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 September 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 November 14, 2005
shares of common stock 10,631,071
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 September 30, 2005 and 2004 (unaudited) 3
Consolidated Statements of Cash Flows for the
three months ended September 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 12
SIGNATURES 13
CERTIFICATIONS 14
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Mooney Aerospace Group, Ltd. and Subsidiary
Consolidated Balance Sheet
September 30, 2005
ASSETS Unaudited Audited
September 30, 2005 December,31 2004
------------------ ----------------
CURRENT ASSETS
Cash and cash equivalents $ 1,146,000 $ 59,000
Accounts receivable 475,000 1,568,000
Other receivables 1,444,000 1,646,000
Inventory 12,392,000 15,056,000
Prepaid expenses and other current assets 933,000 391,000
------------------ ----------------
TOTAL CURRENT ASSETS 16,390,000 18,720,000
PROPERTY AND EQUIPMENT - at cost, net of accumulated
depreciation and amortization 4,277,000 3,994,000
TRADE NAME 1,802,000 1,802,000
OTHER ASSETS 246,000 401,000
------------------ ----------------
6,325,000 6,197,000
------------------ ----------------
$ 22,715,000 $ 24,917,000
================== ================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 2,647,000 $ 2,152,000
Accrued taxes and expenses 2,893,000 4,203,000
Accrued interest and penalties 4,150,000 1,680,000
Notes payable, current portion 11,953,000 5,175,000
Note payable, revolver 6,250,000 6,250,000
Convertible Debentures 19,534,000 --
TOTAL CURRENT LIABILITIES 47,427,000 19,460,000
------------------ ----------------
NOTES PAYABLE 7,891,000 7,947,000
CONVERTIBLE DEBENTURES -- 20,926,000
ENVIRONMENTAL CLEANUP LIABILITY 284,000 381,000
STOCKHOLDERS' DEFICIENCY
Common stock, $0.0001 par value; 50,000,000 shares authorized;
10,631,071 shares issued and outstanding 1,000 1,000
Additional paid In capital 131,035,000 129,636,000
Accumulated deficit (163,923,000) (153,434,000)
------------------ ----------------
(32,887,000) (23,797,000)
------------------ ----------------
$ 22,715,000 $ 24,917,000
================== ================
See notes to the consolidated financial statements.
2
Mooney Aerospace Group, Ltd. and Subsidiary
Statement of Operations
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- ---------------------------------
2005 2004 2005 2004
-------------- -------------- -------------- --------------
NET SALES $ 11,252,000 $ 3,016,000 $ 31,778,000 $ 9,669,000
COST OF SALES 9,972,000 4,080,000 30,097,000 11,126,000
--------------------------------- ---------------------------------
GROSS MARGIN 1,280,000 (1,064,000) 1,681,000 (1,457,000)
--------------------------------- ---------------------------------
OPERATING EXPENSES
Research and development expenses 306,000 202,000 942,000 498,000
Selling and support expenses 1,316,000 1,103,000 3,643,000 2,638,000
General and administration expenses 1,373,000 299,000 4,637,000 2,728,000
--------------------------------- ---------------------------------
2,995,000 1,604,000 9,222,000 5,864,000
--------------------------------- ---------------------------------
LOSS BEFORE OTHER INCOME (EXPENSE), PROVISION
FOR INCOME TAXES AND EXTRAORDINARY GAIN (1,715,000) (2,668,000) (7,541,000) (7,321,000)
OTHER INCOME (EXPENSE)
Interest income 1,000 296,000 1,000 296,000
Other income (expense), net 3,000 -- 27,000 (1,000)
Amortization of debt issue costs and discount 357,000 -- (2,154,000)
Settlement of abandoned lease (a) 10,052,000
Interest expense (811,000) (415,000) (2,831,000) (1,510,000)
Income from disposition of property and equipment (146,000) -- (146,000) --
--------------------------------- ---------------------------------
(953,000) 10,290,000 (2,949,000) (3,369,000)
--------------------------------- ---------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY GAIN (2,668,000) 7,622,000 (10,490,000) (10,690,000)
PROVISION FOR INCOME TAXES -- -- -- --
--------------------------------- ---------------------------------
LOSS BEFORE EXTRAORDINARY GAIN (2,668,000) 7,622,000 (10,490,000) (10,690,000)
GAIN ON FORGIVENESS OF DEBT -- -- -- 789,000
--------------------------------- ---------------------------------
NET LOSS $ (2,668,000) $ 7,622,000 $ (10,490,000) $ (9,901,000)
================================= =================================
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.25) $ 0.72 $ (0.99) $ (0.94)
================================= =================================
a) See notes to the consolidated financial statements.
