SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment #1
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
Date of Report: April 24, 2002
(Date of Earliest Event Reported)
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 000-21749 95-4257380
(State or other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
3205 Lakewood Blvd.
Long Beach, CA 90808
(Address of principal executive offices)
Business (562) 938-8618
Fax (562) 938-8620
(Registrant's telephone number)
ITEM 5. OTHER EVENTS
Advanced Aerodynamics & Structures, Inc. has acquired the assets of Mooney
Aircraft Corporation pursuant to an order of the US Bankruptcy Court in San
Antonio, Texas, signed on March 18, 2002, which approved the sale subject to
final closing conditions which did not occur until April 24, 2002. Further
details are in the Press Release attached as Exhibit 1.1 to our original filing
on May 9, 2002. In connection with the sale, we formed a wholly-owned
subsidiary, Mooney Airplane Company, a Delaware corporation, to own the assets
purchased. As a result, the financing agreements with Congress Financial
Corporation ("Congress") which were described in a Form 8-K filed with the
Securities and Exchange Commission ("SEC") on February 14, 2002, were revised.
Congress has a security interest in certain assets of AASI and of Mooney
Airplane Company. Copies of the revised agreements among AASI, Congress and
Mooney Airplane Company are attached as Exhibit 2.1 through 2.9 to our original
filing on May 9, 2002.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements and Pro Forma Financial Information of Business
Acquired.
Mooney Aircraft Corporation (Debtor-in-Possession)
Financial Statements
Years Ended December 31, 2001 and 2000
Contents
Report of Independent Auditors .............................................. 1
Financial Statements
Balance Sheets .............................................................. 2
Statements of Operations .................................................... 4
Statements of Stockholders' Deficit ......................................... 5
Statements of Cash Flows .................................................... 6
Notes to Financial Statements ............................................... 8
[LOGO] [LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
Board of Directors and Responsible Person
Mooney Aircraft Corporation
We have audited the accompanying balance sheets of Mooney Aircraft Corporation
(the "Corporation") as of December 31, 2001 and 2000, and the related statements
of operations, stockholders' deficit, and cash flows for the years then ended.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. 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. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mooney Aircraft Corporation at
December 31, 2001 and 2000, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States.
The accompanying financial statements have been prepared assuming that Mooney
Aircraft Corporation will continue as a going concern. As more fully described
in Note 2, the Corporation has incurred operating losses and has a working
capital deficiency. In addition, the Corporation has historically not complied
with certain covenants of bank loan agreements. The Corporation has also filed a
voluntary petition for relief under Chapter 11 of Title 11 of the United States
Code in United States Bankruptcy Court for the Western District of Texas. These
conditions raise substantial doubt about the Corporation's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ Ernst & Young LLP
June 20, 2002
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
Mooney Aircraft Corporation (Debtor-in-Possession)
Balance Sheets
December 31
2001 2000
----------------------------------------------
Assets
Current assets:
Cash $ 74,306 $ 762,408
Accounts receivable, net of allowance for
doubtful accounts of $173,446 and $25,000 at
December 31, 2001 and 2000, respectively 42,590 153,670
Inventories, net of obsolescence reserve of
$1,475,000 and $875,000 at December 31, 2001 and
2000, respectively 5,845,382 9,072,358
Other current assets 334,996 358,902
----------------------------------------------
Total current assets 6,297,274 10,347,338
Property, plant, and equipment:
Land and land improvements 186,043 186,043
Building and building improvements 1,821,789 1,821,789
Machinery and equipment 4,356,879 4,444,059
Furniture and fixtures 450,005 566,638
Tooling 4,327,784 4,289,401
Computer equipment 1,897,152 1,916,608
Experimental aircraft 229,899 229,899
----------------------------------------------
13,269,551 13,454,437
Less accumulated depreciation and amortization 10,519,398 9,495,031
----------------------------------------------
Net property, plant, and equipment 2,750,153 3,959,406
----------------------------------------------
Total assets $ 9,047,427 $ 14,306,744
==============================================
2
December 31
2001 2000
-----------------------------------------------
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 479,208 $ 5,192,853
Payroll and related liabilities - 1,057,683
Accrued airworthiness directive - 340,000
Current maturities of capital leases 110,266 199,133
Revolving prepetition credit facility - 6,047,714
Current maturities of pre-petition notes payable - 5,383,058
Revolving debtor-in-possession credit facility 2,705,454 -
Other accrued liabilities 839,334 5,371,580
-----------------------------------------------
Total current liabilities 4,134,262 23,592,021
Other liabilities:
Liabilities subject to settlement under
reorganization proceedings 20,975,266 -
Accrued environmental remediation 525,579 525,579
Other liabilities - 501,487
-----------------------------------------------
21,500,845 1,027,066
Long-term debt, net of current portion:
Capital leases - 176,036
Notes payable to stockholders - 1,000,000
-----------------------------------------------
- 1,176,036
Stockholders' deficit:
Common stock, no par value, 3,000,000 shares
authorized; 1,100,000 shares in 2001 and
1,000,000 shares in 2000 issued and outstanding 5,880,100 4,880,100
Additional paid-in capital 23,621,272 23,621,272
Accumulated deficit (46,089,052) (39,989,751)
-----------------------------------------------
Total stockholders' deficit (16,587,680) (11,488,379)
-----------------------------------------------
Total liabilities and stockholders' deficit $ 9,047,427 $ 14,306,744
===============================================
See accompanying notes.
3
Mooney Aircraft Corporation (Debtor-in-Possession)
Statements of Operations
Year Ended December 31
2001 2000
----------------------------------------------
Net sales $ 15,247,992 $ 38,196,663
Cost of sales 12,764,440 29,128,089
----------------------------------------------
Gross margin 2,483,552 9,068,574
Research and development expenses 456,053 663,612
Selling and support expenses 1,137,119 2,754,528
General and administrative expenses 3,850,391 4,531,956
Reorganization expenses 2,488,925 -
----------------------------------------------
7,932,488 7,950,096
----------------------------------------------
(Loss) income from operations (5,448,936) 1,118,478
Other (expense) income:
Interest expense (1,415,636) (1,720,347)
Other income 765,271 338,188
----------------------------------------------
(650,365) (1,382,159)
----------------------------------------------
Net loss $ (6,099,301) $ (263,681)
==============================================
See accompanying notes.
4
Mooney Aircraft Corporation (Debtor-in-Possession)
Statements of Stockholders' Deficit
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
-------------------------------------------------------------------------------
Balances at
December 31, 1999 $ 4,880,100 $ 23,621,272 $ (39,726,070) $ (11,224,698)
Net loss - - (263,681) (263,681)
-------------------------------------------------------------------------------
Balances at
December 31, 2000 4,880,100 23,621,272 (39,989,751) (11,488,379)
Exercise of common
stock warrants 1,000,000 - - 1,000,000
Net loss - - (6,099,301) (6,099,301)
-------------------------------------------------------------------------------
Balances at
December 31, 2001 $ 5,880,100 $ 23,621,272 $ (46,089,052) $ (16,587,680)
===============================================================================
See accompanying notes.
5
Mooney Aircraft Corporation (Debtor-in-Possession)
Statements of Cash Flows
Year Ended December 31
2001 2000
-------------------------------------------
Operating Activities
Net loss $ (6,099,301) $ (263,681)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation 1,073,117 1,161,567
Gain on forgiveness of interest (698,355)
Gain on sale of property and equipment (150,406)
Gain on rejections of capital leases (7,208)
Changes in operating assets and liabilities:
Accounts receivable, net 111,080 307,356
Inventories, net 2,800,784 707,755
Other current assets 23,906 3,792
Accounts payable 245,449 624,697
Payroll and related liabilities (354,048) 438,639
Accrued environmental remediation - (2,921)
Accrued airworthiness directive (340,000) (660,000)
Other accrued liabilities (1,630,561) 2,880,489
-------------------------------------------
Net cash (used in) provided by operating activities (4,875,137) 5,047,287
Investing Activities
Proceeds from sale of property and equipment - 325,000
Purchases of property and equipment (46,967) (924,317)
-------------------------------------------
Net cash used in investing activities (46,967) (599,317)
Financing Activities
Principal payments on capital lease obligations (74,592) (259,840)
Net change in revolving credit facility 2,199,826 (1,819,652)
Net change in revolving debtor-in-possession credit facility 2,705,454 -
Principal payments on notes payable and long-term debt (871,686) (1,632,871)
Proceeds from loan from stockholder 275,000 -
-------------------------------------------
Net cash provided by (used in) financing activities 4,234,002 (3,712,363)
-------------------------------------------
(Decrease) increase in cash (688,102) 735,607
6
Mooney Aircraft Corporation (Debtor-in-Possession)
Statements of Cash Flows (continued)
Year Ended December 31
2001 2000
-------------------------------------------
Cash at beginning of year $ 762,408 $ 26,801
-------------------------------------------
Cash at end of year $ 74,306 $ 762,408
===========================================
Supplemental disclosures of cash flow information:
Interest paid $ 1,299,914 $ 1,480,812
Significant noncash transactions:
Purchases of fixed assets through capital leases 31,381 204,446
Conversion of accounts payable to note payable - 432,596
Disposal of fixed assets through lease rejections 144,840 -
Book value of fixed assets traded on purchases 69,644 -
Cancellation of notes payable to offset sale of aircraft 38,032 -
Cancellation of accounts payable to offset sale of aircraft 388,160 -
Conversion of notes payable to aircraft deposits 50,000 -
Conversion of debt to common stock 1,000,000 -
See accompanying notes.
7
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements
December 31, 2001 and 2000
1. Significant Accounting Policies
Organization
On January 31, 1998, Mooney Aircraft Corporation (the "Corporation") issued
$2,500,000 of additional cumulative, redeemable preferred stock which was
converted to common stock with the previously issued preferred stock outstanding
at December 31, 1997. This conversion resulted in AVAQ Group, Inc. ("AVAQ")
having control of 80% of the Corporation's outstanding common stock. The
remaining 20% of the Corporation's outstanding common stock was owned by Mooney
Holding Corporation ("MHC"), the Corporation's parent as of December 31, 1997,
until March 12, 2001 when AVAQ acquired the remaining 20% from MHC.
