SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 0-9974
UNITED STATES AIRCRAFT CORPORATION
----------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3518487
- ----------------------------- -------------------
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
3121 East Greenway Rd., Suite 201, Phoenix, Arizona 85032
- --------------------------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
(602) 787-1351
---------------------------------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
NONE
------------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
CLASS A COMMON STOCK
------------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act for
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- -------
At September 30, 1997, no market existed for the Registrant's Class A
Common Stock, the only class which is publicly held.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of each of the registrant's classes of
common stock as of September 30, 1997 was:
Class A Common Stock: 7,652,504 shares
Class B Common Stock: 4,962,801 shares
<PAGE>
PART I
Item 1. Business.
---------
Introduction
- ------------
At September 30, 1997, the Company is engaged in adult education and
travel services plus the ownership of real estate. The Company was previously
active in the modification of the DC-3/C-47 aircraft and real estate property
management both of which were discontinued in 1984 and 1997 respectively.
The Company, United States Aircraft Corporation, was incorporated in
Delaware on October 6, 1978 and began operations in April 1980. The principal
executive offices of the Company are located at 3121 East Greenway Rd., Suite
201, Phoenix, Arizona 85032, telephone number (602) 787-1351.
Adult Education
- ---------------
The Company's adult education operation is conducted by its wholly
owned subsidiaries Ford Schools, Inc. and Western College, Inc.
Ford Schools, Inc. is an Arizona real estate training organization providing the
required training to individuals seeking a real estate salesperson's or broker's
license, and continuing education for licensed salespersons and brokers.
Effective January 1, 1996, the Company acquired Western College, Inc. a real
estate training organization providing the same courses of study. On January 1,
1996, the operations of Ford and Western were combined at the Western campus and
operated as a single school under the name of Western College / Ford Schools.
The Company intends to adopt the name Westford College, Inc. for its adult
education opertion. The school and its courses of study are approved by the
Arizona Department of Real Estate.
Ford Schools is one of the oldest continuously operated real estate schools in
Arizona. At September 30, 1997, there are approximately four proprietary schools
for real estate training in the Phoenix metropolitan area that offer both
license and license renewal education. Another metropolitan Phoenix based school
has the largest market share in Arizona. While small schools will continue to be
formed, management believes the trend will be toward larger schools, providing
high quality instruction and a variety of programs.
In 1997 the State of Arizona required the following real estate training:
Courses and Hours
-----------------
Real Estate Salesperson License Principles of Real Estate - 90
hours
Real Estate Brokers License Principles of Real Estate - 90
hours
Renewal of License Various courses approved by
Real Estate Department
generally 3 to 6 hours in length.
Total 24 hours every two years.
Currently, the required training must be completed in a class room setting. The
Arizona Department of Real Estate is currently reviewing this requirement in
order to consider
2
<PAGE>
the establishment of policies and procedures for "out of the classroom" or
"distance" learning. Under consideration are, among other methods of distance
learning, computer-aided classroom settings, compact disc-based program that can
be studied at home, the Internet, and satellite TV and videos. The Company
intends to develop course materials to present distance learning courses when
such policies and procedures are adopted by the Arizona Department of Real
Estate.
During the three years ended September 30, 1997, student enrollments and tuition
revenues were as follows:
Average
Students Revenue Tuition
-------- ------- -------
Sales Licensing
1997 1,049 $261,099 $ 248.90
1996 937 $204,453 $ 218.19
1995 328 $ 87,745 $ 267.51
Broker Licensing
1997 34 $ 14,840 $ 436.47
1996 (1) 41 $ 18,507 $ 451.39
1995 (2) 9 $ 2,975 $ 330.55
Renewal
1997 9,835 $134,206 $ 13.64
1996 (1) 7,252 $106,908 $ 14.74
1995 3,697 $ 51,761 $ 14.00
(1) Represents the combined operations of Western College, Inc. and
Ford Schools, Inc. since January 1, 1996. Statistics prior to
January 1, 1996 represent Ford Schools, Inc. only.
(2) Broker licensing classes were not offered by Ford Schools, Inc.
until June 1995.
There are approximately 50,000 licensed real estate salesperson and
brokers in Arizona. The number of individuals taking the licensing examination
each month varies, generally increasing as real estate activity increases and
decreases when it is slow. In the fiscal year 1997, the number taking the State
of Arizona sales licensing tests that were given each month ranged from
approximately 300 to 450. Even though there are significant numbers taking the
licensing exam each month, the number of licensed personnel remains relatively
constant as a significant number of licensees choose to let their licenses
lapse.
Western College / Ford Schools has continued its planned expansion
program with the opening of a second campus in northeast Phoenix, Arizona.
Currently, the two campuses, each with three class rooms, are located as
follows:
West Campus 4425 West Olive, Suite #128
Glendale, Arizona
Northeast Campus 3121 East Greenway Rd., Suite #201
Phoenix, Arizona
The Company advertises its real estate programs in metropolitan Phoenix
telephone directories plus through direct mail to its referral sources. In
October, 1996 the Company began publishing the Renewal News, a monthly magazine
for real estate licensees with a circulation of approximately 11,000. The
magazine includes the class schedule for both locations along with relevant
articles and paid advertising revenue in the year ended September 30, 1997 was
$18,359. The Company has launched a program to increase the circulation, and the
advertising revenue plus expand the editorial content.
3
<PAGE>
Utilizing its existing base in adult education, the Company intends to expand
and profit from the adult career education field. Through its acquisition
program, the Company intends to expand into other geographic markets and to
expand its curriculum to include training for other professionals such as travel
and insurance agents, accountants and home inspectors. The expansion is expected
to include the offering of home study courses which in some cases will use
computer networks, video conferencing, and interactive multimedia courses, all
of which provide enhanced education and training that is not bound by time or
location.
