Free Post Trial Brief - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

INNOVAIR AVIATION, LTD., Plaintiff
VS.

No.: 96-408C

UNITED STATES OF AMERICA,

Defendant

OPINIONS
OF

MAURICE J. WHALEN, CPA

july 6, 2007

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TABLE OF CONTENTS

Background and Qualificatiorm ..................................................1

II. Summary Opinions .......................................................................

2

Specific Findings and Conclusions ............................................. 4

Alternative Damage Calculations ............................................. 7 1

V. List of Exhibits ............................................................................. 9 1

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I.

Background and Qualifications
I, Maurice J. Whalen, am a Managing Director of Invotex Group. I have had over 35 years of experience as a Certified Public Accountant and management consultant, providing auditing, management consulting and other services to clients in a variety of industries. My career also indudes service as a vice president of finance, planning and control of a multinational business with $500 million of annual sales. I have had extensive litigation and bankruptcy experience, including expert testimony relative to damages on behalf of Plaintiffs and Defendants, in federal and state courts and before arbitration panels. I also have served as a court appointed examiner and as an arbitrator. My curriculum vitae, including a list of previous testimony, is attached as Exhibit 1.

Invotex Group is a national accounting, economic, financial consulting and intellectual property management firm that specializes in providing financial analyses related to complex financial transactions, disputes, investigations, reorganizations, insurance and valuations.

I have been engaged by counsel to the Defendant in this matter to provide consulting services relative to' the damage claim presented by the Plaintiff, including a review of the report submitted by Cobb & Associates, Ltd. (the "Cobb Report") and to present my findings and conclusions in this report and in . testimony. My billing rate on this engagement has been $325 per hour.

The preliminary opinions presented in this report are based upon my analyses of documents and other information made available to date. My engagement is

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ongoing and these preliminary opinions are subject to refinement and revision if additional information becomes available for my consideration. I also reserve the right to prepare demonstrative charts and other graphic materials as directed by Defendant's counsel for presentation at trial.

In formulating my opinions, I have principally relied upon the Cobb Report and Exhibits thereto, as well as the transcripts of Mr. Cobb's deposition testimony taken on June 19, 2007. I have also considered the information set forth in Exhibit 2 hereto.

II.

Summary Opinions
I have read the report of Mr. Cobb, and his presentation therein of what he claims is the lost expectancy interest value of the Technology Licensing Agreement and have the following opinions thereon:

Mr. Cobb states in his report that "estimated sales are based on sales of conversion kits and do not include sales of converted aircraft". However, no evidence is presented in the Cobb Report, any other Plaintiff expert report, or elsewhere among Plaintiff's produced documents, of the existence of any market for DC- 3 conversion kits anywhere in the world, or of any sale of a DC-3 conversion kit anywhere in the world after 1990, or of any investigation conducted by Plaintiff experts to ascertain the existence of such a market or the existence of even one conversion kit sale. Accordingly, Mr. Cobb's opinions as to his "estimated lost expectancy interest values, based upon lost sales and lost profits on 90 and 130 units, respectively, estimated to total

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approximately $36,000,000 and $57,000,000", respectively are nothing more than unfounded speculation1.
o

Mr. Cobb, in forming the majority of his opinions, has relied extensively upon information provided him by Brian, Carmichael .("Carrnichael'), Barry Wilson ("Wilson") and Robert Clark ("Clark"), including financial projections, which were prepared based upon assumptions provided by Innovair management personnel, notably Carmichael, without adequate independent substantiation. As identified later in this report, Mr. Cobb has not conducted appropriate independent research, analyses or investigation into the substance of the information provided by management and its ¯ appropriateness for use in estimating, with reasonable certainty, damages in this matter. Accordingly, in my experience, Mr. Cobb is merely functioning as an advocate of the Plaintiff rather than an independent expert, repeating management expectations, while adding no significant information not otherwise available. For those and other reasons set forth in this report, Mr. Cobb's opinions, must be considered unfounded, irrelevant and unreasonable and therefore of no use in determining damages in this matter with reasonable certainty.

o

Alternative Damage Calculation . With no UTC involvement and no conversion kit market, the Innovair business was not much more than a concept. Innovair had no capital, available financing, customers, distributors or technical support engineers, and had tenuous, at best, relations with Basler. It is therefore highly unlikely Innovair could have survived, let alone earned any profit from the Technology License Agreement.
See the Cobb Report, page 61

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III.

