UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
000-21749
(Commission file number)
MOONEY AEROSPACE GROUP, LTD.
(Exact name of small business issuer as specified in its charter)
Delaware 95-4257380
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
165 Al Mooney Road North, Kerrville, Texas 78028
(Address of principal executive offices)
(830) 896-6000
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 31, 2005
shares of common stock 10,505,071
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
Index
Page
Number
PART I. FINANCIAL INFORMATION 2
Item 1. Financial Statements 2
Consolidated Balance Sheet as of March 31, 2005 (unaudited) 2
Consolidated Statements of Operations for the
three months ended March 31, 2005 and 2004 (unaudited) 3
Consolidated Statements of Cash Flows for the
three months ended March 31, 2005 and 2004 (unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operations 5
Item 3. Controls and Procedures 8
PART II. OTHER INFORMATION 9
Item 1. Legal Proceedings 9
Item 2. Change in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
SIGNATURES 10
CERTIFICATIONS
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Mooney Aerospace Group, Ltd. and Subsidiary
Consolidated Balance Sheet
March 31, 2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,117,000
Accounts receivable 2,202,000
Other receivables 866,000
Inventory 15,496,000
Prepaid expenses and other current assets 398,000
---------------
TOTAL CURRENT ASSETS 20,079,000
PROPERTY AND EQUIPMENT - at cost, net of accumulated
depreciation and amortization 3,968,000
TRADE NAME 1,802,000
OTHER ASSETS 251,000
---------------
6,021,000
---------------
$ 26,100,000
===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 1,537,000
Accrued taxes and expenses 4,293,000
Accrued interest and penalties 2,562,000
Notes payable, current portion 8,506,000
Notes payable, revolver loan 6,418,000
Notes payable, related party 7,000
---------------
TOTAL CURRENT LIABILITIES 23,323,000
CONVERTIBLE DEBENTURES 19,800,000
NOTES PAYABLE 7,925,000
ENVIRONMENTAL CLEANUP LIABILITY 380,000
---------------
51,428,000
STOCKHOLDERS' DEFICIENCY
Common stock, $0.0001 par value; 50,000,000 shares authorized;
10,505,071 shares issued and outstanding 1,000
Additional paid in capital 130,840,000
Accumulated deficit (156,169,000)
---------------
(25,328,000)
---------------
$ 26,100,000
===============
2
Mooney Aerospace Group, Ltd. and Subsidiary
Consolidated Statements of Operations
Three Months Ended March 31,
2005 2004
NET SALES $ 9,385,000 $ 3,582,000
COST OF SALES 8,035,000 3,709,000
------------ ------------
GROSS MARGIN 1,350,000 (127,000)
OPERATING EXPENSES
Research and development expenses 292,000 144,000
Selling and support expenses 1,274,000 697,000
General and administration expenses 1,488,000 1,265,000
Non-recurring expenses -- 10,052,000
------------ ------------
3,054,000 12,158,000
------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSE) AND PROVISION FOR INCOME TAXES (1,704,000) (12,285,000)
OTHER INCOME (EXPENSE)
Other income (expense), net 14,000 65,000
Amortization of debt issue costs and discount -- (733,000)
Interest expense (1,047,000) (601,000)
Income from disposition of property and equipment 2,000 --
------------ ------------
(1,031,000) (1,269,000)
LOSS BEFORE PROVISION FOR INCOME TAXES (2,735,000) (13,554,000)
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET LOSS $ (2,735,000) $(13,554,000)
============ ============
NET LOSS PER SHARE - BASIC AND DILUTED $ (.27) $ (1.39)
3
Mooney Aerospace Group, Ltd. and Subsidiary
Consolidated Statements of Cash Flows
Three Months Ended March 31,
2005 2004
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (2,735,000) $(13,554,000)
Adjustment to reconcile net loss to net cash
used in operating activities:
Noncash professional service expense -- 250,000
Amortization of discount on convertible debentures -- 363,000
Amortization of debt issuance costs -- 372,000
Depreciation and amortization expense 220,000 196,000
Changes in operating assets and liabilities:
Accounts receivable (634,000) --
Other receivable 780,000 --
Inventory (440,000) (268,000)
Prepaid expenses and other current assets -- 113,000
Other assets 143,000 --
Accounts payable (615,000) (1,028,000)
Accrued taxes and expenses 91,000 9,202,000
Accrued interest 960,000 523,000
------------ ------------
Net cash used in operating activities (2,230,000) (3,831,000)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (195,000) (13,000)
------------ ------------
Net cash used in investing activities (195,000) (13,000)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolver loan net -- 2,687,000
