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 June 30, 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 August 17, 2005
shares of common stock 10,625,071
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 June 30, 2005 (unaudited) 2
Consolidated Statements of Operations for the
three months ended June 30, 2005 and 2004 (unaudited) 3
Consolidated Statements of Cash Flows for the
three months ended June 30, 2005 and 2004 (unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operations 7
Item 3. Controls and Procedures 11
PART II. OTHER INFORMATION 11
Item 1. Legal Proceedings 11
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
SIGNATURES 13
CERTIFICATIONS 14
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Mooney Aerospace Group, Ltd. and Subsidiary
Consolidated Balance Sheet
June 30, 2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 239,000
Accounts receivable 734,000
Other receivables 1,275,000
Inventory 12,778,000
Prepaid expenses and other current assets 405,000
--------------
TOTAL CURRENT ASSETS 15,431,000
PROPERTY AND EQUIPMENT - at cost, net of accumulated
depreciation and amortization 4,046,000
TRADE NAME 1,802,000
OTHER ASSETS 248,000
--------------
6,096,000
--------------
$ 21,527,000
==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 1,038,000
Accrued taxes and expenses 3,745,000
Accrued interest and penalties 3,473,000
Notes payable, current portion 9,463,000
Note payable, revolver 6,250,000
Notes payable, related party 7,000
--------------
TOTAL CURRENT LIABILITIES 23,976,000
CONVERTIBLE DEBENTURES 19,778,000
NOTES PAYABLE 7,914,000
ENVIRONMENTAL CLEANUP LIABILITY 329,000
--------------
51,997,000
STOCKHOLDERS' DEFICIENCY
Common stock, $0.0001 par value; 50,000,000 shares authorized;
10,515,071 shares issued and outstanding 1,000
Additional paid-in capital 130,784,000
Accumulated deficit (161,255,000)
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY (30,470,000)
--------------
$ 21,527,000
==============
The accompanying notes are an integral part of these financial statements.
2
Mooney Aerospace Group, Ltd. and Subsidiary
Consolidated Statements of Operations
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
NET SALES $ 11,141,000 $ 3,071,000 $ 20,526,000 $ 6,653,000
COST OF SALES 12,030,000 3,337,000 20,125,000 7,046,000
------------ ------------ ------------ ------------
GROSS MARGIN (889,000) 266,000 401,000 (393,000)
------------ ------------ ------------ ------------
OPERATING EXPENSES
Research and development expenses 344,000 152,000 636,000 296,000
Selling and support expenses 1,053,000 838,000 2,327,000 1,535,000
General and administration expenses 1,839,000 1,164,000 3,264,000 2,429,000
------------ ------------ ------------ ------------
3,236,000 2,154,000 6,227,000 4,260,000
------------ ------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSE), PROVISION
FOR INCOME TAXES AND EXTRAORDINARY GAIN (4,125,000) (2,420,000) (5,826,000) (4,653,000)
OTHER INCOME (EXPENSE)
Amortization of debt issue costs and discount -- (1,779,000) -- (2,511,000)
Interest expense (973,000) (564,000) (2,020,000) (1,096,000)
Settlement of abandoned lease -- -- -- 10,052,000
Other, net 12,000 5,000 24,000 (1,000)
------------ ------------ ------------ ------------
(961,000) (2,338,000) (1,996,000) 13,659,000
------------ ------------ ------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY GAIN (5,086,000) (4,758,000) (7,822,000) (18,312,000)
PROVISION FOR INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY GAIN (5,086,000) (4,758,000) (7,822,000) (18,312,000)
EXTRAORDINARY GAIN ON FORGIVENESS OF DEBT -- 789,000 -- 789,000
------------ ------------ ------------ ------------
NET LOSS $ (5,086,000) $ (3,969,000) $ (7,822,000) $(17,523,000)
============ ============ ============ ============
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.48) $ (0.38) $ (0.76) $ (1.70)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
3
Mooney Aerospace Group, Ltd. and Subsidiary
Consolidated Statements of Cash Flows
Six Months Ended June 30,
----------------------------
2005 2004
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (7,822,000) $(17,523,000)
Adjustment to reconcile net loss to net cash
used in operating activities:
Discount on convertible debentures and other related expense -- 2,476,000
Amortization of debt issuance costs -- 1,866,000
Depreciation and amortization expense 438,000 393,000
Changes in operating assets and liabilities:
Accounts receivable 834,000 (1,057,000)
Other receivable 371,000 --
Inventory 2,278,000 (2,201,000)
Other assets 139,000 (129,000)
Accounts payable (1,114,000) (1,119,000)
Accrued expenses 550,000 7,459,000
Accrued interest 1,793,000 348,000
Accrued settlement of abandoned lease -- 10,052,000