3
Mooney Aerospace Group, Ltd. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended September 30,
---------------------------------
2005 2004
-------------- --------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (10,490,000) $ (9,901,000)
Adjustment to reconcile net loss to net cash
used in operating activities:
Noncash Compensation Expense 6,000
Discount on convertible debentures and other related expense -- 4,531,000
Amortization of debt issuance costs -- 1,866,000
Depreciation and amortization expense 654,000 590,000
Changes in operating assets and liabilities:
Accounts receivable 1,093,000 (1,613,000)
Other receivable 204,000 (250,000)
Inventory 2,664,000 (5,198,000)
Prepaid expenses and other current assets -- (124,000)
Other assets (386,000) (257,000)
Accounts payable 495,000 (255,000)
Accrued expenses 1,063,000 10,809,000
-------------- --------------
Net cash used in operating activities (4,697,000) 198,000
-------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (938,000) (367,000)
-------------- --------------
Net cash (used in) provided by investing activities (938,000) (367,000)
-------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net Proceeds from notes payable 6,722,000 6,038,000
Payments on notes payable (5,562,000)
-------------- --------------
Net cash provided by financing activities 6,722,000 476,000
-------------- --------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,087,000 307,000
CASH AND CASH EQUIVALENTS, Beginning of period 59,000 1,175,000
-------------- --------------
CASH AND CASH EQUIVALENTS, End of period $ 1,146,000 $ 1,482,000
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 361,000 $ 1,509,706
============== ==============
Income taxes paid $ -- $ --
============== ==============
See notes to the consolidated financial statements.
4
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended September 30, 2005 the Company: 1) converted
$244,200 of convertible debentures into 110,000 shares of common stock, valued
at $244,200, 2) issued 6,000 shares of common stock for services valued at
$6,900.
During the nine months ended September 30, 2005 the Company: 1) converted
$1,392,590 of convertible debentures into 627,298 shares of common stock, valued
at $1,392,590, 2) issued 6,000 shares of common stock for professional fees
valued at $6,900.
During the three months ended September 30, 2004, the Company: 1) converted 0
shares of Series A preferred stock into 0 shares of Class A common stock valued
at $0, 2) converted $0 of convertible debentures into 0 shares of Class A common
stock, 3) converted $0 of accrued interest into shares of Class A common stock,
4) issued 1,396,734 shares of Class A common stock for accrued compensation of
$1,261, 5) issued 2,333,333 shares of Class A common stock for consulting fees
valued at $1,400, 6) issued 0 shares of Class A common stock for a commitment
fee of $0, and 7) issued 2,486,702 shares of Class A common stock valued at
$30,000 in full settlement for a legal claim.
During the nine months ended September 30, 2004, the Company: 1) converted 8373
shares of Series A preferred stock into 21,864,583 shares of Class A common
stock valued at $651,143, 2) converted $1,938,115 of convertible debentures into
87,109,468 shares of Class A common stock, 3) converted $101,197 of accrued
interest into 20,600,950 shares of Class A common stock, 4) issued 13,108,744
shares of Class A common stock for accrued compensation of $158,609, 5) issued
2,578,518 shares of Class A common stock for consulting fees valued at $4,211,
6) issued 17,391,304 shares of Class A common stock for a commitment fee of
$400,000, and 7) issued 24,510,512 shares of Class A common stock valued at
$450,000 in full settlement for legal claims.
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 nine months ended September 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 September 30, 2005. 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 September 30, 2004.