On July 27, 2001 (the "Petition Date"), the Corporation filed a petition for
reorganization under Chapter 11 ("Chapter 11") of Title 11 of the United States
Code ("Bankruptcy Code") in the United States Bankruptcy Court for the Western
District of Texas ("Court" or "Bankruptcy Court"). The Chapter 11 case is being
administered by the Court, with the Corporation managing its business as a
debtor-in-possession subject to Court approval for certain actions the
Corporation takes.
Under the Chapter 11 proceedings, actions by creditors to collect claims in
existence at the Petition Date ("prepetition") are stayed ("deferred"), absent
specific Court authorization to pay such claims, while the Corporation continues
to manage its business as a debtor-in-possession. These financial statements
include adjustments and reclassifications that have been made to reflect the
liabilities that have been deferred under the Chapter 11 proceedings. Those
noncurrent liabilities that have been deferred are expected to be settled as
part of a plan or plans of reorganization and are classified as liabilities
subject to settlement under reorganization proceedings. As of June 20, 2002, no
plan of reorganization has been submitted to the Court. Other prepetition
liabilities have been approved by the Court for payment in the ordinary course
of business and are included in the appropriate liability caption on the balance
sheet. Various accounting and business practices have also been adopted that are
applicable to companies operating under Chapter 11. For instance, interest
expense is accrued only for debt that is currently believed to be fully secured.
Some significant executory contracts have been rejected and additional executory
contracts may be rejected or renegotiated during the Chapter 11 proceedings.
8
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
1. Significant Accounting Policies (continued)
The Corporation believes appropriate provisions have been made in the
accompanying financial statements for prepetition claims which are recorded as
liabilities subject to settlement under reorganization proceedings, which
include claims associated with the rejection of certain leases, trade accounts
payable as of the Petition Date, and prepetition general liability claims (see
Note 13). The amounts of the claims filed by some claimants may be significantly
in excess of the related liabilities recorded by the Corporation.
The previous discussion provides general background information regarding the
Chapter 11 case but is not intended to be an exhaustive summary. For additional
information regarding the effect on the Corporation reference should be made to
the Bankruptcy Code.
Nature of Business
The Corporation's business operations include (i) the design and manufacture of
four-place, single-engine, retractable gear aircraft, (ii) sale of spare parts
for Mooney aircraft, (iii) manufacture of aircraft components for other
aerospace companies, and (iv) service and repair of aircraft. Aircraft sales,
both domestic and international, are largely through a Mooney Marketing Center
distribution system. Spare parts are sold worldwide through a Mooney Service
Center distribution system. The manufacture of aircraft components and the
Corporation's service and repair of aircraft are primarily domestic operations.
Revenue Recognition Policy
The Corporation recognized revenue on substantially all aircraft sales and parts
and service sales when each of the following four criteria is met: 1) a contract
or sales arrangement exists; 2) products have been shipped or services have been
rendered; 3) the price of the products or services is fixed or determinable; and
4) collectibility is reasonable assured.
The Corporation also recognizes revenue on aircraft sales under bill-and-hold
transactions when each of the following seven criteria are met: 1) the risk of
ownership has passed to the buyer; 2) the buyer has made a fixed commitment to
purchase the goods; 3) the buyer has requested that the transaction be on a
bill-and-hold basis and has a substantial business purpose for ordering so; 4)
there is a fixed schedule for delivery of the goods and
9
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
1. Significant Accounting Policies (continued)
the delivery date is reasonable and consistent with the buyer's business
practices; 5) the Corporation has not retained any specific performance
obligations such that the earnings process is not complete; 6) the aircraft has
been segregated from the Corporation's inventory and is not subject to being
used to fill other orders; and 7) the aircraft must be complete and ready for
shipment.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market. An
obsolescence reserve is estimated for parts whose values have been determined to
be impaired or whose future utility appears limited.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation for plant and
equipment, including equipment under capital leases, is computed primarily using
the straight-line method over the estimated economic service lives of the assets
as follows:
Years Years
------------- -------------
Land improvements 10 - 20 Furniture and fixtures 5 - 7
Building and building improvements Tooling 5 - 7
20 - 25 Computer equipment 3 - 5
Machinery and equipment 5 - 10 Experimental aircraft 7 - 10
Advertising Expense
The Corporation expenses its advertising costs as incurred. Advertising expenses
were approximately $170,000 in 2001 and $845,000 in 2000.
Research and Development Expense
The Corporation incurs costs related to new products, product improvements,
support, and reliability. These costs are expensed as incurred. Costs of tools,
dies, fixtures, etc., with an extended life are capitalized as tooling and
depreciated over their estimated economic service lives.
10
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
1. Significant Accounting Policies (continued)
Warranty
A warranty period of two years is provided for each aircraft sold. Periodically,
the recorded warranty liability is evaluated with consideration given to actual
warranty expense incurred on a historical basis, the volume of products still
under warranty, and the warranty period remaining for those products.
Product Liability
An accrual is provided for product liability expenses on manufactured products.
Periodically, the recorded product liability accrual is evaluated with
consideration given to actual product liability expenses, the number of product
liability claims still outstanding, the severity of the alleged and actual
damages specified in each claim, and the likelihood that actual expenses will be
incurred on each claim.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Environmental Remediation Costs
Expenses associated with environmental remediation obligations are accrued when
such losses are probable and reasonably estimable. Accruals for estimated
expenses from environmental remediation obligations generally are recognized no
later than completion of the remedial feasibility study. Such accruals are
adjusted as further information develops or circumstances change. Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value.
Reclassification
Certain prior year amounts have been reclassified for comparison to current year
amounts.
11
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
2. Going Concern
The Corporation's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Corporation's
history of losses, the incurrence of costs related to environmental remediation
(Note 10), its historical noncompliance with certain financial covenants of loan
agreements with financial institutions (Note 3), and the filing of a voluntary
petition for relief under Chapter 11 of Title 11 of the United States Code in
United States Bankruptcy Court for the Western District of Texas raise concerns
as to its ability to produce continued profitable operations and positive future
cash flows.
The potential costs related to the remediation of and compliance with
environmental issues are being managed to the lowest possible amount pursuant to
regulatory requirements. Due to the timing of some of the environmental
remediation compliance procedures, the Corporation may be unable to meet all of
its operational cash needs (see Note 10).
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary as a consequence of the
bankruptcy proceedings or should the Corporation be unable to continue as a
going concern. The appropriateness of using the going-concern basis for a
company operating under Chapter 11 of the Bankruptcy Code is dependent upon
several factors, including the success of future operations, the ability to
generate sufficient cash from operations and financing to meet its obligations
and, eventually, the confirmation of a plan of reorganization.
Until a plan of reorganization is confirmed by the Bankruptcy Court and becomes
effective, it is not possible to predict with certainty the ultimate recoveries
for creditors and stockholders, the length of time the Company will be under the
protection of Chapter 11, the outcome of the Chapter 11 proceedings in general,
the effects of the proceedings on the business of the Corporation, or the extent
of the negative effects on the interests of the various creditors and
stockholders. While management currently believes the Company has made adequate
provision for the liabilities to be incurred in connection with Chapter 11
claims, there can be no assurance as to the final amount of such liabilities or
the final impact of such liabilities on a confirmed plan of reorganization.
12
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
3. Notes Payable and Debtor-in-Possession Credit Facility
December 31
2001 2000
------------------------------------
Note payable to bank - revolving credit facility not to exceed $13,500,000
with interest at prime plus 4% (8.75% at December 31, 2001), secured by
substantially all the assets and the guarantee of MHC, AVAQ, and Paul S.
Dopp ("Dopp"), majority stockholder of AVAQ, interest monthly, with final
principal payment scheduled to be due in 2001 $ 8,247,540 $ 6,047,714
Note payable to bank - equipment term loan with an original principal
balance of $1.2 million amortizing monthly on a four-year basis with
interest at prime plus 4% (8.75% at December 31, 2001), secured by
substantially all the assets and the guarantee of MHC, AVAQ, and Dopp,
monthly principal of $18,333 plus interest, with final principal payment
scheduled to be due in 2001 390,007 587,504
Note payable to bank - Type Certificate term loan of $4.0 million payable
monthly on a three-year basis with interest at prime plus 4% (8.75% at
December 31, 2001), secured by substantially all the assets and the
guarantee of MHC, and Dopp, monthly principal of $66,667 plus interest,
with final principal payment scheduled to be due in 2001 2,133,333 2,733,333
13
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
3. Notes Payable and Debtor-in-Possession Credit Facility (continued)
December 31
2001 2000
---------------------------------------------
Note payable to vendor - interest at 10%, principal and interest due in
equal monthly installments of $38,032, with final payment
scheduled to be due in 2001 $ - $ 112,221
Note payable - interest at LIBOR plus .75% (6.25%
at December 31, 2001), unsecured, interest and
principal due December 2002 950,000 1,950,000
Notes payable to related parties - two noninterest-bearing notes for
$500,000 each, subordinate to the above revolving credit facility,
equipment term loan, and Type Certificate term loan 1,000,000 1,000,000
Notes payable to stockholder - four notes with
interest at 8%, unsecured, principal and
interest due on demand 225,000 -
---------------------------------------------
Total long-term debt 12,945,880 12,430,772
Less current portion - (11,430,772)
Less long-term debt subject to subject to
settlement under reorganization proceedings
(see Note 13) (12,945,880) -
---------------------------------------------
Long-term debt, net of current portion $ - $ 1,000,000
=============================================
14
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
3. Notes Payable and Debtor-in-Possession Credit Facility (continued)
The revolving prepetition credit facility provides up to $13,500,000 in
committed credit. The aggregate amount of the credit facility shall not exceed a
calculated Borrowing Base (as defined in the loan and security agreement) based
on inventories and accounts receivable. The Facility contains restrictive
covenants and certain financial ratio covenants including, but not limited to, a
minimum adjusted net worth and a minimum adjusted working capital. At December
31, 2001, the Corporation is in violation of certain financial covenants
covering the revolving credit facility and the term loans and is in default as
the revolving prepetition credit facility and term loans matured in May 2001.