Accrued warrant liability 148,000 --
Accrued retrofit 377,000
Accrued taxes payable (103,000) 140,000
Accrued used aircraft trade in liability (416,000) --
Accrued-other 25,000 --
Deferred revenue (1,089,000) (886,000)
------------ ------------
Net cash used in operating activities (3,591,000) (181,000)
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (490,000) (209,000)
------------ ------------
Net cash used in investing activities (490,000) (209,000)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net Proceeds from issuance of notes payable 4,261,000 394,000
------------ ------------
Net cash provided by financing activities 4,261,000 394,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 180,000 4,000
CASH AND CASH EQUIVALENTS, Beginning of period 59,000 1,175,000
------------ ------------
CASH AND CASH EQUIVALENTS, End of period $ 239,000 $ 1,179,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 227,000 $ 748,000
============ ============
Income taxes paid $ -- $ --
============ ============
The accompanying notes are an integral part of these financial statements.
4
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended June, 2005, the Company converted $1,148,390 of
convertible debentures into 517,298 shares of common stock, valued at $1,148,390
During the six months ended June 30, 2004, the Company: 1) converted 8,396
shares of Series A preferred stock into 26,644,035 shares of Class A common
stock valued at $653,443, 2) converted $1,938,115 of convertible debentures into
87,054,640 shares of Class A common stock, 3) converted $366,558 of accrued
interest into 15,869,326 shares of Class A common stock, 4) issued 11,712,010
shares of Class A common stock for accrued compensation of $157,348, 5) issued
12,745,185 shares of Class A common stock for consulting fees valued at
$257,925, 6) issued 17,391,304 shares of Class A common stock for a commitment
fee of $400,000, and 7) 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.
5
Mooney Aerospace Group, LTD
Notes to the Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements have been prepared by Mooney Aerospace Group,
Ltd. (the "Company"), pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments) that are,
in the opinion of management, necessary to fairly present the operating results
for the respective periods. Certain information and footnote disclosures
normally present in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the audited financial statements and
footnotes for the year ended December 31, 2004 included in the Company's Annual
Report on form 10-KSB. The results of the six months ended June 30, 2005 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 2005.
NOTE 2 - PRIOR YEAR RESULTS
The Statement of Operations and the Statement of Cash flows contain financial
results for both the Quarter and the year to Date ended June 30, 2004. The
company's historical financial results for these time periods have been recast
to include the historical results for the subsidiary "Mooney Airplane Company"
which it did not own at June 30, 2004.
NOTE 3 - INVENTORY
During the three months ended June 30, 2005, the Company reviewed and increased
its inventory allowance for obsolescence. A substantial portion of the increase
relates to a charge to cost of sales to provide an allowance for the risk of
loss on DX Model Avionics. We have not received any orders for DX Model units in
2005.
6
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 capacity of MAC's manufacturing line in
Kerrville, Texas, including significant increases in employment levels.
o Enhancement and aggressive implementation of our marketing program.
o Reduction of unit 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.
7
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. When we prepare
these consolidated 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 consolidated
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 - As a routine matter aircraft are paid on delivery date. 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) collectability is reasonably assured.
We may 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 Bill and Hold arrangements by Policy are less than 30 days in all
cases. The Company's bill and hold policy does not allow for modification of its
normal billing and credit terms
During 2004 and 2005 to date no sales were booked as bill and hold transactions.
Inventory Obsolescence - We provide an inventory excess and obsolescence reserve
for any portion of any inventory item valued at current cost that has not been
used for 3 years. This allowance has been reduced over time and we anticipate
that trend to continue as our inventory aging stabilizes and our service parts
business is developed.