NOTE 3 - SETTLEMENT OF ABANDONED LEASE
Non-recurring expenses for the three months ended March 31, 2004 included an
additional accrual for a legal judgment related to litigation with our former
landlord. On May 3, 2004, we and our former landlord completed arbitration
proceedings of a claim for alleged damages due to termination by us of our lease
at our former headquarters in Long Beach, California. During the three months
ended March 31, 2004, we accrued the expense related to this litigation. The
filing of the Chapter XI reorganization in June of 2004 limited this liability.
Accordingly the amount recognized in the first quarter of 2004 was reversed in
the three months ended September 2004.
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.
Although we believe the expectations reflected in the forward-looking statements
are reasonable, they relate only to events as of the date on which the
statements are made, and we cannot assure you that our future results, levels of
activity, performance or achievements will meet these expectations. Moreover,
neither we nor any other person assumes responsibility for the accuracy and
completeness for the forward-looking statements. We do not intend to update any
of the foward-looking statements after the date of this report to conform these
statements to actual results or to changes in our expectations, except as
required by law.
During the remainder of 2005 we intend to continue to focus our efforts on the
following:
o An increase in production capacity of MAC's manufacturing line in
Kerrville, Texas.
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.
"We provide a general inventory excess and obsolescence reserve for any portion
of any inventory item valued at cost that has not been used for three years.
This allowance has been reducing over time as sales volumes have been increasing
and we anticipate that trend to continue. However, the significant model change
occasioned by the introduction of the Garmin G1000 equipped GX at the end of
last year together with the reality that none of the previous traditionally
equipped DX models have been ordered in 2005 results in management's decision to
specifically reserve for DX equipment on hand. From January 2006 DX models will
only produced on special order basis and not offered as a general option.
Management's estimate is that a reserve of $250,000 (95% of on hand cost) is
sufficient. This specific reserve was added in the period ended June 30th 2005".
There are no other costs associated with the discontinuance of the DX model
production.
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 Nine Months Ended September 30, 2005 to the Three
and Nine Months Ended September 30, 2004:
Net Sales:
Net sales of $11.3 million for the three months ended September 30, 2005,
increased 273% compared to net sales of $3.0 million for the same period in the
prior year. Net sales of $32 million for the nine months ended September 30,
2005, increased 229% compared to net sales of $9.7 million for the same period
in the prior year. The increase in net sales in the three and nine months ended
September 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 profit of $1.3 million, or 11% of sales, for the three months ended
September 30, 2005, improved as compared to a gross loss of $1.1 million, or 35%
of sales, in the same period in the prior year. Gross profit of $1.7 million, or
5% of sales, for the nine months ended September 30, 2005, improved as compared
to gross loss of 1.5 million, or 15% of sales, in the same period in the prior
year. The changes in gross margin are affected by a one time inventory
adjustment made in the period ended June 30th 2005. The adjustment followed
management's re-evaluation of inventory and reserves. At the time of
implementation of a new ERP business control system a partial physical inventory
was carried out. Based on these results a net provision of $750,000 was booked.
Cycle count processes have been restarted and required physical counts will be
carried out under audit supervision at the end of 2005. Indications from the
cycle counts to date indicate the provision to be adequate. In addition a
specific Obsolescence reserve of $250,000 associated with DX model equipment was
booked in the same period.
Research and Development:
Research and Development expenses increased to $.3 million and $.9 million for
the three and nine months ended September 30, 2005, respectively, as compared to
$.2 million and $.5 million for the same periods in the prior year. As a
percentage of sales, research and development expenses were 2.7% and 3% of sales
for the three and nine months ended September 30, 2005, as compared to 6.7% and
5.2% 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 $1.3 million and $3.6 million for the
three and nine months ended September 30, 2005, respectively, as compared to
$1.1 million and $2.6 million for the same periods in the prior year. As a
percentage of sales, selling and support expenses were 11.7% and 11.5% of sales
for the three and nine months ended September 30, 2005, respectively, as
compared to 36.6% and 27.3% 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 $1.4 million and $4.6 million
for the three and nine months ended September 30, 2005, respectively, as
compared to $.3 million and $2.7 million for the same periods in the prior year.
