $(3,930,652)
Issue of common shares for cash
at $.05/share. . . . . . . . 320,000 320 15,680 - - -
Issue of common shares for
debt settlement
at $.10/share. . . . . . . . 500,000 500 49,500 - - -
at $.15/share. . . . . . . . 420,000 420 62,580 - - -
at $.18/share. . . . . . . . 100,000 100 17,900 - - -
Foreign currency translation. . - - - - 3,394 -
Net loss for the year ended
December 31, 2002. . . . . . - - - - - (146,207)
Balance, December 31, 2002. . . 23,318,666 $ 23,319 $ 4,167,192 $ - $ (9,721) $(4,076,859)
============= ============= =============== =============== ============== =============

See Accompanying Notes To Financial Statements

PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all figures in US dollars)

* * From Inception
* * March 10, 1989
Year Ended Year Ended to
December 31 December 31 December 31
2002 2001 2002
------------- ------------- ----------------
(Unaudited)

NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES:

OPERATING
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ (146,207) $ (136,201) $ (4,076,859)
Adjustments to reconcile net loss to net
cash used in operating activities:
Services paid by issue of common stock . . . . . . . . . . - - 2,290,280
Amortization . . . . . . . . . . . . . . . . . . . . . . . 18,978 19,154 138,584
(Increase) in prepaid expenses . . . . . . . . . . . . . . (22) (172) (1,649)
Decrease (increase) in Goods and Services Tax recoverable. (199) 262 (1,404)
Increase in due to related parties . . . . . . . . . . . . 80,000 20,000 180,000
(Decrease) in accounts payable . . . . . . . . . . . . . . 12,486 72,938 824,444
------------- ------------- ----------------
(34,964) (24,019) (646,604)

FINANCING
Notes and advances payable . . . . . . . . . . . . . . . . . 18,205 - 50,344
Issue of capital stock . . . . . . . . . . . . . . . . . . . 16,000 24,000 1,317,631
------------- ------------- ----------------
34,205 24,000 1,367,975
------------- ------------- ----------------

INVESTING
Acquisition of capital assets. . . . . . . . . . . . . . . . (953) - (648,079)
------------- ------------- ----------------

EFFECT OF EXCHANGE RATE CHANGES. . . . . . . . . . . . . . . . 135 (497) (72,780)
------------- ------------- ----------------

NET CASH INFLOW (OUTFLOW). . . . . . . . . . . . . . . . . . . (1,577) (516) 512

CASH, BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . . 2,089 2,605 -
------------- ------------- ----------------

CASH, END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . $ 512 $ 2,089 $ 512
============= ============= ================

NON-CASH FINANCING ACTIVITIES
Common stock issued for services . . . . . . . . . . . . . . - - 2,290,280
Common stock issued for debt . . . . . . . . . . . . . . . . 131,000 60,000 582,600

See Accompanying Notes To Financial Statements

PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001

1. INCORPORATION, PRINCIPLES OF CONSOLIDATION AND ACCOUNTING PRESENTATION

The Company was incorporated under the laws of the State of Nevada, USA on
November 10, 1996, the purpose of which was to change the domicile of the
Company from the State of Delaware to the State of Nevada. This change was
approved by the shareholders of both corporations on November 26, 1997 and
effected through a "plan and agreement of merger" with the surviving corporation
being Prime Air, Inc. (Nevada). The articles of merger were filed with the
appropriate State authorities on December 15, 1997 which became the effective
date of the merger.

The Delaware corporation was incorporated on April 4, 1996 and acquired all of
the assets, liabilities and shareholders of a previous Utah corporation of the
same name. The Utah corporation had been reincorporated on August 30, 1993 as
Astro Enterprises, Inc. and on June 28, 1994, pursuant to appropriate
shareholder agreements, acquired all outstanding shares of Prime Air Inc. (a
Canadian corporation) in exchange for shares of its capital stock on a .787796
to 1 basis, thereby providing the shareholders of Prime Air Inc. with 90% of the
outstanding capital stock of Astro Enterprises, Inc. Astro Enterprises, Inc.
then changed its name to Prime Air, Inc. Following incorporation of the
Delaware company, the Utah corporation was dissolved on May 15, 1996.