Specific Findings and Conclusions
Overview Commentary In my experience, having been accepted as a damages expert for both Plaintiffs and Defendants in a number of federal and state courts, as well as in arbitration, the ftmction of a damages expert in litigation is to provide assistance to the finderof-fact in deciding a reasonable amount of damages, assuming there is liability. That assistance must consist of the expert's independent opinions tminfluenced by the Plaintiff's or Defendant's expectations or desires. The expert's independent damage calculations must (1) be based upon a rational foundation, (2) be relevant to the claimed wrongdoing, and (3) be reasonable calculations. Thereby, in my experience, damages are determined with reasonable certainty.

The work and judgments made by the PlaintifFs expert must be independent of the Plaintiff's expectations or desires. Although the expert can and should obtain relevant information from the Pl~tintiff, the expert cannot merely accept that information without appropriate verification as to its reasonable accuracy and reasonable relevance. Otherwise, the expert becomes a mere advocate for the Plaintiff, testifying to the Plaintiff's expectations and desires rather than providing any valuable assistance to the finder-of-fact.

To establish a rational foundation, the expert, among other things, must (1) be certain that assumptions and related data used in calculating damages are based on hard evidence, including among other things, actual .historical results of operations during the ,damage period, of the Plaintiff and/or others within the marketplace, (2) consider c~ther appropriate measuring sticks, (3) analyze the bases and reasonableness for this purpose of assumptions supporting related projections

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and, thereby determine, using clear hindsight, the relevance and reasonableness of those projections as a measure of damages. The expert also needs to obtain an appropriate understanding of the environment in which the parties were operating, including existing, historical and forecasted industry, market, economic and government conditions and trends, as well as the competitive forces affecting the parties' businesses. To gain this understanding, the expert must do appropriate research and analysis, including where necessary, calling on other independent experts for assistance.

The expert also must be certain the data being analyzed, and the calculations being presented, are relevant to the alleged wrongdoing. That is, they were caused by, resulted from or o~erwise dearly relate to the alleged wrongdoing.

Finally, the damages presented must be reasonable. Although the amounts need not be calculated with absolute mathematical precision, they must pass the common sense test of reasonableness. In general, they cannot be speculative and instead must be based on a credible formulation that allows the fact finder to make a reasonable determination of the amount of damages.2

In this matter, Innovair is an unestablished business, meaning it has no track record of operations or financial performance. It essentially has no record of having purchased, manufactured or sold aircraft conversion kits, converted

2 These standards were first developed upon the publication in 1993 of Daubert v Men-ell Pharmaceuticals, Inc., 509 U.S. 579,125L. Ed.2d 469, 113 S. Ct. 2786, and were influenced by Kumho Tire Company v Carmichael, No. 97-1709 526 U.S. 137; 119 Ct. 1167 and, over the years, by the various editions of Robert L. Dunn, Recovery of Damages for Lost Profits, (6t~ ed. 2005), among other guidance. "They have been accepted as a foundation for my expert testimony in federal and

state courts.
5

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aircraft or any other producP. Therefore it is more difficult to establish a foundation for the damages presentation. It is more difficult to find comparable companies and/or other appropriate measuring sticks and provide sufficient analytical support to demonstrate with reasonable certainty that the Plaintiff could have operated within the scope of the selected measuring sticks.

Mr. Cobb's efforts fail to meet those standards by a wide margin and, accordingly, his damage 'calculations and opinions must be considered nothing more than an accounting exercise, producing an unfounded speculation of what he would have the court believe are damages.

In the following pages we discuss in more detail the facts supporting our opinions.

No Evidence There Was Any Market For Conversion Kits Or Any Actual Sales Of A Conversion Kit During The Damage Period Mr. Cobb presents in his report calculations of estimated lost values assuming 50, 90 and 130 units were sold during the damage period. He states that "Estimated sales are based on sales of conversion kits and do not include sales of converted aircraft."4 No evidence is presented in his report or its supporting documentation of any attempt by Mr. Cobb to ascertain whether or not there was a market, anywhere in the world, for DC-3 conversion kits. Further, and more significant, no evidence has been presented of the existence of any market for or of any actual sale of a DC:3 conversion kit after 1990. Conversely, in deposition testimony, Mr. Cobb admits there was no market for conversion kits.5 This is a significant

Other than the aircraft sold under the 1988 Air Colombia contract. See the Cobb Report, page 53. Cobb Deposition Transcript, page 165, line 21 through page 168 line 7.

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fundamental flaw in the Cobb Report, in that there is no foundation for the estimated lost sales included in the damages calculations.