Travel Services
The Company, through acquisitions, implemented its travel services
division on July 1, 1997. Effective July 1, 1997 the Company purchased certain
assets of Travel Easy, Inc. and in August 1997 the assets of FirsTravel, both of
which were full service travel agencies. The Travel Easy agency has been closed
and its approximately 175 independent contractor Home Based Travel Agents became
affiliated with the Company's travel agency operated as FirsTravel.
FirsTravel is a full service travel agency registered with the Airline
Reporting Corporation. It serves the retail market from its office at 4700 North
Central Avenue, Phoenix Arizona and serves its approximately 175 independent
contractor Home Based Travel Agents located throughout the country.
Travel Agency sales for the three months from acquisition through
September 30, 1997 were as follows:
Airline tickets $339,217
Hotels 81,861
Automobiles 26,255
Cruises 116,508
Tours 161,362
Other 51,341
--------
Total Sales $776,544
--------
Total sales for the acquired agencies were $5,191,426 and $2,324,325
for the years ended September 30, 1997 and 1996, respectively. The sales of the
acquired agencies for the fiscal year ended September 30, 1997 and 1996 are not
representative of the expected sales volume in the fiscal year ended September
30, 1998 due to changes in operations, primarily the reduction of outside agents
from over 3,000 to approximately 175 Home Based Travel Agents that intend to
book sales for others as opposed to just booking personal travel.
In October,1997 the major airlines changed their commission rate to
travel agencies from 10% to 8%. Accordingly, in January 1998 FirsTravel adopted
the policy of generally charging its customers a $10 service fee for each
airline ticket generated. Further, the company intends to continue its policy to
promote leisure travel, such as tours and cruises, where the commissions
generally range from 10% to 13%. Management believes that the travel services
operation can be expanded through the acquisition of other travel service
companies and that FirsTravel can be expanded through the recruitment of new
Home Based Travel Agents. Additionally, the Company is in the process of
implementing a travel education program for individuals desiring to enter the
travel services industry and continuing education for active travel agents. The
education program will be presented by the Company's adult education division.
Real Estate Owned
- -----------------
The Company owns 35.66 acres of undeveloped land located on the
Interstate 5 frontage road in Glenn County, California which is approximately 85
miles North of Sacramento, California. The Company is pursuing various
alternatives for realizing the value of this property, including the possibility
of forming a Real Estate Investment Trust (REIT) to whom the undeveloped land
would be sold or contributed.
4
<PAGE>
The Company believes the land can be developed with a service station,
mini-mart, motel, fast food outlet and a recreational vehicle park and it is
expected that the REIT would contract with the Company to manage and develop its
parks.
The land has been pledged as collateral for $601,000 of trust deed
notes payable for which interest on the second and third position notes are
delinquent. The Company does not have sufficient liquid capital to continue to
service the debt. If a REIT or other alternative is not formed with the
resulting sale or contribution of the land to the REIT, the company will be
required to take other steps to sell the land that could be at a sales price
that would be less than the trust deed notes payable.
For additional information regarding working capital, reference is made
to Item 7, Financial Condition and Liquidity and Capital Resources.
Discontinued Operations
- -----------------------
Aircraft Modifications
From April 1980, the Company had been engaged in the business of
modifying and converting the Douglas DC-3/C-47 aircraft from conventional
piston-driven engines to Pratt & Whitney PT6 turboprop engines and modification
of the airframe systems to accommodate the new engines. The purpose of the
program was to increase payload capacity, reduce maintenance costs and increase
revenues.
The Company's aircraft engine conversion program conservatively substitutes
equivalent power using widely accepted new turboprop engines as replacements.
Weight is reduced by changing to lighter engines and lengthening the fuselage to
increase payload capacity. The Company had been developing the capability to
modify or convert an operator's aircraft, supply a completely converted aircraft
to a customer or provide complete kits for installation at regional installation
centers. The conversion and modification of existing DC-3 aircraft was expected
to increase demand because of the savings based on reduced capital investment in
new equipment and spare parts, reduced expenditures for flight and maintenance
crew training, reduced operating cost and increased productivity. The converted
aircraft is known as the "DC-3/C-47 Turbo Express".
The Company selected the DC-3/C-47 conversion program as its initial
project because of the large number to these aircraft available for conversion
and the need for the conversion. The turboprop engines deliver thrust slightly
higher than delivered by the piston engines. The new engine installation results
in a weight saving in excess of 3,000 pounds and substantially less aerodynamic
drag. It offers increased cruising speed and considerably improved overall
aircraft performance. Although turboprop engines consume slightly more fuel than
piston-driven engines, the conversion is particularly desirable since the fuel
required for the piston-driven engines, aviation gas, is substantially more
expensive and scarce than that required to operate the turboprop engines.
Furthermore, the PT6 turboprop engines would operate with significantly more
reliability than the piston-driven engines, thus requiring less down-time and
expense for maintenance, with a substantial improvement in safety. The
availability of the PT6 turboprop engine depends on sufficient lead time and
adequate capital to place advance deposits when the order is placed. In 1984 the
Company believed that the Federal Aviation Administration Certification of the
Company's converted DC-3 demonstrator aircraft would be accepted by most of the
Company's foreign customers and their aviation regulatory agencies as sufficient
proof of airworthiness. Regulatory agencies in Canada, England and France may
require their own certification after examination of design, engineering and
flight test data by these authorities.