Proceeds from issuance of notes payable -- 6,942,000
Proceeds from advances from related parties -- 540,000
Payments on notes payable (3,459,000) (39,000)
------------ ------------
Net cash provided by financing activities 3,483,000 3,188,000
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 1,058,000 (656,000)
CASH AND CASH EQUIVALENTS, Beginning of year 59,000 1,175,000
------------ ------------
CASH AND CASH EQUIVALENTS, End of year $ 1,117,000 $ 519,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 87,000 $ 76,000
============ ============
Income taxes paid $ -- $ --
============ ============
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 2005, the Company converted $1,126,199
convertible debentures into 507,298 shares of common stock, valued at $1,126,199
During the three months ended March 31, 2004, the Company: 1) converted 4,646
shares of Series A preferred stock into 15,162,101 shares of Class A common
stock valued at $363,795, 2) converted $1,738,295 of convertible debentures into
76,550,436 shares of Class A common stock, 3) converted $330,852 of accrued
interest into 14,009,603 shares of Class A common stock, 4) issued 7,650,128
shares of Class A common stock for accrued compensation of $102,513, 5) issued
12,500,000 shares of Class A common stock for consulting fees valued at
$250,000, 6) issued 9,523,810 shares of Class A common stock valued at $200,000
and issued a convertible note in the amount of $190,000 as full settlement for a
legal claim .
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with our
financial statements and related footnotes for the year ended December 31, 2004
included in our Annual Report on Form 10-KSB. The discussion of results, causes
and trends should not be construed to imply any conclusion that such results or
trends will necessarily continue in the future.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB and the documents incorporated herein by
reference contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for
forward looking statements to encourage companies to provide prospective forward
looking information about themselves so long as they identify these statements
as forward looking and provide meaningful cautionary statements identifying
important factors that could cause actual results to differ from the projected
results. All statements other than statements of historical fact made in this
Quarterly Report on Form 10-QSB are forward looking. In particular, the
statements herein regarding industry prospects and future results of operations
or financial position are forward-looking statements. Forward-looking statements
reflect management's current expectations and are inherently uncertain. Our
actual results may differ significantly from management's expectations.
During 2005 we intend to focus our efforts on the following:
o An increase in production of MAC's manufacturing line in Kerrville, Texas.
o Enhancement and aggressive implementation of our marketing program.
o Reduction of costs to increase profit margins.
o Production of Garmin G-1000 equipped aircraft.
In December 2004 we were granted the use of the certification of the Garmin
G1000 for both the Ovation2 GX and Bravo GX models, which makes our aircraft
more competitive in the marketplace because of the G1000's superior avionics and
instrumentation display.
5
CRITICAL ACCOUNTING POLICIES
When we prepare these financial statements, we are required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. On an on-going basis, we evaluate our estimates and judgments,
including those related to investments, long-lived assets, deferred tax assets,
other liabilities and revenue recognition. We base our estimates and judgments
on historical experience and on various other factors that we believe to be
reasonable under the circumstances, the results of which form the basis for our
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Revenue Recognition - We recognize 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 reasonably assured. We also recognize
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) we have not retained any specific performance
obligations such that the earnings process is not complete; 6) the aircraft has
been segregated from our inventory and is not subject to being used to fill
other orders; and 7) the aircraft must be complete and ready for shipment.
Inventory Obsolescence -- We provide an inventory obsolescence reserve for parts
whose values have been determined to be impaired or whose future utility appears
limited based on usage over the prior two years.