The business of Innovair was to a significant extent dependent upon a distribution agreement with United Technologies Corporation ("UTC'). UTC initially planned to purchase conversion kits from Innovair under that agreement and cause the kits to be used to convert aircraft in foreign countries, thereby earning for UTC certain offset credits with those countries. As reported elsewhere,6 after expending considerable effort and funds, UTC concluded that there was no market for conversion kits and no investors for conversion facilities and UTC abandoned the project, looking elsewhere for the desired offset credits. Absent UTC and its interest in generating offset credits, there is no evidence there was any market for DC- 3 conversion kits.

Cobb's Unquestioned Reliance Upon Management and Unfounded Mahagement I~rojections
I understand from reading the Cobb deposition transcript, that, in general, a significant amount of the information upon which Mr. Cobb is relying, came to him from discussions with Carmichael, Wilson and Clark, proposed managers of the Plaintiff business, and that he did little to independently verify 'the reasonableness of that information. Mr. Cobb therefore is functioning more as an advocate of the Plaintiff, rather than as an independent expert, providing no significant reliable information not otherwise available. Indeed, Carmich~el could as easily have presented this damage calculation by himself.7

6 See Deposition of Ray E. Stone, taken September 17, 1997, page 21, line 24 through page 24 line 16. 7 See the various Cobb deposition references to discussions with them, particularly Carmichael, as noted on pages 148, 218-220, among many others. DX 324

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Mr. Cobb relies upon (1) the Basler Turbo Conversions and Innovair Business Plan, 1990-1994, (2) a May 16, 1990 Compilation Report of Deloitte & Touche, which presented sales projections of 174 units over the five year period 1990-1994, (3) a May 19, 1991 "stud)," conducted by Warwick Consulting Group, Inc.~, which projected sales of 94 units over the six year period 1990 through 1995~, and (4) United Technologies and Pratt & Whitney "Sales Potential" of 129 Innovair conversion kits, including projected sales expectations of 50 units over four years.10 However, Mr. Cobb conducted no investigation or analyses to gain an understanding of the bases for those various projections or their appropriateness for use in estimating, with reasonable certainty, damages in this matter,ix

We understand from the Deloitte & Touche Compilation Report, and other sources that the Deloitte & Touche projections were based entirely upon assumptions as to sales, prices, costs and expenses, provided by Carmichael and Wilson, and Deloitte & Touche disavowed any responsibility for the projections or " their underlying hypotheti.cal assumptions, stating explicitly in their accompanying report that they were the responsibility of Carmichael and Wilson.'2 Mr. Cobb has accepted the Carmichael assumptions with no further investigation other than discussions with Carmichael. He did not contact Deloitte & Touche or review its work papers, or contact Basler Turbo Conversions, Inc. ('Basler') or UTC or otherwise attempt to gain any independent understanding of the underlying assumptions and facts.

8 Actually the Warwick Memorandum was an offering circular type document being used in an attempt to interest investors in the company rather than any type of study. 9 Including only 68 unit sales in the comparable 1990-94. period. 10 See the Cobb Report page 43-46; 49-53 and 61. 11 Other than discussing them with Plaintiff Carmichael as reported in the Cobb deposition, on page 148, among other references. "~ 12 See DT 00714. DX 3 24 [ '~ 0

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Deloitte & Touche reported that it was engaged by Carmichael and Wilson to compile the projected financial statements of the companies "to assist certain shareholders...sell all or part of their interests in the companies to sophisticated third parties."13 In addition to raising the very significant questions as to whether Carmichael and Wilson were the "certain shareholders" selling their interest and whether they had any real interest at the time in continuing and building the business, that statement suggests the projections may be significantly more optimistic than hindsight would support as reasonable for purposes of any damages determination. No evidence has been presented to demonstrate that Mr. Cobb investigated this issue.

The Deloitte & Touche projections compiled in May 1990 suggest there would have been 174 units sold over the 1990-1994 period. The Warwick Memorandum, dated May 18, 1991, just one year later, suggests there would have been only 68 units sold in the comparable 1990-1994 period. No evidence has been provided by Plaintiff explaining the sales reduction from 174 to 68 units or, in light of that significant difference, justifying the reliability of either projection. Again, Mr. Cobb conducted no inquiry or investigation into this very significant issue, other than to discuss it with Carmichael.u He did not explore the issue with Deloitte & Touche or with any Warwick representative or otherwise ascertain the reliability of either of those projections for damages purposes. This is another significant weakness in Mr. Cobb's work, basing sales estimates at least in part on two dramatically different forecasts with no investigation into whether either forecast had sufficient foundation to be reliable as a reasonably certain estimate of sales for purposes of this damages determination.