The amount owed under the revolving prepetition credit facility and term loans
exceeds the value of the underlying collateral. Therefore, these balances have
been included with liabilities subject to settlement under reorganization
proceedings (see Note 13). All unsecured notes payable have also been included
with liabilities subject to settlement under reorganization proceedings.
On July 27, 2001, in conjunction with the Corporation's filing under Chapter 11
and under order from the bankruptcy trustee, the Company entered into a
Debtor-in-Possession Credit Agreement (the "DIP Credit Agreement") with the same
financial institution providing the revolving prepetition credit facility. Under
the terms of the DIP Credit Agreement, the Corporation is allowed to borrow
funds based on the approval of the Bankruptcy Court, U.S. trustee, and financial
institution. Borrowings under this arrangement are due on demand, bear interest
at 8.75%, and have priority over all other secured claims.
The fair value of the Corporation's borrowings is not determinable due to the
Chapter 11 proceedings and other factors (see Note 2).
During 2001, one of the lenders forgave accrued interest payable in the amount
of $698,355. This has been included in other income on the statement of
operations.
15
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
4. Inventories
A summary of inventories is as follows:
December 31
2001 2000
------------------------------------------------
Raw materials and purchased parts $ 1,430,591 $ 1,849,559
Manufactured parts 2,226,757 2,461,134
Work-in-process 3,636,084 4,675,106
Finished aircraft - 919,940
Other miscellaneous 26,950 41,619
------------------------------------------------
7,320,382 9,947,358
Less allowance for obsolete and
slow-moving parts 1,475,000 875,000
------------------------------------------------
$ 5,845,382 $ 9,072,358
================================================
16
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
5. Leases
The Corporation has acquired certain equipment through capital leases. The book
value of the equipment and accumulated amortization related to these assets held
under capital leases are $717,592 and $566,695, respectively, at December 31,
2001 and $862,265 and $412,933, respectively, at December 31, 2000. In 2002, the
Corporation subsequently settled substantially all of the capital leases for an
amount less than what was contractually due. Therefore, capital leases are
classified as current and no portion of future payments is considered to be
interest.
In addition, the Corporation has several operating leases. Rent expense incurred
during 2001 and 2000 was approximately $187,000 and $358,000, respectively. The
following is a schedule of the future minimum payments under noncancelable
operating leases as of December 31, 2001:
2002 $ 38,727
2003 19,848
2004 19,848
2005 16,013
2006 16,013
Thereafter 93,408
Under its Chapter 11 proceedings (see Note 1), the Corporation has the right,
subject to Court approval, to assume or reject executory contracts and unexpired
leases. In this context, "assumption" means that the Corporation agrees to
perform its obligation to perform further under the contract or lease but is
subject to a claim of damages for the breach thereof. Therefore, the commitments
shown above may not reflect the actual cash outlay in the future.
17
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
6. Federal Income Taxes
For 2001, the Corporation will file a consolidated income tax return with its
parent, AVAQ. For purposes of these financial statements, income taxes have been
calculated on a separate-company basis in accordance with Financial Accounting
Standards Board Statement No. 109 (FAS 109).
The Corporation records income taxes under FAS 109 using the liability method.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
The Corporation has net operating loss carryforwards for federal income tax
purposes of approximately $33,520,000 that will expire in years 2005 through
2021. The tax effect of these carryforwards is fully reserved as of December 31,
2001.
The valuation allowance increased (decreased) $1,402,745 and $(96,559) for the
years ended December 31, 2001 and 2000, respectively.
Deferred income taxes result from the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Corporation's
deferred tax assets and liabilities are as follows:
2001 2000
-----------------------------------------------
Deferred tax assets:
Depreciation $ 366,155 $ 343,246
Uniform capitalization adjustment 141,662 174,697
Inventory reserve 501,500 281,219
Bad debts 58,972 15,953
Vacation 21,155 71,030
Warranty 336,291 170,000
Product insurance 76,672 53,576
Environmental remediation 178,697 178,697
General business credit 83,444 83,444
18
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
6. Federal Income Taxes (continued)
2001 2000
--------------------------------------
Accrued airworthiness directive $ - $ 195,002
Other 18,155 18,155
NOL carryforwards 11,396,832 10,203,238
--------------------------------------
Total deferred tax assets 13,179,535 11,788,257
Deferred tax liabilities:
Tax over book amortization - 11,467
--------------------------------------
Net deferred tax assets 13,179,535 11,776,790
Less valuation allowance 13,179,535 11,776,790
--------------------------------------
Net deferred tax assets $ - $ -
======================================
As a result of the issuance of additional shares of common stock, an ownership
change under Section 382 occurred in January 1998. Accordingly, it is expected
that the use of net operating loss carryforwards generated through January 1998
will be limited to approximately $65,000 annually. Further changes in ownership
may further limit the use of the Corporation's loss carryforwards.
In addition to the Section 382 limitations, uncertainties exist as to the future
utilization of the operating loss carryforwards under the criteria set forth
under FAS 109. Therefore, the Corporation has established a valuation allowance
of $13,179,535 and $11,776,790 for net deferred tax assets at December 31, 2001
and 2000, respectively.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
2001 2000
--------------------------------
Expected tax (benefit) expense $ (2,073,762) $ 85,981
Change in valuation allowance 1,402,745 (96,559)
Permanent and other differences 671,017 10,578
--------------------------------
Actual tax expense $ - $ -
================================
19
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
7. Contingencies
The Corporation was partially self-insured for product liability and aircraft
grounding claims and related legal and administrative costs prior to September
1, 1997, and there is remaining coverage from the prior policy. Subsequent to
September 1, 1997, the Corporation has coverage up to $50 million in claims per
policy year. An accrual has been provided for such claims based on management's
best estimate of losses and expenses using historical figures, known incidents,
incidents under investigation or in suit, and discussion with the Corporation's
counsel regarding such incidents. Management believes that amounts accrued are
adequate to cover its potential liability under such claims and that the
ultimate disposition of these claims will have no material adverse effect on the
financial position or results of operations of the Corporation; however, the
ultimate resolution of these matters cannot be determined.
8. 401(k) Plan
The Corporation has a defined contribution retirement plan ("401(k) Plan")
covering substantially all employees. The 401(k) Plan's inception date was July
1, 1996. An employee may elect to make voluntary contributions up to 15% of the
employee's eligible compensation. Employer contributions to the 401(k) Plan are
discretionary. There were no employer contributions for the years ended December
31, 2001 and 2000.
9. Related Party Transaction
In November 2000, Dopp purchased an aircraft from the Corporation and
subsequently entered into a lease agreement whereby the Corporation leased the
aircraft from him on a month-to-month basis for approximately $5,000. Profits on
the sale of the aircraft were deferred.
20
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
10. Commitments and Contingencies
There are various suits and claims against the Corporation that have arisen in
the ordinary course of business. The total liability on these matters cannot be
determined with certainty. However, in the opinion of management, the ultimate
liability, to the extent not otherwise provided for, will not materially impact
the financial statements of the Corporation. Due to the Corporation's filing
under Chapter 11, certain of such cases have been stayed pursuant to the
automatic stay issued by the Court. Under Chapter 11, these cases require court
approval or must be specifically exempt for litigation proceedings to continue.
Environmental Remediation Loss Contingencies
The Corporation has completed, under the supervision of environmental counsel,
an audit of certain operations pursuant to the Texas Environmental, Health and
Safety Audit Privilege Act. Environmental engineering consultants have conducted
sampling and tests of these operations and determined certain events of
noncompliance with applicable environmental laws, as well as future compliance
issues. The current estimate for remediation and compliance with these
environmental issues is estimated at $525,579, all of which will not be paid out
in the next 12 months. These estimates may change upon completion of the audit,
as additional information becomes available and environmental laws change. The
Corporation is pursuing certain governmental programs that could possibly
mitigate these costs.
11. Stock Warrants
On July 7, 1998, in connection with the AVAQ purchase, the Corporation issued to
AVAQ nontransferable warrants to purchase 1,000,000 shares of the Corporation's
common stock. The first 500,000 warrants, with an exercise price of $7.00 per
share, expired on July 7, 1999. The second 500,000 warrants, with an exercise
price of $10.00 per share, expire on July 7, 2003. On March 12, 2001, AVAQ
exercised 100,000 warrants at $10.00 per share. In consideration, AVAQ cancelled
$1,000,000 of indebtedness owed them from the Corporation.
21
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
12. Reorganization Expense
In fiscal 2001, the Company incurred $2,488,925 in reorganization expense
attributable to the filing under Chapter 11. This expense includes $598,129 for
potential lease rejection claims and $1,890,796 for professional fees.
13. Liabilities Subject to Settlement Under Reorganization Proceedings
The Court established the date ("Bar Date") of November 29, 2001 by which claims
must be filed. Claims subject to the order which are not filed by the Bar Date
are barred from voting upon or receiving distribution under any plan of
reorganization of the Corporation unless the Court orders otherwise.
Those liabilities, which are ultimately expected to be settled as part of a plan
of reorganization, are classified as liabilities subject to settlement under
reorganization proceedings and include the following estimates at December 31,
2001:
Trade accounts payable $ 4,570,940
Accrued payroll and other related liabilities 703,635
Accrued expenses 2,156,682
Notes payable to related parties 1,225,000
Notes payable 3,473,340
Revolving prepetition credit facility 8,247,540
Potential lease rejection claims 598,129
------------
Total $ 20,975,266
============
While management currently believes that it has made adequate provision for the
liabilities to be incurred in connection with Chapter 11 claims, including
executory contracts and estimated costs of lease rejections, there can be no
assurance as to the amount of the ultimate liabilities on a plan of
reorganization or how such liabilities will be treated in a confirmed plan of
reorganization.