An Alaskan charter and air taxi operator, Harold's Air Service, Inc. of
Fairbanks, Alaska, purchased the Company's demonstrator aircraft which was paid
for and
5
<PAGE>
delivered on December 8, 1983. FAA Certification was issued for this aircraft on
December 1, 1983. Harold's Air purchased a conventional DC-3 for conversion by
the Company. In December 1984 ownership was transferred to the Company with
Harold's Air retaining an option to lease or purchase. Harold's Air also placed
a $330,000 advance payment for the lease or purchase option on the second
aircraft on which the Company started the conversion process.
In July, 1983, Air Group International placed a non-refundable deposit
of $50,000 for the conversion of an aircraft, and the Company billed its first
progress payment of $192,000 in December 1983. The billing was not paid and the
contract was canceled. The initial deposit was recorded as income in the year
ended September 30, 1984.
The DC-3/C-47 Turbo Express is an aircraft that meets the specific
requirements of several potential customers. Potential customers are primarily
foreign commercial operators for cargo and geological explorations and surveys.
Although there had been indicated demand for the Company's product, the Company
was unable to accept any orders without additional financing.
By September 30, 1984, the Company decided to cease operations until
additional financing for the marketing and production operations could be
obtained. The conversion of the second aircraft was not completed. During the
fiscal years ended September 30, 1985, 1986 and 1987, except for certain
marketing efforts and attempts to obtain additional capital, the Company was
inactive.
In April 1988, the Company executed an agreement with a company
specializing in aircraft conversions and with certain other parties. As a part
of the agreement, the Company granted for a two year period a license to the
aircraft converter company to use the Company's technology that is set forth in
the FAA Supplemental Type Certificate owned by the Company. Consideration for
the use of the license was $150,000 cash and future royalties of $10,000 for
each aircraft converted during the two year period. Also $30,000 was received in
cash as an advance against future royalties plus an additional $30,000 for
certain tangible assets.
Also as part of the agreement, a customer who held a promissory note
for $330,000 and had filed a lawsuit in July 1985 released all claims against
the Company. Consideration by the aircraft converter company to the customer was
$35,000 cash and future royalties not to exceed $265,000.
At September 30, 1989, management was informed by the licensee that the
licensee expected approximately 12 to 15 aircraft would be converted during the
royalty period. During the years ended September 30, 1990 and 1991, the Company
determined that $80,000 and $20,000, respectively of royalties had been earned
pursuant to the licensing agreement. The licensee had paid $30,000 of the
royalties in advance and the remaining $70,000 less an allowance of $5,700 was
receivable at September 30, 1991. The licensee of the Company's technology (as
defined below) did not pay the royalties due and did not return the technology
as required in the April 1988 agreement. In August, 1991, the Company demanded
that the licensee pay the royalties due and return the technology. The
definition of technology in the April 1988 agreement includes among other items,
drawings, all reports, vendor data including component drawings and
qualification reports, flight manuals, maintenance manual supplements and jigs
and tools. When the licensee did not return the technology as requested, the
Company obtained a portion of the technology that was held by certain vendors.
On September 4, 1991, the licensee filed a complaint against the
Company in Wisconsin state court alleging that the Company's Technology was not
used in the development of their conversion kit product. In their complaint they
requested a declaratory judgment that the licensee is the exclusive owner of the
conversion technology and denying the Company's entitlement to royalties.
6
<PAGE>
In February, 1992, the Company filed an answer to the licensee's
complaint along with counterclaims that requested judgments for damages, payment
of the royalties due and an immediate return of the Technology.
On September 23, 1993, the Company and the licensee agreed to a
settlement and dismissal of the litigation whereby the Company could retain the
Technology they had obtained from certain vendors and the licensee had no
obligation to return the remainder of the Technology. As an additional
inducement to settle the litigation certain shareholders of the licensee, agreed
to pay the Company $40,000 plus assume the obligation for legal fees related to
the litigation.
The Company invested over five years of effort and substantial capital
in developing the Turbo Express aircraft conversion and obtaining the FAA
Certification. The Company is aware of only one other entity in addition to the
licensee certified by the FAA to convert the DC-3/C-47 to turboprop power.
The Company has investigated methods of realizing its investment in the
plans and specifications. Possible methods to realize the Company's investment
in the plans and specifications include a new licensing agreement, sale of the
plans and specifications, acquisitions or by obtaining financing and successful
future development. At September 30, 1996, the Company was unable to identify
any proceeds to the Company from its investment in the plans and specifications.
Accordingly, a loss of $649,999, that represents the excess of the carrying
amount over the present value of identifiable net cash flow, has been included
in operations for the year ended September 30, 1996.
Real Estate Property Management
- -------------------------------
Hansen & Associates, Inc. dba Property Masters is a Phoenix, Arizona
residential real estate brokerage that specializes in management of single
family residential homes. In August 1997 the Company decided to discontinue this
line of business and sold the stock in Hansen & Associates Inc. to the president
of the subsidiary in a transaction that was effective on September 30, 1997,
with a resulting gain on the sale of $53,796.
EMPLOYEES
- ---------
On September 30, 1997, the Company, had 15 employees. Further, the
Company had approximately 175 independent contractor home based travel agents
and fifteen to twenty independent contractor instructors for the real estate
training school.
SPECIAL CONSIDERATIONS
- ----------------------
The following factors, in addition to those discussed elsewhere in this Report,
should be considered carefully in evaluating the Company and its business.