See DT 00714. See the Cobb deposition pages 218 through 220.

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In deposition testimony, Mr. Cobb first expresses reliance upon the Deloitte & Touche and Warwick projections15 and then backs away from that position stating that he has not based his calculations on those projections but has based his calculations on "all the information available to me."16 Even if he has changed his mind and is not relying on those projections, he continues to present no rational foundation for the sales amounts used in his damages calculations.

The Cobb Report suggests that, after the sale of 12 units in year one, there would be annual sales of 13 units.17 No explanation is provided for the rationale or reasonableness of the 12 and 13 unit amounts. Further, no explanation is provided to support Mr. Cobb's suggested 12 units of sales in year one when neither Deloitte & Touche (6) nor Warwick (2), project sales in excess of 6 units in the first year. Suggesting 12 units could be sold in the 4¢ery first year by a new company with no history of operations in the face of projections of no more than 6 units prepared by others contemporaneous to the damage period, is pure speculation.18

The Cobb Report estimates of 13 units per year of sales after the first year are significantly different from the 4, 8, 18 and 20 units of annual" sales presented by Warwick and the 32, 45, 48 and 43 units of annual sales presented by Deloitte & Touche. There is no dear explanation of why Mr. Cobb's sales projections differ so significantly from those of Deloitte & Touche or Warwick. Further, the Deloitte & Touche and Warwick reports reflect awareness that there would need to be " some kind of "ramp up" or lead time period for sales and production at Innovair which Mr. Cobb ignores:
15 As noted in pages 218 through 220. 16 See pages 224 through 227, line 4. 17 See the Cobb Report page 50. 18 Similarly, on page 51 the Cobb Report suggests alternatively annual unit sales of 18 in the first year, leading to a total of 130, which is also pure unsupported, unreliable speculation.

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Mr. Cobb's understandings or assumptions as to the business of Innovair for which he has made his calculations are unclear at best. More specifically, there is no documentation of his understanding or assumptions relative to the organization, staffing (other than involvement of Carmichael, Wilson and Clark), production methods and facilities, sales and distribution systems; technical support systems, capital requirements or financing alternatives. Reasonable understandings and assumptions in each of these areas are essential to producing reasonable projections. I would have expected Mr. Cobb to have investigated, beyond discussions with Carmichael, Wilson and Clark, the professed model for the business, gaining an understanding of the assumptions in each of those areas and verifying to the extent possible their reasonableness for purposes of calculating damages. Had Mr. Cobb made such an investigation, he would have been better equipped to estimate start-up costs, cash and capital requirements and lead times, and better estimate annual unit sales and expenses.

Mr. Cobb Contradicts His .Own Reliance Upon The Projections ¯ As discussed earlier, Mr. Cobb, in his report relies upon the Deloitte & Touche and Warwick projections but there are a number of significant exceptions:

Mr. Cobb uses a unit sales price of $2,025,000 whereas Deloitte & Touche and Warwick use $1.9 million and $2 million, respectively. Mr. Cobb bases his sale~ price on the preliminary sales price estimates contained in the UTC agreement executed in 1991 and ignores the $2 million Warwick price established about the same time in 1991 and provides no explanation as to why he considered the UTC agreement price more reliable than the Warwick Memorandum price. He therefore suggests that he doe~ not

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consider either the Deloitte & Touche or Warwick projections to be reliable, at least with respect to their sales prices.

Mr. Cobb selected 10% as a sales commission rate whereas Deloitte & Touche and Warwick both used 12.5%, stating in support that "Thomas Weigt, President of Basler, testified in a July 15, 1997 deposition that Basler had never paid more than 10% commission in any transaction."19 He therefore, apparently, without investigating in any way the reasoning behind the Deloitte & Touche and Warwick selections of 12.5%, has determined Mr. Weigt's commission rate estimate to be more reliable than Deloitte & Touche or Wanarick. Mr. Cobb also ignores the fact that Mr. Weigt was discussing commission rates on converted aircraft as built and sold by Basler, rather than on conversion kits as envisioned being sold by Innovairo

Mr. Cobb also must be relying on, or is at least aware of, Mr. Weigt's additional testimony that (1) Basler and Innovair could no longer work together since the "bond between the companies had been broken"2°, (2) there existed a difference in business strategies between Basler and Innovair, with Basler focused on selling finished product and Innovair on selling conversion kits, (3) Basler found no customers who preferred to ha~e conversions done in their own country rather than the U.S., and (4) Basler had not sold any kits.21 However, there isno evidence that Mr. Cobb ever investigated the impact of these very significant findings upon his damage calculations.