22
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Financial Statements (continued)
December 31, 2001 and 2000
14. Subsequent Events
On January 30, 2002, Advanced Aerodynamics & Structures, Inc. ("AASI") purchased
for cash and notes payable the revolving credit facility and term notes from
Congress Financial ("Congress") for $8,000,000, assuming all the rights and
obligations of Congress. At that time the outstanding balance due Congress was
approximately $13,700,000. AASI relieved Dopp of his guaranty on these notes
after their purchase.
On February 6, 2002, AASI agreed to provide continued debtor-in-possession
financing through May 3, 2002. Through April 19, 2002, AASI advanced an
additional $220,000 in debtor-in-possession financing.
On April 19, 2002, AASI purchased the inventory and capital assets and assumed
certain liabilities of the Corporation for approximately $11,360,000 including
cash and other consideration.
Under the terms of the purchase agreement, AASI paid $8,000,000 against the
secured claim they purchased from Congress. The remaining $5,700,000 of debt
owed them from the Corporation became subordinated, unsecured debt. AASI also
paid $1,000,000 to the bankruptcy estate ($350,000 in cash and $650,000 in
stock) to be disbursed to the unsecured creditors, and provided approximately
$560,000 for operating expenses incurred prior to the purchase. AASI also
assumed approximately $1,800,000 of liabilities and the property leases with the
City of Kerrville, Kerr County, and Kerr County Industrial and Development
Foundation.
The purchase agreement also provides for the issuance of approximately 3,600,000
stock warrants of AASI stock at an exercise price of $.276 per share to be
disbursed to the unsecured creditors. In addition, if no action letter is
received from the Securities and Exchange Commission within 60 days of the date
of purchase, AASI is required to transfer stock with a value of $250,000 to the
bankruptcy estate.
Subsequent to the purchase, AASI changed its name to Mooney Aerospace Group,
Ltd.
23
Mooney Aircraft Corporation (Debtor-in-Possession)
Financial Statements (Unaudited)
Three Months Ended March 31, 2002 and 2001
Contents
Unaudited Financial Statements
Unaudited Balance Sheets ................................................... 2
Unaudited Statements of Operations ......................................... 4
Unaudited Statements of Stockholders' Deficit .............................. 5
Unaudited Statements of Cash Flows ......................................... 6
Notes to Unaudited Financial Statements .................................... 8
Mooney Aircraft Corporation (Debtor-in-Possession)
Balance Sheets (Unaudited)
March 31
2002 2001
----------------------------------
Assets
Current assets:
Cash $ 21,004 $ 8,240
Accounts receivable, net of allowance for
doubtful accounts of $176,909 and $39,469 at
March 31, 2002 and 2001, respectively - 547,625
Inventories, net of obsolescence reserve of
$1,475,000 and $875,000 at March 31, 2002
and 2001, respectively 5,797,682 8,463,748
Other current assets 159,879 290,302
----------------------------------
Total current assets 5,978,565 9,309,915
Property, plant, and equipment:
Land and land improvements 186,043 186,043
Building and building improvements 1,821,789 1,821,789
Machinery and equipment 4,356,879 4,444,060
Furniture and fixtures 450,005 572,603
Tooling 4,327,784 4,291,715
Computer equipment 1,897,152 1,918,821
Experimental aircraft 229,899 229,899
----------------------------------
13,269,551 13,464,930
Less accumulated depreciation and
amortization 10,753,268 9,774,439
----------------------------------
Net property, plant, and equipment 2,516,283 3,690,491
----------------------------------
Total assets $ 8,494,848 $ 13,000,406
==================================
2
March 31
2002 2001
-----------------------------------
Liabilities and Stockholders' Deficit
Current liabilities:
Bank overdraft $ - $ 117,836
Accounts payable 479,208 5,713,514
Payroll and related liabilities - 616,516
Accrued airworthiness directive - 213,066
Current maturities of capital leases 150,127
Revolving pre-petition credit facility - 6,986,490
Current maturities of pre-petition notes payable - 4,095,559
Revolving debtor-in-possession credit facility 3,331,991 -
Other accrued liabilities 864,469 3,748,050
-----------------------------------
Total current liabilities 4,675,668 21,641,158
Other liabilities:
Liabilities subject to settlement under
reorganization proceedings 20,943,897 -
Accrued environmental remediation 525,579 525,579
-----------------------------------
21,469,476 525,579
Long-term debt, net of current portion:
Capital leases - 157,246
Notes payable to stockholders - 1,000,000
-----------------------------------
- 1,157,246
Stockholders' deficit:
Common stock, no par value, 3,000,000
shares authorized; 1,100,000 shares in
2001 and 1,000,000 shares in 2000 issued
and outstanding 5,880,100 5,880,100
Additional paid-in capital 23,621,272 23,621,272
Accumulated deficit (47,151,668) (39,824,949)
-----------------------------------
Total stockholders' deficit (17,650,296) (10,323,577)
-----------------------------------
Total liabilities and stockholders' deficit $ 8,494,848 $ 13,000,406
===================================
See accompanying notes.
3
Mooney Aircraft Corporation (Debtor-in-Possession)
Statements of Operations (Unaudited)
Three Months Ended March 31
2002 2001
----------------------------------------------
Net sales $ 367,001 $ 7,658,372
Cost of sales 109,910 6,298,937
----------------------------------------------
Gross margin 257,091 1,359,435
Research and development expenses - 152,236
Selling and support expenses - 528,240
General and administrative expenses 873,723 848,705
Reorganization expenses 228,349 -
----------------------------------------------
1,102,072 1,529,181
----------------------------------------------
Loss from operations (844,981) (169,746)
Other (expense) income:
Interest expense (311,551) (375,323)
Other income 93,916 709,871
----------------------------------------------
(217,623) 334,548
----------------------------------------------
Net loss (income) $ (1,062,616) $ 164,802
==============================================
See accompanying notes.
4
Mooney Aircraft Corporation (Debtor-in-Possession)
Statements of Stockholders' Deficit (Unaudited)
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
---------------------------------------------------------------------------
Balances at December 31,
2000 $ 4,880,100 $ 23,621,272 $ (39,989,751) $ (11,488,379)
Net income (3 months) - - 164,802 164,802
Exercise of common
stock warrants 1,000,000 - - 1,000,000
---------------------------------------------------------------------------
Balances at March 31,
2001 5,880,100 23,621,272 (39,824,949) (10,323,577)
---------------------------------------------------------------------------
Balances at December 31,
2001 5,880,100 23,621,272 (46,089,052) (16,587,680)
Net loss (3 months) - - (1,062,616) (1,062,616)
---------------------------------------------------------------------------
Balances at March 31,
2002 $ 5,880,100 $ 23,621,272 $ (47,151,668) $ (17,650,296)
===========================================================================
See accompanying notes.
5
Mooney Aircraft Corporation (Debtor-in-Possession)
Statements of Cash Flows (Unaudited)
Three Months Ended March 31
2002 2001
-------------------------------------------
Operating Activities
Net income (loss) $ (1,062,616) $ 164,802
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 233,870 279,408
Gain on forgiveness of interest - (698,355)
Gain on settlement of capital leases (54,325) -
Changes in operating assets and liabilities:
Accounts receivable, net 42,590 (393,955)
Inventories, net 47,700 608,610
Other current assets 175,117 68,600
Bank overdraft - 117,836
Accounts payable - 520,661
Payroll and related liabilities - (441,167)
Accrued airworthiness directive - (126,934)
Other accrued liabilities 25,135 (1,426,662)
Liabilities subject to settlement under
reorganization proceedings (31,369) -
-------------------------------------------
Net cash used in operating activities (623,898) (1,327,156)
Investing Activities
Purchases of property and equipment - (10,493)
-------------------------------------------
Net cash used in investing activities - (10,493)
Financing Activities
Principal payments on capital lease obligations (55,941) (67,796)
Net change in revolving credit facility - 938,776
Net change in revolving debtor-in-possession credit facility 626,537 -
Principal payments on notes payable and long-term debt - (287,499)
-------------------------------------------
Net cash provided by financing activities 570,596 583,481
-------------------------------------------
Increase (decrease) in cash (53,302) (754,168)
6
Mooney Aircraft Corporation (Debtor-in-Possession)
Statements of Cash Flows (Unaudited) (continued)
Three Months Ended March 31
2002 2001
-------------------------------------------
Cash at beginning of period $ 74,306 $ 762,408
-------------------------------------------
Cash at end of period $ 21,004 $ 8,240
===========================================
Supplemental disclosures of cash flow information:
Interest paid $ 321,480 $ 387,796
Significant noncash transactions:
Conversion of debt to common stock - 1,000,000
See accompanying notes.
7
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements
March 31, 2002 and 2001
1. Significant Accounting Policies
General
In the opinion of the Company's management, the accompanying unaudited financial
statements include all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position of the
Company at March 31, 2002 and 2001 and the results of operations and cash flows
for the three months ended March 31, 2002 and March 31, 2001, respectively.
Although the Company believes that the disclosures in these financial statements
are adequate to make the information presented not misleading, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. Results of operations for interim periods are not
necessarily indicative of results of operations to be expected for any other
interim period or the full year.
The financial information in this report should be read in conjunction with the
audited December 31, 2001 financial statements and notes thereto.
Organization
On January 31, 1998, Mooney Aircraft Corporation (the "Corporation") issued
$2,500,000 of additional cumulative, redeemable preferred stock which was
converted to common stock with the previously issued preferred stock outstanding
at December 31, 1997. This conversion resulted in AVAQ Group, Inc. ("AVAQ")
having control of 80% of the Corporation's outstanding common stock. The
remaining 20% of the Corporation's outstanding common stock was owned by Mooney
Holding Corporation ("MHC"), the Corporation's parent as of December 31, 1997,
until March 12, 2001 when AVAQ acquired the remaining 20% from MHC.