For further information regarding the accounting policies that we believe to be
critical accounting policies and that affect our more significant judgments and
estimates used in preparing our financial statements, see our December 31, 2004
financial statements in our annual report contained in our Form 10-KSB filed on
April 22, 2005.
During 2005 management changed the manner in which manufactures trade
representative discounts and Aviation insurance were classified on the financial
statements.
6
Results of Operations
Three months ended March 31, 2005 vs. March 31, 2004
Net sales for the three months ended March 31, 2005 increased by $5,803,000 or
162% from $3,582,000 for the three months ended March 31, 2004 compared to
$9,385,000 for the same period in 2005. During the three months ended March 31,
2005, we sold 20 airplanes as compared to the sale of 7 airplanes for the three
months ended March 31, 2004.
Cost of sales for the three months ended March 31, 2005 increased by $4,326,000
or 117% from $3,709,000 for the three months ended March 31, 2004 compared to
$8,035,000 for the same period in 2005. The increase in cost of sales is
directly related to the significant increase in aircraft sales. We have the
capacity to produce more airplanes than have been produced in the past thereby
reducing the fixed manufacturing costs associated with each airplane produced.
As we increase our production of airplanes we expect our gross margin to
improve.
Research and development costs for the three months ended March 31, 2005
increased by $148,202 or 100%, from $144,000 for the three months ended March
31, 2004, compared to $292,232 for the three months ended March 31, 2005.
Selling and support expenses for the three months ended March 31, 2005 increased
by $577,000 or 83% from $697,000 for the three months ended March 31, 2004
compared to $1,274,005 for the same period in 2005.
General and administrative expenses for the three months ended March 31, 2005
increased by $223,000 or 18% from $1,265,000 for the three months ended March
7
31, 2004 compared to $1,488,000 for the same period in 2005.
Other income (expense) for the three months ended March 31, 2005 decreased by
$51,000 from $65,000 for the three months ended March 31, 2004 to $14,000 for
the same period in 2005.
Amortization of debt issue costs and discounts for the three months ended March
31, 2005 decreased by $733,000 or 100% from $733,000 for the three months ended
March 31, 2004 compared to $0 for the same period in 2005. The significant
decrease is due to the debt restructuring.
Interest expense for the three months ended March 31, 2005 increased by $446,000
or 74% from $601,000 for the three months ended March 31, 2004 compared to
$1,047,000 for the same period in 2005.
Cash used in operating activities for the three months ended March 31, 2005,
decreased by $1,601,000 as compared to the same period in 2004.
MAC is the only operating entity and the changes in operating assets and
liabilities are mainly related to the operations of that business, including
changes in inventory, property and equipment and accounts payable.
Cash used in investing activities for the three months ended March 31, 2005,
increased by $182,000 as compared to the same period in 2004.
Cash provided by financing activities for the three months ended March 31, 2005,
increased by $295,000 as compared to the same period in 2004. The increase is
principally due to our borrowings under the revolver loan.
Item 3. Controls and Procedures
As required by SEC rules, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures at the end of the period
8
covered by this report. This evaluation was carried out under the supervision
and with the participation of our management, including our principal executive
officer and principal financial officer. Based on this evaluation, these
officers have concluded that the design and operation of our disclosure controls
and procedures are not effective. Significant changes to the design and
implementation of our internal controls are necessary to ensure future
reliability of this disclosure process.
Our disclosure controls and procedures are under reveiw and we plan to make
changes in them designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On May 5, 2005 the U.S. Bankruptcy Court for The District of Delaware entered a
final order closing the Company's bankruptcy case.
Item 2. Change in Securities
During the three months ended March 31, 2005, the Company converted
$1,126,199 of convertible debentures into 507,298 shares of common stock, valued
at $1,126,000
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
NONE
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOONEY AEROSPACE GROUP, LTD.
May 12, 2005 By: /s/ J. Nelson Happy
--------------------------------------
J. Nelson Happy
Vice Chairman, President & Chief
Financial Officer and Secretary
(Principal Executive Financial and
Accounting Officer)
10