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19 See the Cobb Report page 56. 2o Deposition of Thomas R. Weigt taken July 15, 1997, page 58, line 8 through page 59, line 12. 21 Ibid., page 61, line 23 through page 64, line 10.

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Mr. Cobb notes that Deloitte & Touche estimated $180,000 for demonstration flights and then uses $200,000 for his estimate with no explanation of the difference, other than "conservatism."

Similarly, Mr. Cobb's selection of expense amounts are higher than Deloitte & Touche for marketing manager and assistant, ($218 vs. $207); travel costs ($86 vs. $72); president ($333 vs. $316); accountant ($63 vs. $58); assistant accountant and secretary ($38 vs. $35); product liability insurance ($263 vs. $247), and legal and audit ($50 vs. $34), with no discemable supporting rationale.

¯ Alternatively, Mr. Cobb selects inventory holding costs of $142 whereas Deloitte & Touche used $200 with no explanation of the difference.

The problem created by these sometimes small differences is Mr. Cobb seems to be picking and choosing where he is going to override the contemporaneously produced projection assumptions with his own judgment, having done no investigation or analyses to support the appropriateness for this purpose of either his judgment or the projections. Accordingly, the resulting damage calculation is nothing more than an accounting exercise providing no reliable assistance in determining damages in this matter.

UTC Would Not Have Participated With Innovair Mr. Cobb suggests that United Technologies Corporation ("UTC") would have participated in the sales and distribution of conversion kits, and indeed would have been responsible for 70% of the sales of conversion kits over the damage

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period. We understand that is not the case and that instead, UTC, after expending considerable effort and funds, had concluded there was no substantial market for the DC-3 conversion kits and there were no investors interested in funding conversion facilities in Taiwan or elsewhere.= Accordingly, UTC concluded the achievement of their objective, of earning offset credits through the purchase of conversion kits from Innovair and the conversion of aircraft in foreign countries, was no longer feasible' and they aban.doned the project,z~

UTC's participation was essential to the achievement of any successful operation by Innovair. UTC initially intended to purdiase conversion kits from Innovair/Basler and to convert aircraft through local foreign companies as a means to achieve their offset credits. Achievement of the .offset credits was the UTC stimulant for purchasing conversion kits. No evidence has been produced by Plaintiff of the existence of any other company with any similar stimulant or any interest in purchasing a conversion kit from Innovair. Whatever interest existed in converted DC-3 aircraft was limited to the converted aircraft itself, not to any conversion kits. Accordingly, without UTC's significant participation, the assumption that any, let alone 50, 90 or 130, conversion kits could have been sold is pure fantasy, unreliable for any use in determining damages in this matter.

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~ See, among other sources, the Deposition of Ray E. Stone, taken September 17, 1997, page 21, line 24 through page 24, line 16. z~ Mr. Cobb provides extended commentary, on pages 45-46 of his report, on the UTC sales potential and on the efforts UTC expended as the ~xclusive international marketing representative for Innovair, but fails to note that all those efforts resulted in not one sale.

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No Evidence Of Any Investigation Or Analysis Of Innovair Start-Up Costs, Capital Requirements Or Ability To Attract Financing While Technically Insolvent Mr. Cobb reports that Innovair would have leased a demonstration aircraft in 1991 with annual lease payments of $200,000.24 He does not however provide any details of the aircraft cost, whether anyone would have agreed to lease a special purpose demonstration aircraft to Innovair or whether Innovair qualified for such a lease or any other type of financing. Equally important, he provides no analyses of any start-up costs or cash requirements Innovair would have incurred in acquiring the demonstration aircraft, establishing distribution and technical support networks, or funding operations in the early years of.operations.2~

In an attempt to roughly estimate start-up costs and initial cash requirements, I have looked at some generally relevant information. First, I see that Michael Hintze, Controller of Basler in 1991 reported a tabulation of $2,937,600 of prototype construction costs and $3,740,500 of research & development costs, totaling $6,678,000 actually incurred by Basler26 through September 1990. I also observe that the Warwick Memorandum estimated $5 million to $10 million of financing needs, of which $3 million to $5 million were start-up and operations oriented27. Finally, Mr. Cobb estimates marketing, general, and administration expenses would annually approximate $1.7million in his 50 unit projection.2s Therefore, it se~ems to me that Innovair could have needed at least the Warwick minimum $5 million plus the first year's fixed expenses of $1.7 million or a total of
24 See the Cobb Report, page ~6. ~ I also notice Clark reported in his deposition that he made no attempt to determine any of these costs. See the deposition transcript o£ Robert Clark, June 22, 2007, pages 29 and 30. 26 See exhibit 5 to the deposition transcript of Thomas Weigt, July 15,1997. 27 See IAL_Cobb005853. 2~ See the Cobb Report page 52, $3,144 less $1,439 of commissions and demonstration aircraft expenses.