On July 27, 2001 (the "Petition Date"), the Corporation filed a petition for
reorganization under Chapter 11 ("Chapter 11) of Title 11 of the United States
Code ("Bankruptcy Code") in the United States Bankruptcy Court for the Western
District of Texas ("Court" or "Bankruptcy Court"). The Chapter 11 case is being
administered by the Court, with the Corporation managing its business as a
debtor-in-possession subject to Court approval for certain actions the
Corporation takes.
Under the Chapter 11 proceedings, actions by creditors to collect claims in
existence at the Petition Date ("prepetition") are stayed ("deferred"), absent
specific Court authorization to pay such claims, while the Corporation continues
to manage its business as a debtor-in-possession. These financial statements
include adjustments and reclassifications that have been made to reflect the
liabilities that have been deferred under the Chapter 11 proceedings. Those
noncurrent liabilities that have been deferred are expected to be settled as
part of a plan or plans of reorganization and are classified as liabilities
subject to settlement under reorganization proceedings. As of June 20, 2002, no
plan of reorganization has been submitted to the Court. Other prepetition
liabilities have been approved by the Court for payment in the ordinary course
of business and are included in the appropriate liability caption on the balance
sheet. Various accounting and business practices have also been adopted that are
applicable to companies operating under Chapter 11. For instance, interest
expense is accrued only for debt that is currently believed to be fully secured.
Some significant executory contracts have been rejected and additional executory
contracts may be rejected or renegotiated during the Chapter 11 proceedings.
8
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
1. Significant Accounting Policies (continued)
The Corporation believes appropriate provisions have been made in the
accompanying financial statements for prepetition claims which are recorded as
liabilities subject to settlement under reorganization proceedings, which
include claims associated with the rejection of certain leases, trade accounts
payable as of the Petition Date and prepetition general liability claims (see
Note 13). The amounts of the claims filed by some claimants may be significantly
in excess of the related liabilities recorded by the Corporation.
The previous discussion provides general background information regarding the
Chapter 11 case but is not intended to be an exhaustive summary. For additional
information regarding the effect on the Corporation reference should be made to
the Bankruptcy Code.
Nature of Business
The Corporation's business operations include (i) the design and manufacture of
four-place, single-engine, retractable gear aircraft, (ii) sale of spare parts
for Mooney aircraft, (iii) manufacture of aircraft components for other
aerospace companies, and (iv) service and repair of aircraft. Aircraft sales,
both domestic and international, are largely through a Mooney Marketing Center
distribution system. Spare parts are sold worldwide through a Mooney Service
Center distribution system. The manufacture of aircraft components and the
Corporation's service and repair of aircraft are primarily domestic operations.
Revenue Recognition Policy
The Corporation recognized revenue on substantially all aircraft sales and parts
and service sales when each of the following four criteria is met: 1) a contract
or sales arrangement exists; 2) products have been shipped or services have been
rendered; 3) the price of the products or services is fixed or determinable; and
4) collectibility is reasonable assured.
The Corporation also recognizes revenue on aircraft sales under bill-and-hold
transactions when each of the following seven criteria are met: 1) the risk of
ownership has passed to the buyer; 2) the buyer has made a fixed commitment to
purchase the goods; 3) the buyer has requested that the transaction be on a
bill-and-hold basis and has a substantial business purpose for ordering so; 4)
there is a fixed schedule for delivery of the goods and the delivery date is
reasonable and consistent with the buyer's business practices; 5) the
9
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
1. Significant Accounting Policies (continued)
Corporation has not retained any specific performance obligations such that the
earnings process is not complete; 6) the aircraft has been segregated from the
Corporation's inventory and is not subject to being used to fill other orders;
and 7) the aircraft must be complete and ready for shipment.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market. An
obsolescence reserve is estimated for parts whose values have been determined to
be impaired or whose future utility appears limited.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation for plant and
equipment, including equipment under capital leases, is computed primarily using
the straight-line method over the estimated economic service lives of the assets
as follows:
Years Years
------- -------
Land improvements 10 - 20 Furniture and fixtures 5 - 7
Building and building Tooling 5 - 7
improvements 20 - 25 Computer equipment 3 - 5
Machinery and equipment 5 - 10 Experimental aircraft 7 - 10
Advertising Expense
The Corporation expenses its advertising costs as incurred. Advertising expenses
were approximately $279,000 for the three months ended March 31, 2001. The
Corporation did not incur any advertising expenses for the three months ended
March 31, 2002.
Research and Development Expense
The Corporation incurs costs related to new products, product improvements,
support, and reliability. These costs are expensed as incurred. Costs of tools,
dies, fixtures, etc. with an extended life are capitalized as tooling and
depreciated over their estimated economic service lives.
10
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
1. Significant Accounting Policies (continued)
Warranty
A warranty period of two years is provided for each aircraft sold. Periodically,
the recorded warranty liability is evaluated with consideration given to actual
warranty expense incurred on a historical basis, the volume of products still
under warranty, and the warranty period remaining for those products.
Product Liability
An accrual is provided for product liability expenses on manufactured products.
Periodically, the recorded product liability accrual is evaluated with
consideration given to actual product liability expenses, the number of product
liability claims still outstanding, the severity of the alleged and actual
damages specified in each claim, and the likelihood that actual expenses will be
incurred on each claim.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Environmental Remediation Costs
Expenses associated with environmental remediation obligations are accrued when
such losses are probable and reasonably estimable. Accruals for estimated
expenses from environmental remediation obligations generally are recognized no
later than completion of the remedial feasibility study. Such accruals are
adjusted as further information develops or circumstances change. Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value.
Reclassification
Certain prior period amounts have been reclassified for comparison to current
year amounts.
11
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
2. Going Concern
The Corporation's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Corporation's
history of losses, the incurrence of costs related to environmental remediation
(Note 10), its historical noncompliance with certain financial covenants of loan
agreements with financial institutions (Note 3), and the filing of a voluntary
petition for relief under Chapter 11 of Title 11 of the United States Code in
United States Bankruptcy Court for the Western District of Texas raise concerns
as to its ability to produce continued profitable operations and positive future
cash flows.
The potential costs related to the remediation of and compliance with
environmental issues are being managed to the lowest possible amount pursuant to
regulatory requirements. Due to the timing of some of the environmental
remediation compliance procedures, the Corporation may be unable to meet all of
its operational cash needs (see Note 10).
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary as a consequence of the
bankruptcy proceedings or should the Corporation be unable to continue as a
going concern. The appropriateness of using the going concern basis for a
company operating under Chapter 11 of the Bankruptcy Code is dependent upon
several factors, including the success of future operations, the ability to
generate sufficient cash from operations and financing to meet its obligations
and, eventually, the confirmation of a plan of reorganization.
Until a plan of reorganization is confirmed by the Bankruptcy Court and becomes
effective, it is not possible to predict with certainty the ultimate recoveries
for creditors and stockholders, the length of time the Company will be under the
protection of Chapter 11, the outcome of the Chapter 11 proceedings in general,
the effects of the proceedings on the business of the Corporation or the extent
of the negative effects on the interests of the various creditors and
stockholders. While management currently believes the Company has made adequate
provision for the liabilities to be incurred in connection with Chapter 11
claims, there can be no assurance as to the final amount of such liabilities or
the final impact of such liabilities on a confirmed plan of reorganization.
12
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
3. Notes Payable and Debtor-in-Possession Credit Facility
March 31
2002 2001
---------------------------------------
Note payable to bank - revolving credit facility
not to exceed $13,500,000 with interest at
prime plus 4% (8.75% at March 31, 2002),
secured by substantially all the assets and the
guarantee of MHC and AVAQ, interest
monthly, principal scheduled to be due in 2001 $ - $ 6,986,490
Note payable to bank - equipment term loan with
an original principal balance of $1.2 million
amortizing monthly on a four-year basis with
interest at prime plus 4% (8.75% at March 31,
2002), secured by substantially all the assets
and the guarantee of MHC and AVAQ, monthly
principal of $18,333 plus interest, with final
principal payment scheduled to be due in 2001 - 500,006
Note payable to bank - Type Certificate term loan
of $4.0 million payable monthly on a three-year
basis with interest at prime plus 4% (8.75% at
December 31, 2001), secured by substantially all
the assets and the guarantee of MHC and AVAQ
monthly principal of $66,667 plus interest, with
final principal payment scheduled to be due in 2001. - 2,533,333
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
3. Notes Payable and Debtor-in-Possession Credit Facility (continued)
March 31
2002 2001
-----------------------------------
Note payable to corporation - revolving credit
facility not to exceed $13,500,000 with
interest at prime plus 4% (8.75% at
March 31, 2002), secured by substantially all
the assets and the guarantee of MHC and AVAQ,
interest monthly, principal scheduled to be
due in 2001 $ 8,247,540 $ -
Note payable to corporation - equipment term loan
with an original principal balance of $1.2 million
amortizing monthly on a four-year basis with
interest at prime plus 4% (8.75% at March 31, 2002),
secured by substantially all the assets and the
guarantee of MHC and AVAQ, monthly principal of
$18,333 plus interest, with final principal payment
scheduled to be due in 2001 390,007 -
Note payable to corporation - Type Certificate term loan
of $4.0 million payable monthly on a three-year
basis with interest at prime plus 4% (8.75% at
December 31, 2001), secured by substantially all the
assets and the guarantee of MHC and AVAQ monthly
principal of $66,667 plus interest, with final
principal payment scheduled to be due in 2001. 2,133,333 -
14
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
3. Notes Payable and Debtor-in-Possession Credit Facility (continued)
March 31
2002 2001
--------------------------------------
Note payable to vendor - interest at 10%, principal and
interest due in equal monthly installments of $38,032,
with final payment scheduled to be due in 2001 $ - $ 112,221
Note payable - interest at LIBOR plus .75% (6.25% at
December 31, 2001), unsecured, interest and principal
due December 2002 950,000 950,000
Notes payable to related parties - two noninterest-bearing
notes for $500,000 each, subordinate to the above
revolving credit facility, equipment term loan, and
Type Certificate term loan 1,000,000 1,000,000
Notes payable to stockholder - four notes with interest at
8%, unsecured, principal and interest due on demand 225,000 -
--------------------------------------
Total long-term debt 12,945,880 12,082,049
Less current portion - 11,082,049
Less long-term debt subject to subject to settlement
under reorganization proceedings (see Note 13)
12,945,880 -
--------------------------------------
Long-term debt, net of current portion $ - $ 1,000,000
======================================
15
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
3. Notes Payable and Debtor-in-Possession Credit Facility (continued)
The revolving credit facility provides up to $13,500,000 in committed credit.