These consolidated financial statements include the accounts of the Company and
its wholly-owned operating subsidiary, Prime Air Inc. (the Canadian corporation)
and have been prepared in accordance with U.S. GAAP standards.

The results of operations and cash flows for the period from the date of
inception of this organization as a development stage company on March 10, 1989
to December 31, 2002 are presented herein for information purposes only. These
amounts are unaudited and accordingly no audit opinion has been expressed
thereon.

2. NATURE OF OPERATIONS / GOING CONCERN CONSIDERATIONS

The Company is presently in its developmental stage and currently has minimal
sources of revenue to provide incoming cash flows to sustain future operations.
The Company's present activities relate to the construction and ultimate
exclusive operation of an international passenger and cargo air terminal
facility in the Village of Pemberton, British Columbia and the operation of
scheduled flight services between that facility and certain major centers in
Canada and the United States in conjunction with Voyageur Airways Limited.
Terminal building construction was substantially completed in May 1996. The
future successful operation of the Company is dependent upon its ability to
obtain the financing required to complete and operationalize the terminal
facility and to commence operation thereof on an economically viable basis.
Management believes the Company will be able to generate sufficient funds to
meet its obligations for a period of at least twelve months from the balance
sheet date. There is no guarantee that the Company will be able to complete any
of the above objectives. These factors raise substantial doubt regarding the
Company's ability to continue as a going concern.

These consolidated financial statements have been prepared on a "going concern"
basis which assumes the Company will be able to realize its assets, obtain
financing as required and discharge its liabilities and commitments in the
normal course of business.

PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001

3. SIGNIFICANT ACCOUNTING POLICIES

Foreign Currency Translation
------------------------------

The Company's functional and reporting currency is the United States dollar. The
financial statements of the Company are translated to United States dollars in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 52
"Foreign Currency Translation". Monetary assets and liabilities denominated in
foreign currencies are translated using the exchange rate prevailing at the
balance sheet date. Gains and losses arising on translation or settlement of
foreign currency denominated transactions or balances are included in the
determination of income. Foreign currency transactions are primarily undertaken
in Canadian dollars. The Company has not, to the date of these financials
statements, entered into derivative instruments to offset the impact of foreign
currency fluctuations.

As the functional currency of the wholly-owned subsidiary is the Canadian
dollar, SFAS No. 52 requires the use of the current rate method to translate the
subsidiary's financial statements into US dollars. Under the current rate
method, all assets and liabilities are translated at the current rate, while
stockholders' equity accounts are translated at the appropriate historical rate.
The revenues and expenses that occur evenly over the period are translated at
the weighted-average rate for the period. The cumulative translation adjustments
balance is reported as a component of accumulated other comprehensive income.

Fair Value of Financial Instruments
---------------------------------------

In accordance with the requirements of SFAS No. 107, "Disclosure About Fair
Value Of Financial Instruments", the carrying amounts reported on the balance
sheets for cash and cash equivalents, namely, "cash and short-term deposits",
"prepaid expenses", "goods and services tax recoverable", "accounts payable and
accrued liabilities" and "notes and advances payable" approximate their fair
market value.

Receivables and Prepaid Expenses
-----------------------------------

All amounts reported as receivables or prepaid expenses have been recorded at
their original values. There have been no amounts written off as bad debts or
provided for as an allowance against the recovery of these assets.