As a percentage of sales, general and administrative expenses were 12.2% and
14.6% of sales for the three and nine months ended September 30, 2005,
respectively, as compared to 9.9% and 28.2% for the same periods in the prior
year. General and Administrative expenses increased for the three months ended
September 30, 2005 over the same period in the prior year due to increased level
of staffing. General and Administrative expenses decreased for the nine months
ended September 30, 2005. The decrease as a percentage of sales was due to
higher General and Administrative expense which is a result of increased
staffing with a slower increase in sales.
9
Other income/ (expense):
Other income/ (expense) was $3,000 for the three months ended September 30,
2005, as compared to other income of 0 for the same period in the prior year.
Other income/(expense) was $27,000 for the nine months ended September 30, 2005,
as compared to other expenses of 1,000 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 nine
months ended September 30, 2005, as compared to $.4 million and $2.2 million for
the same periods in the prior year. The elimination of this expense is due to
the company's debt restructuring as part of the Amended Plan of Reorganization
as it emerged from bankruptcy.
Settlement of abandoned lease:
During the three months ended September 30, 2004 the Company reversed a
$10,052,000 charge previously taken in the quarter ended March 31, 2004. Please
refer to the notes to the consolidated financial statements for additional
information.
Interest expense:
Interest expense increased to $.8 million and $2.8 million for the three and
nine months ended September 30, 2005, respectively, as compared to $.4 million
and $1.5 million for the same periods in the prior year. The increase was
attributable to additional borrowings in the fourth quarter of 2004 and the nine
months to September 2005.
Net income/(Loss):
Net income/(Loss) was ($2.7) million and ($10.5) million for the three and nine
months ended June 30, 2005, as compared to net income of $7.6 million and a net
loss of ($9.9) million for the same periods in the prior year.
Cash Uses:
Cash used in operating activities for the nine months ended September 30, 2005,
increased by $4.9 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.
Net Cash used in investing activities for the nine months ended September 30,
2005, increased by $.6 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. No material payments of
principal were made during the period.
Cash provided by financing activities for the period ended September 30, 2005,
increased by $6.2 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 September 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 September 30, 2004.
These recast historical figures are used as the 2004 comparatives.
Liquidity and Capital Resources:
In addition to notes in default disclosed in Part II Item 3. of this report a
further $27,030,000 of loans are due and payable under their original terms
within the next 12 months. The Company is commencing negotiations to restructure
the terms of the loans. Such restructuring might consist of modifying the terms
of these loans to extend the due date or to convert them into equity. In
addition, assuming that these defaults are removed and that the Company is
successful in restructuring its debt facilities, the Company will need to raise
additional capital immediately to fund continuing operations. The Company
believes it will need to raise at least $1.5 million to meet very short-term
needs plus additional capital to meet its anticipated capital requirements over
the next year.
There can be no assurance that the Company will be successful in removing any
loan defaults, renegotiating the terms of its existins debt, raising near-term
capital requirements and raising mid-term capital requirements on commercially
reasonable terms, if at all. Failure to fulfill any of these financial
requirements would require the Company to substantially curtail operations and
could require the Company to cease operations altogether. While the Company has
received indications of interest from one or more existing noteholders to
provide short-term working capital and the Company's revenues have increased
substantially over the last nine months, there can be no assurance that the
Company will be successful in restructuring existing debt and in raising
additional working capital.
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 367 at the end of Sept 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 in the fourth quarter of 2005 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 nine months ended September 30, 2005, the Company converted
$1,392,590 of convertible debentures into 627,298 shares of common stock, valued
at $1,392,590. The Company issued 6,000 shares of its common stock in exchange
of services from its former Chairman and CEO. The stock was valued at $6,900 at
the date of issue.
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
September 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
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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.
November 21, 2005 By: /s/ Gretchen L. Jahn
-----------------------------------------
Gretchen L. Jahn
President and Chief Executive Officer
By: /s/ Barry Hodkin
-----------------------------------------
Barry Hodkin
Chief Financial Officer
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