1. Lack of Profitable Operations. The Company experienced a net loss of
$(49,922) for the fiscal year ended September 30, 1997. Management expects
that the results of operations for the year ended September 30, 1998 will
be improved; however no assurance can be given that the Company will be
able to attain or maintain a profitable level of operations in the future,
or that it will not continue to incur operating losses.
2. Current Defaults on Existing Obligations. The Company currently is in
default on the payment of various convertible debentures in the outstanding
principal amount of $56,450. The Company also is in default on various
trust deed notes payable with respect to 35.66 acres of undeveloped land it
owns in Glenn County, California (the "California Land") in the amount of
$435,000, and the holder of the $100,000 second trust deed note payable has
filed a notice of default with respect to the non-
7
<PAGE>
payments on the related note. The Company is pursuing various alternatives
for realizing the value of the California land, including the possibility
of forming a Real Estate Investment Trust (REIT) to whom the undeveloped
land would be sold or contributed. If the Company is unable to pay the
balance due on the second trust deed note payable, then the Company may
lose the California Land in a foreclosure sale and would be liable for any
deficiency in the payment on the notes securing the land, which could be
substantial. The Company currently does not have the ability to pay any of
its defaulted debts and no assurance can be given that the Company will
have sufficient capital to pay such debts.
3. Risk Associated with Business Strategy. The Company intends to pursue a
strategy of growth primary though acquisitions of school and travel service
operations. Further, the Company intends to investigate potential mergers
or acquisitions in other lines of business, including recreational vehicle
park operations, in which the Company does not currently operate. There can
be no assurance that the Company, will be successful in acquiring existing
businesses on acceptable terms and conditions or that the businesses
acquired will be effectively and profitably managed and integrated into its
operations.
4. Need for Additional Financing. The Company will require additional
financing in the future. No assurance can be given that such additional
financing will be available to the Company on terms favorable to it if
additional financing is available at all.
5. Dependence Upon Current Management. The education, training and experience
of certain individuals engaged in the management and operation of the
Company are critical to the success of the Company. The loss of any of such
persons as an officer or employee of the Company could result in a
significant decrease in the Company's prospects for success, and there is
no assurance that such persons will continue to be associated with the
Company in the future. In addition, there is no assurance that should such
persons remain with the Company, the Company will become successful.
6. Absence of Liquid Public Market. The Company's Class B Common Stock is not
publicly traded. The Company's Class A Common Stock is traded on the Nasdaq
bulletin board on an extremely limited basis. As a result of the Company
having two classes of Common Stock and the extremely limited trading market
for the Company's Class A Common stock, trading in the Class A Common Stock
may be subject to substantial fluctuations. Moreover, in view of such a
limited market it may be extremely difficult for any owner of the Class A
Common Stock to sell shares without having an adverse effect on the market
price of the Common Stock. Further, the Company's Class A Common Stock is
not traded on the Nasdaq small capital market, and is unlikely that such
stock would be so traded in the foreseeable future. The Company's Class A
Common Stock constitutes "penny stock" under the rules and regulations of
the Securities and Exchange Commission, and such designation may have an
adverse effect on the market in the Company's Class A Common Stock. The
Company is exploring alternatives to simplifying its capital structure,
including the possibility of combining its two classes of Common Stock, and
any such actions may have an adverse effect on the market price of the
Class A Common Stock or the Class B Common Stock, or both.
7. Lack of Dividends. The Company intends to employ all available funds for
the development of its business and, accordingly, does not intend to
declare or pay cash dividends in the foreseeable future.
8. Dependency on Economic Conditions on the Adult Education and Travel Service
Business. The Company's line of business and the success of its planned
expansion is largely dependent on economic growth in its market area. At
present, adult education serves the real estate industry that is
experiencing significant growth. Real Estate education generally declines
when real estate activity declines. Travel services also generally follows
general economic trends. If the current economic activity slows, the
depressed economy could slow and possibly frustrate the Company's planned
expansion of its operations.
8
<PAGE>
9. Competition. The markets in which the Company sells its services and
products are highly competitive. The Company faces competition from larger
and better capitalized companies which are better able to withstand
operating losses and the effects of a cyclical market.
10. Liquidity. The Company had a negative working capital of $200,887 at
September 30, 1997. Obtaining positive working capital and the completion
of the Company's expansion of its operation is dependent on the successful
completion of the sale of or refinancing of the debt with respect to the
California land and formation of a Real Estate Investment Trust or other
alternative, renegotiation of certain current liabilities and obtaining
other long-term financing.
11. Cautionary Statement Regarding Forward-Looking Information. Certain
statements and other information contained herein concerning future,
proposed, and intended activities of the Company or other matters that are
not historical facts are forward-looking statements (as defined in the
Securities Act). When used herein, the words "believe" , "expect",
"anticipate", "estimate", and similar expressions are intended to identify
forward-looking statements that are subject to certain risks,
uncertainties, and assumptions. Should one or more of these risks or
uncertainties materialize or should underlying assumptions prove incorrect,
actual results may vary materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to
differ materially include those, among others, discussed under "Special
Considerations."
Item 2. Properties
----------
The Company maintains its corporate offices within the Western / Ford
campus at 3121 East Greenway Rd., Suite #201, Phoenix, Arizona 85032.
Western / Ford maintains two campuses. The West campus is located at
4425 West Olive, Suite #128 in Glendale, Arizona. The campus has three
classrooms and office space and is leased pursuant to a three year lease
expiring in May 1998. The lease rental is paid at $2,182. per month for eleven
months each year with no rental paid in December of each year.