Capital Assets
---------------

a) Air Terminal Construction Costs: Expenditures relating directly to the
----------------------------------
construction of the air terminal facility and related engineering and design
have been recorded in the accounts of the Company at cost, net of amortization
which is provided on a straight-line basis over the 30-year term of the property
lease.

b) Furniture and Equipment: Furniture and equipment is stated at cost, net
-------------------------
of amortization which is provided for at the rate of 20% per annum on the
declining balance basis.

c) Computer: Computer equipment is stated at cost, net of amortization which
--------
is provided for at the rate of 30% per annum on the declining balance basis.

PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates in the Preparation of Financial Statements
-------------------------------------------------------------------

The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. In
these financial statements, assets, liabilities and results of operations
involve significant reliance on management estimates. Actual results could
differ from the use of those estimates.

Income Taxes
-------------

The Company adopted SFAS No. 109, "Accounting For Income Taxes", during the
fiscal year ended December 31, 1998 and applied the provisions of that statement
on a retroactive basis to the previous fiscal years, which resulted in no
significant adjustments. SFAS No. 109, "Accounting for Income Taxes", requires
an asset and liability approach for financial accounting and reporting for
income tax purposes. This statement recognizes (a) the amount of taxes payable
or refundable for the current year and (b) deferred tax liabilities and assets
for future tax consequences of events that have been recognized in the financial
statements or tax returns. Potential benefits of income tax losses are not
recognized in the accounts until realization is more likely than not.

The Company has cumulative net operating losses of approximately $1,379,000 at
December 31, 2002 and $1,363,000 at December 31, 2001. The operating subsidiary
Company has cumulative net operating losses of approximately $718,000 at
December 31, 2002 and $668,000 at December 31, 2001. Pursuant to SFAS 109 the
Company is required to compute tax asset benefits for net operating losses
carried forward. Potential benefit of net operating losses have not been
recognized in these financial statements because the Company cannot be assured
it is more likely than not it will utilize the net operating losses carried
forward in future years. The potential income tax benefits of these net
operating loss carry forwards of approximately $591,000 at December 31, 2002 and
$581,000 at December 31, 2001 (based upon current income tax rates) have been
offset by valuation reserves of the same amount. Net operating losses in Canada
expire after seven (7) years and net operating losses in United States expire
after twenty (20) years.

Other Comprehensive Loss
--------------------------

SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the
reporting and display of comprehensive loss and its components in the financial
statements. As at December 31, 2002, the Company had accumulated other
comprehensive loss of $9,721, which is comprised of foreign currency translation
adjustments.

PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001

4. CAPITAL ASSETS

Capital assets consist of the following at December 31, 2002 and December 31,
2001:

December 31, 2002 December 31, 2001
--------------------------------- -------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
-------- ------------ --------- ----------

Air terminal construction costs 555,682 $130,189 $425,493 $ 440,000
Computer equipment. . . . . . . 944 142 802 -
Furniture and equipment . . . . 4,557 3,547 1,010 1,251
-------- ------------ --------- ----------
561,183 $133,878 $427,305 $ 441,251
======== ============ ========= ==========

5. NOTES AND ADVANCES PAYABLE

The notes and advances payable are unsecured, non-interest bearing and are
without specific terms of repayment.

6. RELATED PARTY TRANSACTIONS

Included in due to related parties is an amount of $11,846 (2001 - $11,846)
which has been advanced to the Company by a shareholders and/or a corporation
controlled by that shareholder who is the beneficial owner of 2,245,226 shares
of common stock of the Company, that holding representing 10.22% of the issued
and outstanding capital of the Company.

During the years ended December 31, 2002 and 2001, no cash remuneration was paid
to any director or officer of the Company. The Company records services
provided by related parties at their fair value in the period when the services
are rendered and the obligation accrued. The Company has adopted the policy of
issuing "restricted" common shares to certain directors and officers for
services rendered. The Company issues shares in a later period than when the
services were performed. The common shares later issued in settlement of these
obligations are recorded based on the fair value of the services performed,
being the measurement date. Also included in due to related parties is an
amount of $80,000 (2001 - $100,000), which is the value of services rendered by
directors for consulting services provided in the current and prior fiscal
years.