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$6,700,000 of cash and capital to start-up and sustain operations prior to the sale and delivery of the first conversion kit. But where would that funding have come from?

Innovair was essentially an insolvent company from 1988 through at least 1995, with, as one example, in 1991 assets of $73,084 being exceeded by liabilities of $1,080,765, producing a capital deficiency of $1,006,757 after net losses of $347,438 and $386,456 in 1990 and 1991, respectively.29~° No evidence is presented to support the suggestion the apparently insolvent Innovair could have financed any start-up costs or operations, let alone as much as $6,700,000. Indeed, at that time ¯ the Warwick Group was unsuccessful in its attempts to raise funds for Innovair. Mr. Cobb's Commentary In Certain Areas Is Irrelevant The Cobb report contains 26 pages3~ of commentary and opinions on the economy, aircraft market, competitive aircraft, distribution, and reported DC-3/C-47 conversion sales. The majority of his commentary is generally irrelevant. As examples, on pages 22 and 23 he provides a discussion of commercial airline deregulation in the United States which is irrelevant to the market outside the United States for a converted DC-3 aircraft. Similarly, on pages 18 through 21, he provides commentary on the general economy, selecting interesting events to report in each of the years but providing no explanation of any significance or

29 See the Innovair audited financial statements for 1990 through 1995 prepared by Lew & Barr at C00014 - C00046. ~0 Mr. Cobb was not provided or ignores the audited financial statements of Innovair when he reports on pages 6 and 7 of his report that Innovair had $192,000 of equity in 1990 following $265,00 of "estimated" profits in that year.
31 Pages 16 through 42.

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relevance of the events to the market for DC-3 aircraft conversions or conversion kits. Further, on pages 30 through 36, he provides extended commentary on what he dairns to be directly competitive aircraft but provides no explanation or correlation of the sales, speed, range, etc. of the various aircraft with the market for converted DC-3 aircraft.

General Conclusion For all the reasons set forth above, Mr. Cobb's opinions, as set forth in his report must be considered unfounded, irrelevant and unreasonable and therefore of no use .in determining damages in this matter with reasonable certainty.

Basler Financial Situation Perilous I have reviewed audited financial statements of Basler Turbo Conversions, Inc., for the years ended December 31, 1989 through 1992 and find that Basler was near insolvency during that period with little, if any cash, current liabilities exceeding current assets by as much as $3.7 million and capital deficiencies of $3.3 to $3.6 million32 .after incurring losses in most of those years. ~3

IV.

Alternative Damage Considerations
With no UTC involvement and no conversion kit market, the Innovair business was not much more than a concept. Innovair had no capital, available financing, customers, distributors or .technical support engineers, and had tenuous, at best, relations with Basler. It is therefore highly unlikely Innovair could have survived, let alone earned any profit from the Technology License Agreement.
32 See C008003 through C008039. ~3 We have not seen any financial statements of Basler Flight Services, apparently a sister company but understand that they were in similar financial straits during this period.

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In that context, even if one were to assume Innovair could have achieved the sale of as many as the 16 units that Basler achieved in the Innovair territory over the 1991-1998 period, at the rate of 2 or 3 units per year; and-~ou ~rther assume the Cobb calculated profit margins were reasonable, the resulting annual gross margin contribution would not have covered Innovair's annual fixed expenses of $1.7 million in all of the years nor provided for any repayment of the $5 million $6.7 million of incurred debt.

It should also be kept in mind that any damages determined under any scenario would need to be reduced by the $1,375,000 judgment of the res bond awarded Innovair by the Arizona Court.~4

Respectha]ly submitted,

.ging Director Invotex Group

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And any prejudgment interest awarded by this court would need to be reduced by the $408,879 of prejudgment interest awarded by the Arizona court.

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V. List of Exhibits
Exhibit No. Exhibits 1 Curriculum Vitae, Maurice J. Whalen ..................................................................... 2 Documents and Other Information Considered ....................................................