The aggregate amount of the credit facility shall not exceed a calculated
Borrowing Base (as defined in the loan and security agreement) based on
inventories and accounts receivable. The Facility contains restrictive covenants
and certain financial ratio covenants including, but not limited to, a minimum
adjusted net worth and a minimum adjusted working capital. At March 31, 2002,
the Corporation is in violation of certain financial covenants covering the
revolving credit facility and the term loans and is in default as the revolving
credit facility and term loans matured in May 2001.
The amount owed under the revolving credit facility and term loans exceeds the
value of the underlying collateral. Therefore, these balances have been included
with liabilities subject to settlement under reorganization proceedings (see
Note 13). All unsecured notes payable have also been included with liabilities
subject to settlement under reorganization proceedings.
On July 27, 2001, in conjunction with the Corporation's filing under Chapter 11
and under order from the bankruptcy trustee, the Company entered into a
Debtor-in-Possession Credit Agreement (the "DIP Credit Agreement") with the same
financial institution providing the revolving credit facility. Under the terms
of the DIP Credit Agreement, the Corporation is allowed to borrow funds based on
the approval of the bankruptcy court, U. S. trustee, and financial institution.
Borrowings under this arrangement are due on demand, bear interest at 8.75%, and
have priority over all other secured claims.
On January 30, 2002, Advanced Aerodynamics & Structures, Inc. ("AASI") purchased
for cash and notes payable the revolving credit facility and term notes from
Congress Financial ("Congress") for $8,000,000 assuming all the rights and
obligations of Congress. At that time the outstanding balance due Congress was
approximately $13,700,000. AASI relieved Paul S. Dopp, majority stockholder of
AVAQ, of his guaranty on these notes after their purchase. On February 6, 2002,
AASI agreed to provide continued debtor-in-possession financing through May 3,
2002.
16
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
3. Notes Payable and Debtor-in-Possession Credit Facility (continued)
The fair value of the Corporation's borrowings is not determinable due to the
Chapter 11 proceedings and other factors (see Note 2).
4. Inventories
A summary of inventories is as follows:
March 31
2002 2001
------------------------------------------------
Raw materials and purchased parts $ 1,369,990 $ 1,670,662
Manufactured parts 2,176,042 2,418,631
Work-in-process 3,700,318 4,821,354
Finished aircraft - 271,288
Other miscellaneous 26,332 156,813
------------------------------------------------
7,272,682 9,338,748
Less allowance for obsolete and
slow-moving parts 1,475,000 875,000
------------------------------------------------
$ 5,797,682 $ 8,463,748
================================================
17
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
5. Leases
The Corporation has acquired certain equipment through capital leases. The book
value of the equipment and accumulated amortization related to these assets held
under capital leases are $862,265 and $451,374, respectively, at March 31, 2001.
In 2002, the Corporation subsequently settled substantially all of the capital
leases for an amount less than what was contractually due resulting in a gain of
approximately $54,000.
In addition, the Corporation has several operating leases. Rent expense incurred
during the three months ended March 31, 2002 and 2001 was approximately $21,000
and $109,000, respectively. The following is a schedule of the future minimum
payments under noncancelable operating leases as of March 31, 2002:
2003 $ 22,724
2004 19,848
2005 19,848
2006 16,013
2007 16,013
Thereafter 89,405
Under its Chapter 11 proceedings (see Note 1), the Corporation has the right,
subject to Court approval, to assume or reject executory contracts and unexpired
leases. In this context, "assumption" means that the Corporation agrees to
perform its obligation to perform further under the contract or lease but is
subject to a claim of damages for the breach thereof. Therefore, the commitments
shown above may not reflect the actual cash outlay in the future.
18
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
6. Federal Income Taxes
During 2001, the Corporation will file a consolidated income tax return with its
parent, AVAQ. For purposes of these financial statements, income taxes have been
calculated on a separate-company basis in accordance with Financial Accounting
Standards Board Statement No. 109 (FAS 109).
The Corporation records income taxes under FAS 109 using the liability method.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
The Corporation has net operating loss carryforwards for federal income tax
purposes of approximately $34,997,000 that will expire in years 2005 through
2021. The tax effect of these carryforwards is fully reserved as of March 31,
2002.
The valuation allowance increased $246,429 and $118,346 for the three months
ended March 31, 2002 and 2001, respectively.
Deferred income taxes result from the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Corporation's
deferred tax assets and liabilities as of March 31 are as follows:
2002 2001
-----------------------------------------------
Deferred tax assets:
Depreciation $ 374,655 $ 289,261
Uniform capitalization adjustment 140,739 180,722
Inventory reserve 501,500 297,500
Bad debts 60,149 13,419
Vacation 22,028 63,008
Warranty 243,756 310,798
Product insurance 76,672 76,672
Environmental remediation 178,697 178,697
General business credit 83,444 83,444
19
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
6. Federal Income Taxes (continued)
2002 2001
Accrued airworthiness directive - 72,442
Other 18,155 18,155
NOL carryforwards 11,726,169 10,311,018
-----------------------------------------------
Total deferred tax assets 13,425,964 11,895,136
Deferred tax liabilities:
Tax over book amortization - -
-----------------------------------------------
Net deferred tax assets 13,425,964 11,895,136
Less valuation allowance (13,425,964) (11,895,136)
-----------------------------------------------
Net deferred tax assets $ - $ -
===============================================
As a result of the issuance of additional shares of common stock, an ownership
change under Section 382 occurred in January 1998. Accordingly, it is expected
that the use of net operating loss carryforwards generated through January 1998
will be limited to approximately $65,000. Further changes in ownership may
further limit the use of the Corporation's loss carryforwards.
In addition to the Section 382 limitations, uncertainties exist as to the future
utilization of the operating loss carryforwards under the criteria set forth
under FAS 109. Therefore, the Corporation has established a valuation allowance
of $13,425,964 and $11,895,136 for net deferred tax assets at March 31, 2001
and 2001, respectively.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense for the three months ended March 31 is:
2002 2001
---------------------------------------
Expected tax expense (benefit) $ (361,289) $ 56,033
Change in valuation allowance 246,429 118,846
Permanent and other differences 114,860 (174,379)
---------------------------------------
Actual tax expense $ - $ -
=======================================
20
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
7. Contingencies
The Corporation was partially self-insured for product liability and aircraft
grounding claims and related legal and administrative costs prior to September
1, 1997, and there is remaining coverage from the prior policy. Subsequent to
September 1, 1997, the Corporation has coverage up to $50 million in claims per
policy year. An accrual has been provided for such claims based on management's
best estimate of losses and expenses using historical figures, known incidents,
incidents under investigation or in suit, and discussion with the Corporation's
counsel regarding such incidents. Management believes that amounts accrued are
adequate to cover its potential liability under such claims and that the
ultimate disposition of these claims will have no material adverse effect on the
financial position or results of operations of the Corporation; however, the
ultimate resolution of these matters cannot be determined.
8. 401(k) Plan
The Corporation has a defined contribution retirement plan (401(k) Plan)
covering substantially all employees. The 401(k) Plan's inception date was July
1, 1996. An employee may elect to make voluntary contributions up to 15% of the
employee's eligible compensation. Employer contributions to the 401(k) Plan are
discretionary. There were no employer contributions for the three months ended
March 31, 2002 and 2001.
9. Related Party Transaction
In November 2000, Dopp purchased an aircraft from the Corporation and
subsequently entered into a lease agreement whereby the Corporation leased the
aircraft from him on a month-to-month basis for approximately $5,000. Profits on
the sale of the aircraft were deferred.
21
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
10. Commitments and Contingencies
There are various suits and claims against the Corporation that have arisen in
the ordinary course of business. The total liability on these matters cannot be
determined with certainty. However, in the opinion of management, the ultimate
liability, to the extent not otherwise provided for, will not materially impact
the financial statements of the Corporation. Due to the Corporation's filing
under Chapter 11, certain of such cases have been stayed pursuant to the
automatic stay issued by the Court. Under Chapter 11, these cases require court
approval or must be specifically exempt for litigation proceedings to continue.
Environmental Remediation Loss Contingencies
The Corporation has completed, under the supervision of environmental counsel,
an audit of certain operations pursuant to the Texas Environmental, Health and
Safety Audit Privilege Act. Environmental engineering consultants have conducted
sampling and tests of these operations and determined certain events of
noncompliance with applicable environmental laws as well as future compliance
issues. The current estimate for remediation and compliance with these
environmental issues is estimated at $525,579, all of which will not be paid out
in the next 12 months. These estimates may change upon completion of the audit,
as additional information becomes available and environmental laws change. The
Corporation is pursuing certain governmental programs that could possibly
mitigate these costs.
11. Stock Warrants
On July 7, 1998, in connection with the AVAQ purchase, the Corporation issued to
AVAQ nontransferable warrants to purchase 1,000,000 shares of the Corporation's
common stock. The first 500,000 warrants, with an exercise price of $7.00 per
share, expired on July 7, 1999. The second 500,000 warrants, with an exercise
price of $10.00 per share, expire on July 7, 2003. On March 12, 2001, AVAQ
exercised 100,000 warrants at $10.00 per share. In consideration, AVAQ cancelled
$1,000,000 of indebtedness owed them from the Corporation.