During the year ended December 31, 2002, directors of the Company received
800,000 common shares by way of a debt settlement covering obligations of
$100,000. During the year ended December 31, 2001, directors of the Company
received 650,000 common shares by way of a debt settlement covering obligations
of $60,000.

PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001

7. CAPITAL STOCK

In July, 1996, management of the Company voluntarily halted trading of its
common shares based upon the conclusion that information concerning the history
of the Company provided by former management may not have been complete.
Adequate information was subsequently provided to the public by management and
trading was recommenced on March 27, 1997. The Company prepared and filed a
registration statement in connection with the change of domicile (referred to in
Note 1) to register all of the outstanding common shares of capital stock in the
Company. This registration has been declared effective by the Securities and
Exchange Commission and the change of domicile became effective on December 15,
1997.

Shares issued for non-cash consideration were valued based on the fair market
value of the common stock on the measurement date for the transaction.

8. RENT, PROPERTY TAXES AND LEASE COMMITMENT

The Canadian subsidiary corporation has entered into an Airport Lease and
Operating Agreement with The Corporation of The Village of Pemberton in British
Columbia whereby it has been granted an exclusive and irrevocable lease over the
lands and airport facilities associated with the Pemberton Airport. The term of
the Lease and Operating Agreement, including extension options relating thereto,
is for a total of 30 years with terminal rent payable as follows:

$ 67 US ($100 CDN) per annum for the initial six (6) years (1993 through
1999); and thereafter

5% of gross receipts per annum derived from the operation of the terminal
facilities, excluding amounts received in connection with the sale of
airline tickets and other forms of transportation. The lease commitment
amounts for 2003 through 2007 cannot be quantified as the amount of gross
receipts for those years cannot be determined and active operation of the
terminal facilities has not yet commenced.

No lease payments were made during the years ended December 31, 2002 or 2001 as
there were no gross receipts derived from operations in those years. The
Company, however, was obligated to pay property taxes imposed by municipal
authorities, such levies amounting to $9,852 for the year ended December 31,
2002 (2001: $8,426).

The Airport Agreement may be terminated by the Village of Pemberton in the event
of a material default by Prime Air (BC) or if Prime Air shall become bankrupt.
The terminal facilities shall become the property of the Village of Pemberton at
the expiration of the Airport Agreement.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

ITEM 8A. CONTROLS AND PROCEDURES.

We carried out an evaluation, under the supervision and with the
participation of the our management, including our Chief Executive Officer and
Chief Financial Officer, about the effectiveness of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures as of the end of the period covered by this
Form 10-KSB are effective in timely alerting them to material information
required to be included in this Form 10-KSB.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS

Set forth below is the background of the executive officers and directors
for at least the past five years of the Company.

The directors and executive officers of the Company as of December 31, 2001 are
as follows:

Name Age Position
---- --- --------
Blaine Haug 56 Chief Executive Officer, Chairman
Wayne Koch (1) 53 Treasurer and Director
Nigel Horsley 56 VP Communications
John Eberhard 61 Director
Greg Duffy 49 Director
(1) Mr. Wayne Koch resigned as a director and as an officer effective March 19,
2004.

BLAINE HAUG has served as the Company's Chief Executive Officer and Chairman of
the Board since 1997. Mr. Haug is a founding director of the company. Mr.
Haug, an Airline Transport Pilot rated (Transport Canada) and Federal Aviation
Administration (FAA) equivalent for over twenty years, has flight experience in
propeller and jet aircraft and over 7,000 hours of flying time. Background
includes education in mechanical engineering. From March 1980 through December
1986, Mr. Haug was with Air Alberta, based in Red Deer, Alberta, as General
Manager and Chief Pilot, where he directed the turnaround of the company. Prior
to this he was self-employed for ten years as an aircraft broker.