The Northeast campus is located at 3121 East Greenway Road, Suite #201
in Phoenix, Arizona. The campus has three classrooms and office space and is
leased pursuant to a five year lease expiring July 31, 2001. The monthly rent is
$1,689 plus common area charges that approximate $585 per month. The base rent
per month increases each annual period as follows:
Year 2 $1,948
Year 3 $2,208
Year 4 $2,274
Year 5 $2,343
FirsTravel maintains its office at 4700 North Central Avenue, Suite 205
in Phoenix, Arizona. The office space is leased pursuant to a two year lease
expiring on December 31, 1999 the monthly rent is $333.
Item 3. Legal Proceedings
-----------------
At December 31, 1997, there were no material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
There were no matters submitted to a vote of Security holders during
the quarter ended September 30, 1997.
9
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
The Company's Class B common stock is not publicly traded. The
Company's Class A common stock has traded in the over-the-counter market. At
September 30, 1997 and for the eight prior quarters, no significant market has
existed for the Class A common stock; however, a diminutive number of shares
have traded during the last eight quarters at a low of $.01 and a high of $.15.
The symbol for the Class A shares on the NASDAQ bulletin board is UAIRA.
As of September 30, 1997, the number of holders of the Company's Class
A common stock was approximately 850. This number is based upon the number of
record holders of the Company's Class A common stock. At the same date, the
number of holders of the Company's Class B common stock was 41.
The Company has paid no dividends in its history and does not plan to
pay any dividends in the immediate future. The Certificate of Incorporation of
the Company provides that holders of Class B common stock are not entitled to
receive any dividends thereon until dividends aggregating $0.50 per share shall
have been declared and paid on Class A common stock; thereafter, both classes of
common stock shall share ratably in the dividends.
10
<PAGE>
Item 6. Selected Financial Data
-----------------------
The following table summarizes certain selected financial data of the
Company, which are qualified in their entirety by the more detailed financial
statements included herein.
For The Year Ended September 30,
--------------------------------
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets $ 806,943 $ 802,690 $ 803,169 $ 278,669 $ 1,066,159
----------- ----------- ----------- ----------- -----------
Total Liabilities $ 581,473 $ 622,161 $ 220,008 $ 240,992 $ 941,404
----------- ----------- ----------- ----------- -----------
Shareholders'
Investment $ 225,470 $ 180,529 $ 583,161 $ 37,677 $ 124,755
----------- ----------- ----------- ----------- -----------
STATEMENT OF OPERATIONS DATA:
Revenues $ 93,171 $ 110,480 $ 193,640 $ 386,173 $ 1,222,243
----------- ----------- ----------- ----------- -----------
Income (loss) before
interest expense, dep
and amortization $ 19,476 $ 7,011 $ 48,509 $ 33,604 $ (66,770)
----------- ----------- ----------- ----------- -----------
Depreciation and
Amortization $ 14,795 $ 9,629 $ 7,729 $ 15,281 $ 26,412
----------- ----------- ----------- ----------- -----------
Interest Expense $ 38,608 $ 37,950 $ 9,819 $ 12,979 $ 14,933
----------- ----------- ----------- ----------- -----------
(Loss) from Write Off
of Plans and Spec $ (649,999)
-----------
Income (loss) from
Discontinued Operations $ 5,063 $ (4,373) $ (2,356) $ 11,671 $ 58,193(1)
----------- ----------- ----------- ----------- -----------
Net Income (loss) $ (28,864) $ (44,941) $ 28,605 $ (632,984) $ (49,922)
----------- ----------- ----------- ----------- -----------
PER SHARE DATA:
Net Income
(loss) $ (.00) $ (.01) $ .00 $ (.06) $ .00
----------- ----------- ----------- ----------- -----------
</TABLE>
The four years ended September 30, 1996 have been restated to reflect Hansen &
Associates, Inc. dba Property Masters as a discontinued operation.
(1) Includes the $53,796 gain on the sale of Hansen and Associates, Inc. dba
Property Masters.
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Results of Operations
- ---------------------
Comparison 1997 to 1996
The loss before interest, depreciation and amortization expense
increased by $100,374. The increased loss consists of the following:
Reduction in Real Estate Education 1997
operating income over 1996 $ 22,820.
Operating loss from
travel agency operation
during the three months from
acquisition on July 1, 1997 $ 16,033.
Increase in general
corporate overhead $ 28,125.
Decrease in other revenue $ 33,396.
The operating income from the adult education division declined by $22,820. The
decline was due to an $115,742 increase in operating costs offset by a $92,922
increase in revenues. The revenue increase is the result of additional
enrollment including those at the new East campus, and due to a $18,035 increase
in advertising revenue related to the publication of the Renewal News. The
operating cost increase consists of an $58,679 increase in personnel expense,
$34,633 increase in facility costs and $22,430 increase in other operating costs
all of which increased primarily due to the opening of the East campus in August
1996.
The travel services operation was started on July 1, 1997 with the purchase of
an existing travel agency and the operating results are included from the
acquisition date through September 30, 1997 with no comparable amounts for
fiscal 1996 as follows:
Amount
------
Sales $ 776,544
---------
Cost of sales $ 699,699
---------
Gross Profit
operating costs 76,875
Personal Expense 48,553
Facility cost 2,534
Other Operating costs 41,821
------
Total operating costs 92,908
------
Income (loss) before interest
depreciation and amortization (16,033)
-------
General corporate overhead increased by $28,125 primarily due to management
compensation increases of $16,108 and an increase of legal and accounting fees
of $6,884.
Other revenue declined by $33,396 primarily due to revenue in fiscal 1996 of
$30,000 related to a reduction of certain accrued obligations with no comparable
amount in 1997.