Valuation of Inventory - Inventory consists of raw materials, work in process
and finished goods and is stated at the lower of cost or market value.
Other - During 2005 management changed its manner in which manufacturers
representative discounts and Aviation insurance were classified on the
financial statements.
For further information regarding the accounting policies that we believe to be
critical and the affect of our more significant judgments and estimates used in
preparing our consolidated financial statements see our December 31, 2004
consolidated financial statements contained in our Form 10-KSB for 2004.
8
RESULTS OF OPERATIONS
Comparison of the Three and Six Months Ended June 30, 2005 to the Three and Six
Months Ended June 30, 2004:
Net Sales:
Net sales of $11.1million for the three months ended June 30, 2005, increased
282% compared to net sales of $2.9 million for the same period in the prior
year. Net sales of $20.5 million for the six months ended June 30, 2005,
increased 209% compared to net sales of $6.7 million for the same period in the
prior year. The increase in net sales in the three and six months ended June 30,
2005, as compared to the same periods in the prior year was due primarily to the
increased delivery of manufactured aircraft as our production level increases.
We expect the level of deliveries for the remainder of 2005 to be similar to
the current period's results.
Gross Profit:
Gross loss of $.9 million, or 8% of sales, for the three months ended June 30,
2005, increased as compared to gross loss of $.2 million, or 8% of sales, in the
same period in the prior year. Gross profit of $.4 million, or 2% of sales, for
the six months ended June 30, 2005, increased as compared to gross profit of
($.4) million, or 6% of sales, in the same period in the prior year. The changes
in gross margin are affected by the change in inventory resulting from a one
time adjustment in June. The adjustment was a result of managements reevaluating
inventory and increasing reserves accordingly. The effect of this adjustment is
reflected in the increased cost of goods sold for the three months ended June
30, 2005. In addition we have invested in increasing our operations headcount
together with training, allowing for further rapid growth and throughout.
This "One Time" inefficiency will end during Q3.
Research and Development:
Research and Development expenses increased to $.3 million and $.6 million for
the three and six months ended June 30, 2005, respectively, as compared to $.2
million and $.3 million for the same periods in the prior year. As a percentage
of sales, research and development expenses were 3.1 % of sales for both the
three and six months ended June 30, 2005, as compared to 5.2% and 4.4% for the
same periods in the prior year. The expenses decreased as a percentage due to
the increased level of sales over the prior year.
Selling and Support:
Selling and Support expenses increased to $1 million and $2.3 million for the
three and six months ended June 30, 2005, respectively, as compared to $.9
million and $1.5 million for the same periods in the prior year. As a percentage
of sales, selling and support expenses were 9.5% and 11.3% of sales for the
three and six months ended June 30, 2005, respectively, as compared to 29.5% and
23.1% for the same periods in the prior year. The expenses decreased as a
percentage due to the increased level of sales over the prior year.
General and administrative expenses:
General and administrative expenses increased to $1.8 million and $3.3 million
for the three and six months ended June 30, 2005, respectively, as compared to
$1.2 million and $2.4 million for the same periods in the prior year. As a
percentage of sales, general and administrative expenses were 16.5% and 15.9% of
sales for the three and six months ended June 30, 2005, respectively, as
compared to 41.8% and 36.5% for the same periods in the prior year. The
significant change in percentage is due to stabilizing General and
Administrative expenses as sales revenue increases.
9
Other income/ (expense):
Other income/ (expense) was $12,000 for the three months ended June 30, 2005, as
compared to $5,000 for the same period in the prior year. Other income/(expense)
was $24,000 for the six months ended June 30, 2005, as compared to $0 for the
same period in the prior year.
Amortization of Debt Issuance Costs:
Amortization of debt issuance costs expenses was $0 for both the three and six
months ended June 30, 2005, as compared to $.1.8 million and $2.5 million for
the same periods in the prior year. The elimination of this expense is due to
the companies debt restructuring as part of the Amended Plan of Reorganization
as it emerged from bankruptcy.
Interest expense:
Interest expense increased to $1 million and $2 million for the three and six
months ended June 30, 2005, respectively, as compared to $.6 million and $1.1
million for the same periods in the prior year. The increase was attributable to
additional borrowings in the fourth quarter of 2004 and 1st quarter 2005.