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Exhibit I

MAURICE J. WHALEN, CPA
Maurice J. Whalen, a Managing Director of Invotex Group, has had over 35 years experience as a Certified Public Accountant and as the responsible partner for two international accounting firms on hundreds of domestic and international audit and management consulting engagements and over thirteen years as an office managing partner. In addition to domestic engagements, he has directed engagements in Africa, Europe, the Middle East, South America, and the Caribbean. His industry experiences include, among others, tr.ansportation, finan(~ial conglomerates, banking, insurance, real estate, investment companies, construction, manufacturing, mining, high technology, wholesale and retail. His career also includes three y6ars of service as Vice President Finance, Planning and Control of a corporation with over $500 million of annual sales. He has had extensive litigation and bankruptcy experience including expert testimony in federal and state courts, and service as a court appointed Examiner and as an arbitrator. Relevant Airline Industry_ Experience Mr. Whalen's commercial airline industry experience includes bankruptcy consulting services, consultations on damage determinations and defenses and general management consulting. Illustrative matters include: Service in a number of bankruptcy cases, usually in support of Creditors Committees. Certain of those cases involved extensive court testimony on corporate strategy, reorganization plans, financial projections operating results and other significant issues. Major cases included the BraniffAirways and Continental Airlines bankruptcies. An airline industry case alleging $100 million of lost profits in which his testimony in Delaware Chancery Court with respect to a number of complex accounting issues and the proper application of GAAP helped to significantly minimize damages. Assistance to Plaintiff's counsel in fact finding and damage determination relative to a successful claim brought by a commercial airline company alleging breach of contract and fraud, against a telecommunications equipment supplier.

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Exhibit I ¯ Valuation of an airport service business and related conclusive testimony before an arbitration panel in a legal malpractice matter. He also has assisted interested parties and management of a number of then seriously troubled commercial airline companies reviewing business strategies, financial projections and operating performance during a protracted period of industry recession and labor unrest. Airline companies indudedEastern, Western, Continental, Air Cal, Republic, United, Frontier among others. Other Relevant Professional Experience - Illustrative Matters Damage Determinations Mr. Whalen's experience includes extensive lost profit damage determinations and defenses in a variety of industries. Illustrative cases include Minepeco v. Nelson Bunker Hunt et. al., the silver markets case, wherein he assisted Plaintiff's counsel in a four-year effort concluding with extensive testimony in District Court, Southern District of New York in support of the damage claim resulting in a $197.1 million jury verdict; and a more recent matter in which he assisted Defendant's counsel defend against a $160 million damage claim, including allegations of fraud and breach of contract, which settled during trial for zero damages. Forensic Accounting Investigations Mr. Whalen's.experience includes conducting investigations and consulting with government agencies, including the U. S. Department of Justice, Securities and Exchange Commission and the Federal Deposit Insurance Corporation, on director and officer liability, self dealing, civil and criminal fraud, including money laundering and securities fraud, and professional malpractice matters, as well as with counsel representing corporations and individuals subjected to such allegations. He also has conducted investigations and provided related consulting services to counsel representing shareholders in class actions alleging financial statement misrepresentations, securities fraud and management self dealing.
Accountant Malpractice

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His accountant malpractice experience begins with the 30 years as a practicing CPA referred to above, including thirteen years as an office managing partner responsible for all aspects of the practice including client service and quality

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Exhibit I control. His clients have included some of the world's largest corporations and some of its smallest entities. His accountant malpractice litigation experience includes many matters of all sizes on behalf of Plaintiffs and Defendants relative to a broad variety of issues including financial statement fraud relative to investment, loan, and other asset valuation and accounting issues; revenue and loss recognition, contingencies and similar loss reserve issues; improper consultations with clients relative to accounting principles and internal .controls, and related negligent or reckless conduct. Bankruptcy and Reorganization Mr. Whalen has served in a number of bankruptcy cases, usually in support of Creditors Committees. A number of those cases involved extensive court testimony on Corporate strategy, reorganization plans, financial projections, operating results and other significant issues. He has served as the Examiner in a major small business investment company bankruptcy wherein his duties involved assessing the fairness of investment valuations and the conduct of directors, officers, and accountants. He also has served as the principal agent of the Receiver in small business investment company receiverships wherein his duties have included liquidating portfolio investments and assessing the conduct of directors, officers, and accountants. Arbitration He has served as the sole arbitrator resolving a dispute involving two "Big 5" accounting firms arising from a $200 million business acquisition, and has testified successfully before arbitration panels relative to asset valuation and damage issues.