WAYNE KOCH - serves as Treasurer and Director of Prime Air, Inc. For at least
the past five years, Mr. Koch has been principal of Koch & Associates, Certified
Management Accountants, a public accounting practice (established 1987) serving
a large number of individual, small business and non-resident clients. He also
provides accounting services to the Company as a consultant. Previous
experience includes several years as Controller of a diversified property
development company; Managing Director of a Whistler based property management
and accommodation company; lecturer at the British Columbia Institute of
Technology; Supervisor, Budgets and Program Administration, Airports Branch -
Pacific Region, Transport Canada; Systems Design Consultant within the
Government of Canada, Department of Supply and Services, Ottawa, Ontario.

R. NIGEL M. HORSLEY - Director. For at least the past five years Mr. Horsley
has been involved in investor relations, with an extensive background in print
and broadcast media, both in the UK and Canada including IRN in London and CKVU
TV as an Executive Producer in Vancouver. He has worked for more than a decade
in PR, mostly in high technology, including two years with Hill & Knowlton.
Currently, he is also a director of RailPower Technologies Corp. (TSX V: P). He
is also a former Vice President with General Hydrogen Corporation.

JOHN EBERHARD, QC - Director. For at least the past five years, Mr. Eberhard
has been a practising lawyer, although not on a full-time basis. He is also a
former Crown Prosecutor, Judge on the Civil Aviation Tribunal. Mr. Eberhard has
also served as Chief Administrative Officer of the Canadian Rotary Committee for
International Development (CRCID) since 2000.

GREG DUFFY - Director. Since 1994, Mr. Duffy has served as Comptroller and
General Manager of Welcome Ford Sales, Fort Saskatunewan, Alberta, Canada, a
Ford car dealership.

ITEM 10. EXECUTIVE COMPENSATION

The Company, including Prime Air BC, had one employee as of December 31,
2002, consisting of Mr. Haug.

SUMMARY COMPENSATION TABLE

Annual Compensation Long Term Compensation
------------------------------------- ----------------------------------------------
Awards Payout
----------------------- --------
Restricted Securities LTIP All Other
Other Annual Stock Underlying Payout Compensa
Year Salary Bonus ($) Compensation ($) Award(s) Options (#) ($) tion ($)

Blaine Haug 2002 $ 0 -0- -0- 400,000 (1) -0- -0- -0-
President . 2001 $ 0 -0- -0- 400,000 (1) -0- -0- -0-
2000 $ 0 -0- -0- 400,000 (1) -0- -0- -0-

(1) Mr. Haug receives 400,000 shares of the Company common stock for his
services. In addition he is reimbursed for expenses he incurs in the course of
performing his duties for the Company. Mr. Haug currently has no employment
agreement.

OPTION GRANTS IN 2001

The Company made no stock option grants during calendar year, 2001

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND TEN-YEAR OPTIONS/SAR
REPRICINGS

There was no repricing of options for the fiscal year ended December 31,
2001.

FISCAL YEAR END OPTION VALUES

No executive officer had any options outstanding at the end of the
year.

DIRECTOR FEES

During the year ended December 31, 2002, Messrs. Haug, Koch, Eberhard, and
Horsley each earned $5,000 for director services as determined by the Board.
These fees were paid through the issuance of common shares at a value of $.05
per share in 2003.

COMPENSATION PLAN TABLE

No compensation plan table has been provided since the Company has never
issued options for compensation.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of December 31, 2002 to (i) each
person who is known by the Company to own beneficially more than five percent
(5%) of the outstanding shares of its Common Stock, (ii) each director of the
Company, (iii) each of the Named Executive Officers and (iv) all directors and
executive officers as a group. This table is based on information provided to
us or filed with the Securities and Exchange Commission by the Company's
directors, executive officers and principal shareholders. Except as otherwise
indicated, the Company believes that the beneficial owners of the shares listed
below have sole investment and voting power with respect to such shares, subject
to community property laws. The Company does not know of any arrangements,
including any pledge by any person of securities of the Company, the operation
of which may at a subsequent date result in a change of control of the Company.