12
<PAGE>
Depreciation and amortization increased by $11,131 primarily due to equipment
and business acquisitions. Interest increased by $1,953.
On September 30, 1997 the company sold its wholly-owned subsidiary Hansen and
Associates, Inc. dba Property Masters after determining to discontinue its real
estate brokerage and property management line of business, The financial
statements have been restated to reflect the operations of the subsidiary as a
discontinued operation reflecting a 1997 operating profit of $4,397 compared to
$11,671 in 1996. The sale of Hansen and Associates, Inc. dba Property Masters
resulted in a gain of $53,796 in 1997 with no comparable amount in 1996.
Comparison 1996 to 1995
The income before interest, depreciation and amortization expense and
the write off of assets not in use decreased by $14,905. This decrease was due
to the $192,533 increase in revenue and offset by the $207,438 increase in
operating expense. The revenue increase included a $201,307 increase in real
estate education revenue resulting primarily from additional student enrollments
as a result of the January 1, 1996 acquisition of Western College, Inc. Other
revenue, consisting of financial consulting fees and a $30,000 adjustment of a
long-term debt accrual recorded in prior periods, declined by $8,774.
The $207,438 increase in operating expense included increases of
$145,683 in personnel expenses, $16,297 in facility costs, and $47,767 in
general and administrative expenses; and a decrease of $2,309 in other operating
costs. The $145,683 increase in personnel expense consists of $125,749 related
to the real estate education operation due to the increased enrollments and
class offerings plus increased compensation for management of the education
operation related to the planned expansion. The $47,767 increase in general and
administrative expense includes an increase in personnel expenses for general
corporate activities of $14,659 and a $26,844 increase in professional fees.
Interest expense increased by $3,908 and depreciation and amortization
increased by $7,552.
The Company recorded a loss of $649,999 in 1996 with no comparable
amount in 1995 from the write down of the plans and specifications to $1 because
the Company could not identify any cash flow from its investment in the plans
and specifications.
The 1996 and 1995 statement of operations have been restated to reflect
the operations of Hansen and Associates, Inc. dba Property Masters as
discontinued operation with an operating income of $11,671 in 1996 compared to
an operating loss of $2,356 in 1995.
For additional information, reference is made to Item 1 Business and
Notes 2 and 3 of the financial statements included in Item 8, Financial
Statements and Supplementary Data.
13
<PAGE>
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
The working capital deficit increased $64,024 from 1996 to $200,887.
Current assets increased by $47,376 from 1996 to $119,538. The increase consists
of a $10,290 increase in cash, a $14,477 increase in accounts receivable,
primarily due to the acquisition of the travel agencies, an $8,000 increase in
Notes receivable related to the sale of Hansen & Associates Inc. dba Property
Masters and a $14,609 increase in prepaid expenses primarily related to the
travel agency acquisitions.
Current liabilities increased $111,400 from 1996 to $320.425. The
increase consists of a $3,362 decrease in the current portion of long-term debt,
a $8,879 increase related to the accrued interest on the debentures, a 63,839
increase in accounts payable and a $32,052 increase in accrued expenses both of
which were related the acquisition of the travel agencies. Unearned tuition
increased by $9,992 due to the increased enrollments.
Advances to officer made pursuant to the officer's compensation program
decreased by $2,815. The long term note receivable of $52,044 all relate to the
sale of Hansen and Associates Inc. Property and equipment decreased by $1,350 as
a result of equipment acquisitions of $7,581 offset by depreciation of $8,931.
Goodwill increased by $9,030 with a $20,000 addition due to the Western College,
Inc. acquisition offset by amortization for 1997 and the elimination of the net
goodwill of $6,756 related to Hansen and Associates Inc. due to its sale. Course
materials decreased by $1,965 due to the amortization recorded for 1997. Other
assets increased by $3,069.
In February 1997, the Company acquired 35.66 acres of undeveloped land
in Glenn County, California which is recorded for financial reporting purposes
at $577,327. The land has been pledged as collateral for three trust deed notes
payable totaling $601,000. The Company is planning the formation of a Real
Estate Investment Trust (REIT) or other alternative to whom the undeveloped land
would be sold or contributed. Interest payments on the second and third trust
deed notes payable are delinquent and the holder of the second trust deed Note
payable filed a notice of default on March 30, 1998. If the REIT or other
alternative is not formed with the resulting sale or contribution of the land,
the Company will be required to take other steps to sell the land which could be
at a sales price that would be less than the trust deed notes payable.
The July and August purchase price of the travel agencies exceeded the
indentifiable tangible assets of the agencies by $110,288 and relates primarily
to the value of the income production of the approximately 175 Home Based Travel
Agents who place their travel sales through FirsTravel . The original cost has
been reduced by amortization of $5,514.
Long-term debt decreased by $11,988 due to payments of $15,350 less the $3,362
decrease in the current portion. The convertible debentures of $56,450 plus the
related accrued interest are classified as current liabilities as they were due
on December 31, 1996. Currently, the debentures remain unpaid and the Company
believes that they will eventually be retired through conversion to the
Company's Class A common stock, although no assurance that such a conversion
will be elected by the debenture holders.
The Company's management has continued its program to expand the
services operations through further expansion of its existing operations plus
the acquisition of other service organizations. Working capital continues to
limit the expansion of the Company although the Company in February 1997
acquired 35.66 acres of undeveloped land for 250,000 Class A shares of its
common stock plus approximately $500,000 of trust deed notes payable. The
Company intends to plan the development of the parcel and has used the land as
collateral for a $100,000 loan to provide an interim resolution to the working
capital deficiency. Further, in March 1998 the Company obtained a one year bank
revolving line of credit in the amount of $30,000. Additionally, the Company is
14
<PAGE>
aggressively investigating acquisitions of adult education, travel services or
other operations that are compatible with the existing operations and that can
be acquired for the Company's common stock or with debt that is retired from the
cash flow from the acquired operation. Further, the Company plans to complete a
private placement aggregating approximately $150,000 to provide working capital,
fund the acquisitions and retire a portion of the long-term debt. No assurance
can be given the acquisitions will be completed or the private placement will be
successful.