22
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
12. Reorganization Expense
For the three months ended March 31, 2002, the Company incurred $228,349 in
reorganization expense attributable to the filing under Chapter 11. The charges
were primarily for professional fees.
13. Liabilities Subject to Settlement Under Reorganization Proceedings
The Court established the date ("Bar Date") of November 29, 2001 by which claims
must be filed. Claims subject to the order which are not filed by the Bar Date
are barred from voting upon or receiving distribution under any plan of
reorganization of the Corporation unless the Court orders otherwise.
Those liabilities, which are ultimately expected to be settled as part of a plan
of reorganization, are classified as liabilities subject to settlement under
reorganization proceedings and include the following estimates at March 31,
2002:
Trade accounts payable $ 4,460,790
Accrued payroll and other related liabilities 673,709
Accrued expenses 2,265,389
Notes payable to related parties 1,225,000
Notes payable 3,473,340
Revolving pre-petition credit facility 8,247,540
Potential lease rejection claims 598,129
-------------
Total $ 20,943,897
=============
While management currently believes that it has made adequate provision for the
liabilities to be incurred in connection with Chapter 11 claims, including
executory contracts and estimated costs of lease rejections, there can be no
assurance as to the amount of the ultimate liabilities on a plan of
reorganization or how such liabilities will be treated in a confirmed plan of
reorganization.
23
Mooney Aircraft Corporation (Debtor-in-Possession)
Notes to Unaudited Financial Statements (continued)
March 31, 2002 and 2001
14. Subsequent Events
On April 19, 2002, AASI purchased the inventory and capital assets and assumed
certain liabilities of the Corporation for approximately $11,360,000 including
cash and other consideration.
Under the terms of the purchase agreement, AASI paid $8,000,000 against the
secured claim they purchased from Congress. The remaining $5,700,000 of debt
owed them from the Corporation became subordinated, unsecured debt. AASI also
paid $1,000,000 to the bankruptcy estate ($350,000 in cash and $650,000 in
stock) to be disbursed to the unsecured creditors and provided approximately
$560,000 for operating expenses incurred prior to the purchase. AASI also
assumed approximately $1,800,000 of liabilities and the property leases with the
City of Kerrville, Kerr County, and Kerr County Industrial and Development
Foundation.
The purchase agreement also provides for the issuance of approximately 3,600,000
stock warrants of AASI stock at an exercise price of $.276 per share to be
disbursed to the unsecured creditors. In addition, if no action letter is
received from the Securities and Exchange Commission within 60 days of the date
of purchase, AASI is required to transfer stock with a value of $250,000 to the
bankruptcy estate.
Subsequent to the purchase, AASI changed its name to Mooney Aerospace Group,
Ltd.
24
ITEM 7(b) Pro Forma Financial Information.
Unaudited Pro Forma Combined Financial Statements
The following unaudited pro forma combined financial statements give the
effect to Advanced Aerodynamics & Structures, Inc. (a Development Stage
Enterprise) ("AASI") purchase of the inventory and property, plant and equipment
of Mooney Aircraft Corporation ( Debtor-in-Possession) ("Mooney") for cash and
notes, which was consummated April 19, 2002. AASI also assumed certain
liabilities totaling $2,417,000. In addition, AASI assumed the property lease
with the City of Kerrville for the land where Mooney's facilities are located.
The acquisition was accounted for using the purchase method of accounting.
The following unaudited pro forma combined financial information has been
derived from the historical financial statements of AASI and Mooney. The
unaudited pro forma combined statement of operations as of December 31, 2001 has
been derived from the audited financial statements of AASI and Mooney. The
unaudited pro forma combined balance sheet and statement of operations as of
March 31, 2002 have been derived from the unaudited financial statements of AASI
and Mooney. The unaudited pro forma combined balance sheet as of March 31, 2002
assumes that the acquisition was completed as of March 31, 2002. The statements
of operations for the three-month period ended March 31, 2002 and the year ended
December 31, 2002 assumes that the acquisition was consummated as of the
beginning of the fiscal year presented.
The unaudited pro forma combined financial statements are presented for
illustrative purposes only and are not necessarily indicative of the financial
position or results of operations of AASI that would have been reported had the
acquisition occurred on the date indicated, nor do they represent a forecast of
the financial position of AASI at any future date or the results of operations
of AASI for any future period. Furthermore, no effect has been given in the AASI
unaudited pro forma combined statements of operations for operating benefits
that may be realized through the combination of the entities. Amounts allocated
to the assets and liabilities of Mooney are based on their estimated fair market
values as of the acquisition closing date. The unaudited pro forma combined
financial statements, including the notes thereto, should be read in conjunction
with the historical financial statements and related notes of Mooney and the
Company's historical financial statements and related notes.
Advanced Aerodynamics & Structures, Inc.
(A Development Stage Enterprise)
Unaudited Pro Forma Combined Balance Sheet
(in thousands, except share amounts)
AASI Mooney
---------------------------
March 31, 2002 Pro Forma Adjustments Pro Forma
--------------------------- -------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,820 $ 21 $ (21)/(1)/ $ (633)/(2)/ $ 2,187
Receivable from Mooney Aircraft Corporation 8,158 - (8,000)/(4)/ (158)/(4)/ -
Inventories, primarily finished goods - 5,798 - - 5,798
Debt issuance costs, current portion 90 - - - 90
Prepaid expenses and other current assets 74 160 (160)/(1)/ - 74
---------------------------------------------------------------------
Total current assets 11,142 5,979 (8,181) (791) 8,149
Property, plant and equipment, net 11,867 2,516 - 4,636/(3)/ 19,019
Investments available-for-sale 1 - - - 1
Restricted cash 435 - - 435
Investment in Mooney Aircraft Corporation - - 8,000/(4)/ (10,533)/(2)/ -
- 2,533/(3)/
Debt issuance costs 412 - - - 412
Other assets 315 - - - 315
---------------------------------------------------------------------
Total assets $ 24,172 $ 8,495 $ (181) $(4,155) $ 28,331
=====================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 2,415 $ 479 $ -/(4)/ $ - $ 2,894
Revolving Credit Facility - 3,332 (3,137)/(1)/ (195)/(4)/ -
Other accrued liabilities 2,884 864 - 37/(4)/ 3,785
Capital lease obligations, current portion 147 - - - 147
Notes payable-current portion 1,447 - - - 1,447
Convertible debentures, current 1,570 - - - 1,570
---------------------------------------------------------------------
Total current liabilities 8,463 4,675 (3,137) (158) 9,843
Long-term liabilities:
Capital lease obligations, long-term 12,826 - - - 12,826
Notes payable 3,200 - - - 3,200
Convertible debenture, long-term 351 - - - 351
Deferred land lease 366 - - - 366
Deferred revenue 1,812 - - - 1,812
Environmental liabilities - 526 - - 526
Liabilities subject to settlement - 20,944 (20,591)/(1)/ - 353
---------------------------------------------------------------------
Total long-term liabilities 18,555 21,470 (20,591) - 19,434
Stockholders' deficiency:
Preferred Stock, par value $.0001 per share; 5,000,000
shares authorized; no shares issued and outstanding - - - - -
Series A 5% Cumulative Convertible Preferred Stock,
par value $.0001 per share; 100,000 shares authorized;
49,969 shares issued and outstanding 3,346 - - - 3,346
Class A Common Stock, par value $.0001 per share;
200,000,000 shares authorized; 36,962,680 shares issued
and outstanding 47 - - 900/(2)/ 947
Class B Common Stock, par value $.0001 per share;
10,000,000 shares authorized; 1,900,324 shares issued
and outstanding - - - - -
Class E-1 Common Stock; par value $.0001 per share;
4,000,000 shares authorized; 4,000,000 shares issued and
outstanding - - - - -
Class E-2 Common Stock; par value $.0001 per share;
4,000,000 shares authorized; 4,000,000 shares issued and
outstanding - - - - -
Mooney common stock 5,880 (5,880)/(1)/ - -
Warrants to purchase common stock 25,470 - - 1,000/(2)/ 26,470
Additional paid-in capital 60,742 23,621 (23,621)/(1)/ - 60,742
Accumulated other comprehensive loss (27) - - - (27)
Accumulated deficit (92,424) (47,151) 53,048/(1,2)/ (5,897)/(2,3)/ (92,424)
---------------------------------------------------------------------
Total stockholders' deficiency (2,846) (17,650) 23,547 (3,997) (946)
---------------------------------------------------------------------
Total liabilities and stockholders' deficiency $ 24,172 $ 8,495 $ (181) $(4,155) $ 28,331
=====================================================================
See accompanying notes to unaudited pro forma combined financial statements.
2
Advanced Aerodynamics & Structures, Inc.
(A Development Stage Enterprise)
Unaudited Pro Forma Combined Statements of Operations
(in thousands, except per share and share amounts)
AASI Mooney
Year ended
--------------------------------
December 31, 2001 Pro forma Adjustments Pro Forma
-------------------------------- ------------------------------- -------------
Net sales $ - $ 15,248 $ - $ - $ 15,248
Cost of sales - 12,765 927/(8)/ - 13,692
------------------------------------------------------------------------------
Gross profit - 2,483 (927) - 1,556
Operating expenses:
Research and development costs 7,630 456 - - 8,086
General and administrative
expenses 4,815 3,850 - (272)/(9)/ 8,393
Selling and support expenses - 1,137 - - 1,137
Non-recurring expenses/(10)/ 3,823 - - - 3,823
Reorganization expenses/(11)/ - 2,489 - - 2,489
------------------------------------------------------------------------------
16,268 7,932 - (272) 23,928
------------------------------------------------------------------------------
Loss from operations (16,268) (5,449) (927) 272 (22,372)
Other income 73 765 - - 838
Interest expense (4,969) (1,415) (303)/(5)/ (1,389)/(7)/ (6,661)
1,415/(6)/
------------------------------------------------------------------------------
Net loss $ (21,164) $ (6,099) $ 185 $ (1,117) $ (28,195)
==============================================================================
Net loss per share - basic $ (0.71) $ - $ - $ - $ (0.85)
==============================================================================
Weighted average common shares
outstanding - basic 30,010,000 - - 3,260,871/(12)/ 33,270,871
==============================================================================
See accompanying notes to unaudited pro forma combined financial statements.