Management Consultant
Over the years, he has assisted a number of companies in a variety of industries assessing their situation and developing improvement strategies induding cost cutting, cash flow and profitability improvement, organization studies, mergers and acquisitions and general management surveys. Educational Background Mr. Whalen received a Bachelor of Science degree in Business Administration from Boston College where his areas of emphasis were accounting and philosophy.

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Exhibit I Professional Affiliations Certified Public Accountant, licensed in Massachusetts and the District of Columbia American Institute of Certified Public Accountants Greater Washington Society of Certified Public Accountants Testimony ¯ In the United States Bankruptcy Court, Ft. Worth, TX, Braniff Airways, 1982 ¯ In the United States Bankruptcy Court, Houston, TX, Continental Airlines, 1984 ¯ In the Court of Chancery of the State of Delaware in and for New Castle County, Trans World Airlines, Inc. v. Summa Corporation and William R. Lummis, etc., May 1985 ¯ In the United States District Court, Southern District of New York, Minpeco v. Nelson Bunker Hunt, et al., June 1989 ¯ In the United States Bankruptcy Court, Eastern District of Virginia, River Capital Corpor.ation, January 1990 ¯ In the Court of Chancery of the State of Delaware in and for New Castle County, Marjorie L. Everett v. Hollywood Park, Inc., November 1995 ¯ In the United States District Court, Southern District of New York, Alesayi Beverage Corporation v. Canada Dry Corporation, December 1995 ¯ In the Superior Court of t_ke District of Columbia, Civil Division, Brian P. Healy, et al. v. Keith Rosenberg, et al., November 1997 ¯ In the United States Bankruptcy Court for the District of Maryland, The Plan Committee of Regional Building Systems, Inc. v. International Building Group, Inc. (Deposition), March 1998 ¯ In the Court of Chancery of the State of Delaware in and for New Castle County, Onti, Inc., et al. v. Integra Bank, et al.; DiGiacobbe, et al, Counterclaimants, v. Onti, Inc., et al., May 1998 ¯ In the United States District Court for the Eastern District of Virginia, Marc LeBlanc, et al. v. Lawrence A. Cahill, et al., March 1999 ¯ In the District of Columbia Superior Court, Civil Division, TCOM, L.P.v. Aon Risk Services, Inc. of Washington, D.C., March 1999 ¯ In Superior Court Jefferson County West Virginia, Jefferson County Public Service District v. Frobenius, Conaway & Company, et al., March 2000 ¯ In the United States District Court, Baltimore Maryland Division, Atkinson Warehouse v. Ecolab, Inc., June 2000

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Exhibit I
In the District of Columbia Superior Court, Civil Division, America West Airlines v. MCI, Inc., August 2000 (Deposition) In the United States District Court, Central District of California, FDIC v. F&D, et al., December 2000 (Deposition) In the United States District Court for the District of Kansas, MC Chemicals, Inc. v. NIRO, Inc., December 2000 (Deposition) In the Superior Court of New Jersey, Ocean Club Condominium Association, et al. v. Bank of America, MLM Associates, et al., August 2001 In the Court of Federal Claims, Fifth Third Bank v. United States, December 2001 (Deposition) In Arbitration, Prospectus Enterprises, Inc. v. National 4-H Council, April 2002 (Deposition) In the United States District Court, Southern District of Ohio, SmarTalk Teleservices, Inc. Securities Litigation, August 2002 (Deposition) In the United States District Court, District of Minnesota, K-Tel International, Inc. and K-Tel International, Gm bH, v. Tristar Products, Inc., February 2003 (Deposition) In the United States District Court for the District of Maryland Northern Division, National Union Fire Insurance Co. of Pittsburgh, PA, v. Allfirst Bank et al., March 2003 (Deposition) In the United States District Court, Southern District of New York, FDIC v. Lawrence Bober, et al., April 2003 In the Circuit Court or Montgomery County, Maryland, Stericycle, Inc. v. Ecology Services, Inc., et al., September 2003 (Deposition) In the Circuit Court of Maryland for Talbot County, S2I Corporation et al. v. Paul P. Rakowski et al., December 2003 (Deposition) In the Court of Federal Claims, Marketing and Management Information, Inc. v. United States, April 2004 (Deposition) In the Circuit Court of Maryland for Talbot County, SZI Corporation et al. v. Paul P. Rakowski et al., August 2005 In the Court of Federal Claims, Fifth Third Bank v. United States, January 2006 In the United States District Court for the District of Maryland Northern Division, D. M. Bowman, Inc. v. Variform, Inc., February 2006 (Deposition)

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