Item 8. Financial Statements and Supplemental Data
------------------------------------------
Reference is made to the financial statements, the report thereon, the
notes thereto, and the supplement data commencing at page F-1 of this report,
which financial statements, report, notes and data incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
-----------------------------------------------------------------------
Financial Disclosure.
--------------------
There were no changes in or disagreements with accountants on
accounting and financial disclosure.
15
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The following table sets forth certain information regarding the
Company's directors and executive officers as of September 30, 1997.
NAME AGE POSITIONS SERVED SINCE
- ---- --- --------- ------------
Harry V. Eastlick 58 President, Chief October 6, 1988
Executive Officer
and Director
Donald E. Cline 71 Secretary November 16, 1989
and Director
Dale L. Dykema 67 Director November 16, 1989
Whipple Manning 61 Director April 22, 1997
John R. Thomas 65 Director November 16, 1989
All directors serve until the next annual meeting of stockholders and until
their successors are elected and qualified. All officers serve until the next
annual meeting of the Board of Directors and until their successors are elected
and qualified.
Harry V. Eastlick, a certified public accountant, has served as
Chairman of the Board, President and Chief Executive Officer of the Company
since October 6, 1988.
Donald E. Cline has served as a business consultant since March 1991
and as the Director of the State of Arizona Department of Commerce from February
1990 to March 1991. Mr. Cline had served as Chairman of the Board and Chief
Executive Officer of First National Utilities, Inc., an Arizona based water
utility holding company, from September 1987 to February 1990. Prior thereto,
Mr. Cline served as Vice President and Chief Executive Officer of the Arizona
operations of Mountain Bell, now known as US West. He retired from Mountain Bell
after 37 years of employment.
Dale L. Dykema has been Chairman of the Board and Chief Executive
Officer of TD Service Financial Corporation since its formation in 1985. Prior
thereto, Mr. Dykema held similar positions with TD Service Company, since its
organization by Mr. Dykema in 1964. Both corporations are California based
companies that provide trust deed foreclosure services to financial institutions
and other holders of trust deeds in California and Arizona.
Whipple H. Manning has been an independent real estate consultant since
January 1989. From 1983 through 1988 Mr. Manning served as Executive Vice
president of Coast Savings and Loan in charge of the Commercial/Industrial Real
Estate Loan Division. From 1978 to 1983, Mr. Manning was the senior Vice
President of California Federal Savings and Loan in charge of the Income
Property Division. Prior thereto, Mr. Manning spent seventeen years in
commercial real estate lending with Pacific Mutual Life Insurance.
John R. Thomas, a certified public accountant, has served as a business
consultant since 1993. From September 1990 to December 1993 he served as the
Chairman of the Board of Directors of G.T. Products, Inc. a manufacturer of
flashlight products and from September 1987 to September 1990, he served as
Executive Vice President, Chief Operating Officer, and Chief Financial Officer
of T.G. Environmental, Inc., a California based construction firm that
specialized in environmental projects. Prior thereto, for a period of twenty-six
years, Mr. Thomas was with the national accounting firm of Coopers and Lybrand
where he served as a partner for the last sixteen years.
16
<PAGE>
The Company indemnifies its officers and directors pursuant to its
Certificate of Incorporation.
Item 11. EXECUTIVE COMPENSATION
----------------------
The following table sets forth information concerning the three most
highly compensated officers of the Company. No officer received a cash salary
and bonus that exceeded $100,000 during the year ended September 30, 1997.
Summary Compensation Table
Annual Compensation
-------------------
Name and Fiscal Salary(3) Bonus Other
-------- ------ --------- ----- -----
Principal Position Year
- ------------------ ----
Harry V.Eastlick, Chairman 1997 $51,000
of the Board, President & 1996 $36,000
of the Board, President & 1996 $36,000
Chief Executive Officer(1) 1995 $21,000
Andrew Israel, President 1997 $60,000
of the Real Estate training 1996 $42,238
subsidiary (2) 1995 $ -
Stuart Israel, Vice 1997 $60,000
President of the real estate 1996 $42,238
training subsidiary(2) 1995 $ -
(1) On April 22, 1997, The Company approved an employment agreement for Mr.
Harry V. Eastlick. The term of the agreement is for the thirty-seven months
ending December 31, 2002 and automatically renews for a one year period
thereafter. The agreement provides for a base compensation of $100,000; however
the annual compensation can be more or less than the contracted base
compensation as determined by the Board of Directors. The employment agreement
also provides that Mr. Eastlick can take advances against his base salary and at
September 30, 1997 he has received advances in excess of his estimated
compensation of $27,769. As part of the annual compensation payment, 200,000
Class A shares were issued to Mr. Eastlick in 1996 and 1997. In the event Mr.
Eastlick is terminated without cause, or terminates his employment under certain
circumstances, the Company may be obligated to pay him 75% of his base
compensation through the end of the term of employment.
(2) In connection with the acquisition of Western College, Inc., the Company
approved five year employment contracts with Andrew and Stuart Israel with
options to renew for an additional five year period. The contracts provide for
Messrs. Israel to serve as executive officers of the real estate training
operations and to each receive a base salary of $70,000 per year plus incentive
compensation with a minimum monthly payment of $5,000 each. In the event Messrs.