Net income/ (Loss):
Net income/ (Loss) was ($5) million and ($7.9) million for the three and six
months ended June 30, 2005, as compared to ($4) million and ($17) million for
the same periods in the prior year.
Cash Uses:
Cash used in operating activities for the six months ended June 30, 2005 ,
increased by $3.4 million as compared to the same period in 2004, due
principally to the combination of operating losses in the operating company and
by its increased working capital requirements.
Mooney Airplane Company (MAC) is the Company's 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 six months ended June 30, 2005,
increased by $.3 million as compared to the same period in 2004. This was
primarily for premises improvements of MAC and purchases of computer and office
equipment and replacement of the Company's ERP system.
Cash provided by financing activities for period ended June 30, 2005, increased
by $3.9 million as compared to the same period in 2004. During the 2005 period,
the Company borrowed through short term debt to fund working capital
requirements of MAC.
The Statement of Operations and the Statement of Cash flows contain financial
results for both the Quarter and the year to Date ended June 30, 2004. The
company's historical financial results for these time periods have been recast
to include the historical results for the subsidiary "Mooney Airplane Company"
which it did not own at June 30, 2004.
These recast historical figures are used as the comparatives for the 2004
results.
10
Item 3. CONTROLS AND PROCEDURES
As required by SEC rules, we have evaluated the effectiveness of the design and
operation of the Company's disclosure controls and procedures at the end of the
period covered by this report. This evaluation was carried out under the
supervision and with the participation of its management, including the
principal executive officer and principal financial officer. Based on this
evaluation, the Company has concluded that the design and operation of our
disclosure controls and procedures are not effective. This determination was
made due to the following factors:
o the number of employees of the Company has increased from 168 at the
start of the 2003 fiscal year to 366 at the end of June 2005, and
o the executive management of the Company was replaced during 2004 and
early 2005.
It is therefore the belief of the management of the Company that the internal
control needed to be reevaluated and updated to meet its current needs. However,
there is no evidence that any material misstatements were made by the Company
due to the need to update its internal controls. The specific weakness found
involved the segregation of duties within the Company's finance department.
Accordingly, the Company has begun to reorganize the functions of the finance
department during 2005. In addition, the Company plans on retaining outside
consultants with expertise in internal controls to assist with the update and
implementation of control procedures.
Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act are 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. Unregistered Sales of Equity Securities and Use of Proceeds
During the six months ended June 30, 2005, the Company converted $1,148,390 of
convertible debentures into 517,298 shares of common stock, valued at $1,148,390
Item 3. Defaults Upon Senior Securities
The company is currently in default of the following loan agreements:
Long Term Note Payable to Business Loan Express in the amount of $ 4.8 million.
The company is current with its payments under the terms of loan, but is in
default of the provision to maintain a Current Ratio of 1.25 to 1 and a Debt
Equity Ratio of 7 to 1. Management has made the lender aware of this event and
is working with the lender to cure the default.
Short Term Note Payable to Libra Finance in the amount of $986,000 and Guarantee
& Finance in the amount of $1,000,000. The company is not current in payments.
Management is in discussions with the lenders.
Additional financing referred to as the Secured Promissory Notes in the
principal amount of $9,000,000 of which $3.929,462 was still outstanding at June
30, 2005. These notes bear interest at 17.5% per annum and provide for a
maturity date of November 7, 2006 callable on March 7, 2005. They were called on
that date and the Company is now in default on the payment of this obligation.
However, discussions are ongoing between the Company and the lenders on
negotiating revised terms of the loan.
Item 4. Submission of Matters to a Vote of Security Holders
None
11
Item 5. Other Information
The company accepted the resignation of Nelson Happy from the position of its
President and Chief Financial Officer. The cost to the company of Mr. Happy's
departure was $464,000. This was expensed in the period ended June 30, 2005 in
General and Administrative expenses.
Item 6. Exhibits
None
12
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.
August 19, 2005 By: /s/ Gretchen L. Jahn
-----------------------------------------
Gretchen L. Jahn
President and Chief Executive Officer
By: /s/ Barry Hodkin
-----------------------------------------
Barry Hodkin
Chief Financial Officer
13