3
Advanced Aerodynamics & Structures, Inc.
(A Development Stage Enterprise)
Unaudited Pro Forma Combined Statements of Operations (continued)
(in thousands, except per share and share amounts)
AASI Mooney
Three months ended
March 31, 2002 Pro forma Adjustments Pro forma
-------------------------------------------------------------------------------
Net sales $ - $ 367 $ - $ - $ 367
Cost of sales - 110 - - 110
-------------------------------------------------------------------------------
Gross profit - 257 - - 257
Operating expenses:
Research and development costs 1,661 - - - 1,661
General and administrative
expenses 2,151 874 - 232/(8)/ 3,257
Reorganization expenses/(11)/ - 228 - - 228
-------------------------------------------------------------------------------
3,812 1,102 - 232 5,146
-------------------------------------------------------------------------------
Loss from operations (3,812) (845) - (232) (4,889)
Other income (expense) 41 94 - - 135
Interest expense (1,903) (312) (25)/(5)/ 312/(6)/ (2,044)
(116)/(7)/
-------------------------------------------------------------------------------
Net loss $ (5,674) $ (1,063) $ (25) $ (36) $ (6,798)
===============================================================================
Net loss per share - basic $ (0.11) $ - $ - $ - $ (0.12)
===============================================================================
Weighted average common shares
outstanding - basic 53,981,000 - - 3,260,871/(12)/ 57,241,871
===============================================================================
See accompanying notes to unaudited pro forma combined financial statements.
4
Advanced Aerodynamics & Structures, Inc.
(A Development Stage Enterprise)
Notes to Unaudited Pro Forma Combined
Financial Statements
(1) Eliminates the historical balances of assets that were not acquired and the
liabilities that were not assumed in conjunction with the acquisition of
Mooney Aircraft Corporation.
(2) To reflect the paydown of uncompromised liabilities as required under the
terms of the acquisition agreement, as approved by the bankruptcy court as
follows:
Amount paid for secured claim $ 8,000,000
Cash paid to pay down liabilities 633,000
AASI stock issued at fair value 900,000
Warrants to purchase AASI stock issued at fair value 1,000,000
--------------
$ 10,533,000
==============
(3) To adjust the assets and liabilities of Mooney to their estimated fair
values (such estimated fair values are subject to possible adjustment based
on future analyses) as follows (in thousands):
Net assets at March 31, 2002 at net book value $ 5,897
Estimated fair value adjustment: 4,636
--------------
$ 10,533
==============
The components of net assets purchased at net book value are as follows (in
thousands):
Inventory $ 5,798
Property, plant and equipment 2,516
Environmental cleanup liability assumed (526)
Assumed payable to vendor for inventory (479)
Liabilities assumed for property taxes and professional fees (864)
Liabilities assumed related to non-recurring items (353)
Debtor financing paid by March 31, 2002 (195)
--------------
Net assets purchased $ 5,897
==============
The purchase price has been allocated to the assets acquired and the
liabilities assumed based upon the estimated fair values at the date of
acquisition. The allocation is preliminary and may be adjusted upon
completion of an appraisal of the property, plant and equipment. The
appraisal is expected to be completed before the end of the third quarter.
5
Advanced Aerodynamics & Structures, Inc.
(A Development Stage Enterprise)
Notes to Unaudited Pro Forma Combined
Financial Statements (continued)
(4) To reflect the reclassification of the receivable from Mooney as reflected
in the March 31, 2002 financial statements to Investment in Mooney Aircraft
at the completion of the acquisition.
Amount paid for secured claim (footnote 2) $ 8,000,000
Intercompany receivable from Mooney 195,000
Other payable (37,000)
--------------
$ 8,158,000
==============
This adjustment also eliminates the receivable from Mooney of $195,000
against the corresponding payable recorded by Mooney at March 31, 2002.
(5) Represents the additional interest related to the February 2002 issuance of
$4.5 million notes payable to Congress Financial that would have been
incurred for the year ended December 31, 2001 and the three-month period
ended March 31, 2002, as if the transaction occurred effective January 1,
2001. Interest expense related to the Congress Financial notes was
calculated based upon the terms of the notes with Congress, using the
interest rate effective as of March 31, 2002 of 6.75%.
(6) Represents the elimination of historical interest expensed by Mooney for
the year ended December 31, 2001 and the three-month period ended March 31,
2002.
(7) Represents the additional interest incurred for the year ended December 31,
2001 and the three-month period ended March 31, 2002 related to the portion
of convertible debentures issued in January 2002 required to fund the
Mooney acquisition that would have been outstanding as of January 1, 2001.
Calculated interest expense includes an accrual based upon the debentures
stated interest rate as well as amortization of discounts and debt issue
costs for each of the periods presented.
(8) Represents additional depreciation for the step-up in basis due to the
acquisition of Mooney for the year ended December 31, 2001 and the three
months ended March 31, 2002. Depreciation was calculated using a 5-year
life based upon the relative historical depreciation expense included in
each category. For the year ended December 31, 2002 the adjustment is
included in cost of sales. For the three months ended March 31, 2002 the
adjustment is included in general and administration costs due to minimal
sales activity during that quarter.
6
Advanced Aerodynamics & Structures, Inc.
(A Development Stage Enterprise)
Notes to Unaudited Pro Forma Combined
Financial Statements (continued)
(9) Represents the elimination of salaries paid to the previous owners during
the year ended December 31, 2001. No salary was paid to these individuals
during the three months ended March 31, 2002.
(10) For the year ended December 31, 2001 AASI incurred $3,823,000 in
non-recurring expenses attributable to the change in the Company's business
strategy and re-design of its major product, the JetCruzer 500. This
expense includes a write-off of capitalized tooling and software costs of
$2,805,000 and $1,018,000 for purchase order commitments for special orders
from vendors for the year ended December 31, 2001.
(11) For the year ended December 31, 2001 and the three-month period ended March
31, 2002, Mooney incurred $2,488,925 and $228,349 in reorganization
expenses attributable to the filing under Chapter 11. This expense includes
$598,129 for potential lease rejection claims and $1,890,796 for
professional fees for the year ended December 31, 2001. For the three-month
period ended March 31, 2002, the expenses were solely related to
professional fees.
(12) Represents consideration of shares issued in conjunction with the
acquisition as follows:
Stock issued (see footnote 2) $ 900,000(x)
Price per share $ .276(y)
Total shares to be issued 3,260,871(x/y)*
*Minor difference due to rounding
7
(c) Exhibits.
No. Description
--- -----------
1.1 Press Release*
1.2 Asset Purchase Agreement by and between AASI and Mooney
Aircraft Corporation dated March 18, 2002, is
incorporated by reference to our Report on Form 10-KSB
filed with the SEC on April 16, 2002.
1.3 Order of the U.S. Bankruptcy Court dated March 18, 2002
re Mooney Aircraft Corporation is incorporated by
reference to our Report on Form 10-KSB filed with the
SEC on April 16, 2002.
1.4 First Amendment to Asset Purchase Agreement by and
between AASI and Mooney Aircraft Corporation dated
March 19, 2002, is incorporated by reference to our
Report on Form 10-KSB filed with the Securities and
Exchange Commission on April 16, 2002.
1.5 Assignment and Assumption Agreement between AASI and
Congress dated January 29, 2002, is incorporated by
referenced to our Report on Form 8-K filed with the SEC
on February 14, 2002.
1.6 Collateral Assignment of Debt and Security Agreements
between AASI and Congress dated January 29, 2002, is
incorporated by referenced to our Report on Form 8-K
filed with the SEC on February 14, 2002.
1.7 Secured Tranche A Promissory Note for $500,000, dated
January 29, 2002, issued to Congress is incorporated by
referenced to our Report on Form 8-K filed with the SEC
on February 14, 2002.
1.8 Secured Tranche B Promissory Note for $2,500,000, dated
January 29, 2002, issued to Congress is incorporated by
referenced to our Report on Form 8-K filed with the SEC
on February 14, 2002.
1.9 Secured Tranche C Promissory Note for $1,500,000, dated
January 29, 2002, issued to Congress is incorporated by
referenced to our Report on Form 8-K filed with the SEC
on February 14, 2002.
1.10 Limited Recourse Secured Tranche D Promissory Note for
$5,714,408.71, dated January 29, 2002, issued to
Congress is incorporated by referenced to our Report on
Form 8-K filed with the SEC on February 14, 2002.
2.1 Amendment No. 1 to Assignment Agreements between AASI
and Congress dated April 9, 2002.*
2.2 Amended and Restated Secured Tranche C Promissory Note
dated April 9, 2002.*
2.3 Amendment No. 2 to Assignment Agreements between AASI
and Congress dated April 19, 2002.*
2.4 Amended and Restated Secured Tranche A Promissory Note
dated April 19, 2002.*
2.5 Amended and Restated Secured Tranche B Promissory Note
dated April 19, 2002.*
2.6 Second Amended and Restated Secured Tranche C
Promissory Note dated April 19, 2002.*
2.7 Amended and Restated Secured Tranche D Promissory Note
dated April 19, 2002.*
2.8 Security Agreement by Mooney Airplane Company, Inc., in
favor of Congress dated April 19, 2002.*
2.9 Trademark Collateral Assignment And Security Agreement
between Mooney Airplane Company, Inc. and Congress
dated April 19, 2002.*
* Incorporated by reference to our Report on Form 8-K filed with the SEC on May
9, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By: /s/ J. Nelson Happy
------------------------------------------------------
J. Nelson Happy
Executive Vice President and General Counsel
Date: June 28, 2002