Five Percent Shareholders, Directors Common Stock Percentage Owned
and certain Executive Officers Beneficially Owned
------------------------------------- ------------------ -----------------

Blaine Haug . . . . . . . . . . . . . 2,645,226 11.34%
------------------------------------- ------------------ -----------------
Wayne Koch. . . . . . . . . . . . . . 1,256,230 5.39%
------------------------------------- ------------------ -----------------
Nigel Horsley . . . . . . . . . . . . 100,000 .43%
------------------------------------- ------------------ -----------------
John Eberhard . . . . . . . . . . . . 395,340 1.7%
------------------------------------- ------------------ -----------------
Greg Duffy. . . . . . . . . . . . . . 94,720 0.041%
------------------------------------- ------------------ -----------------
All directors and current executive . 4,491,516 19.26%
officers as a group (5 persons)
------------------------------------- ------------------ -----------------

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the years ended December 31, 2002 and 2001, certain officers and
directors received common stock for their services or consulting services. In
addition, an entity that may be deemed an affiliate of an officer and director
of the Company has lent funds to the Company for its operations. However, the
amount in value for each transaction did not exceed $60,000.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Index to Exhibits.

The following is a list of all exhibits filed as part of this Report:

Exhibit
Number Name
------- --------
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-4 filed with the Commission on June
2, 1997)
3.2 Bylaws (Incorporated by reference to Exhibit 3.1 to Registration
Statement on Form S-4 filed with the Commission on June 2, 1997)
10.1 Airport Lease and Operating Agreement (Incorporated by reference to
Exhibit 10.1 to Registration Statement on Form S-4 filed with the
Commission on June 2, 1997)
10.2 Employment Agreement with Blaine Haug (Incorporated by reference to
Exhibit 10.2 to Registration Statement on Form S-4 filed with the
Commission on June 2, 1997)
10.3 Memorandum Agreement with Voyager Airways (Incorporated by reference
to Exhibit 10.5 to pre-effective Amendment No. 2 to Registration
Statement on Form S-4 filed with the Commission on September 26, 1997)

10.4 Addendum to Haug Employment Agreement (Incorporated by reference to
Exhibit 10.6 to pre-effective amendment no. 1 to Registration
Statement on Form S-4 filed with the Commission on August 6, 1997)
31.1 CEO and CFO certifications under Section 302 of Sarbanes-Oxley Act
32.1 CEO and CFO Certifications under Section 906 of Sarbanes-Oxley Act

(b) Reports on Form 8-K.

None

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Charted Accountants served as the Company's independent accountants for the
fiscal year ended December 31, 2002, and during the course of that fiscal year
they were not engaged by the Company to provide certain non-audit services.
During the year ended December 31, 2002 and 2001, the following fees were paid
for services provided by Chartered Accountants.

Audit Fees. The aggregate fees paid for the annual audit of financial
statements included in the Company's Form 10-KSB for the years ended December
31, 2002 and 2001 and the review of the Company's quarterly reports for such
years, amounted to approximately $7,323 and $4,200 respectively.

Audit Related Fees. For the years ended December 31, 2002 and 2001, the
Company paid no fees to Chartered Accountants related to other audit related
fees.

Tax Fees. For the years ended December 31, 2002 and 2001, the Company paid
no fees to Chartered Accountants related to tax fees.

All Other Fees. For the years ended December 31, 2002 and 2001, the
Company did not pay Chartered Accountants for any non-audit services.

SIGNATURE

In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this Amendment No. 1 to Annual Report on
Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized.

Prime Air, Inc.

April 30, 2004 By: /s/ Blaine Haug
-----------------
Blaine Haug
Chairman of the Board and Chief Executive Officer
(Principal Executive and Principal Financial and
Accounting Officer)