Israel are terminated without cause, or either terminates their employment under
certain circumstances, the Company may be obligated to pay the 75% of their base
compensation through the end of the term of employment.
(3) Represents amounts paid or accrued.
The four non-employee directors of the Company were each issued 50,000
Class A shares of common stock in payment for their services as directors.
17
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The following table sets forth, as of September 30, 1997, information
as to ownership of the Company's outstanding securities by certain beneficial
owners and management.
<TABLE>
<CAPTION>
Shares of Common Stock (Class A and B)
Beneficially Owned
--------------------------------------
Number Percent
of Shares of Total
--------- --------
<S> <C> <C>
Harry V. Eastlick, Chairman
of the Board and President
Class B Shares 2,600,000 {1}
Class A Shares 588,708 {2}
---------
Total Shares 3,188,708 25.3%
Andrew Israel, President and
Chief Executive Officer of
Real Estate Training
Class A Shares 600,000 {4} 4.7%
Stuart Israel, Executive Vice-president
and Chief Operating Officer
of Real Estate Training
Class A Shares 600,000 {4} 4.7%
Donald E. Cline, Secretary
and Director
Class B Shares 50,000
Class A Shares 100,000
---------
150,000 {3} 1.2%
Dale L. Dykema, Director
Class B Shares 50,000
Class A Shares 114,700
164,700 {3} 1.3%
Whipple H. Manning, Director
Class B Shares 50,000
Class A Shares 50,000
---------
100,000 .8%
John R. Thomas, Director
Class B Shares 50,000
Class A Shares 100,000
---------
150,000 {3} 1.2%
All Officers and Directors
as a group (6 persons) 4,953,408 39.2%
</TABLE>
{1} Mr. Harry V. Eastlick and Mr. Jeffrey B. Roth each acquired 125,000 Class B
common shares on December 15, 1988 and received irrevocable proxies for a
total of 2,475,000 shares held in escrow by the Security Pacific Bank. Upon
approval by the Arizona Corporation Commission, it was expected that the
shares held in escrow will be transferred in equal number to Messrs.
Eastlick and Roth. Due to the resignation of Mr. Roth his interest in the
shares held in escrow by the Security Pacific Bank (now Bank of America)
have been transferred to Mr. Harry V. Eastlick.
{2} Includes 188,708 shares owned by Diversified Professionals, Inc., an
Arizona Corporation controlled by Harry V. Eastlick and 200,000 shares
authorized to be issued to Mr. Eastlick on April 22,1997
{3} The shares are held directly and the owners thereof possess sole voting and
sole investment power.
18
<PAGE>
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
There were no relationships or related transactions during the year
ended September 30, 1997 that require disclosure.
Item 14. Exhibits, Financial Statement, Schedules and Reports on Form 8-K
----------------------------------------------------------------
(a) The following documents are filed as a part of this report:
1. Financial statements included in Item 8
a. Report of Independent Certified Public Accountant.
b. Balance sheets as of September 30, 1997 and 1996.
c. Statements of operations for each of the three years in the
period ended September 30, 1997.
d. Statements of shareholders' equity for each of the three years
in the period ended September 30, 1997.
e. Statements of cash flows for each of the three years in the
period ended September 30, 1997.
f. Notes to the Financial Statements.
2. All supporting schedules are omitted because they are not
applicable, not required or the information required to be set forth
therein is included in the financial statements or in the notes
thereto.
3. Exhibits
a. 3 Certificate of Incorporation and Bylaws Exhibits 3.1 and
3.2
b. 10.1 Agreement between the shareholders of Western College,
Inc. and United States Aircraft Corporation dated Inc.
and United States Aircraft Corporation dated January 29,
1996.
c. 10.2 Employment Agreement between Harry V. Eastlick and
United States Aircraft Corporation dated April 22, 1997.
d. 10.3 Employment Agreement between Andrew Israel and United
States Aircraft Corporation dated December 31, 1995.
e. 10.4 Employment Agreement between Stuart Israel and United
States Aircraft Corporation dated December 31, 1995.
f. 22 Subsidiaries of Registrant
g. 27 Financial Data Schedule
Exhibit a. is incorporated by reference to the September 30, 1984 Form 10-K and
Exhibits b through e are incorporated by reference to the September 30, 1996
Form 10-K.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
UNITED STATES AIRCRAFT CORPORATION
Date: May 15, 1998 By: /s/ Harry V. Eastlick
------------------------------------------
Harry V. Eastlick
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: May 15, 1998 /s/ Harry V. Eastlick
------------------------------------------
Harry V. Eastlick, Chief Executive
and Financial Officer and a Director
Date: May 15, 1998 /s/ Donald E. Cline
------------------------------------------
Donald E. Cline
Director
Date: May 15, 1998 /s/ Dale L. Dykema
------------------------------------------
Dale L. Dykema
Director
Date: May 15, 1998 /s/ Whipple H. Manning
------------------------------------------
Whipple H. Manning
Director
Date: May 15, 1998 /s/ John R. Thomas
------------------------------------------
John R. Thomas
Director
20
<PAGE>
INDEX TO EXHIBITS
Page No.
--------
3.1 Certificate of Incorporation of the Company as
currently in effect. See Below
3.2 Bylaws of the Company as currently in effect. See Below
10.1 Agreement between the shareholders of Western
College, Inc. and United States Aircraft Corporation
dated January 29, 1996. See Below
10.2 Employment Agreement between Harry V. Eastlick
and United States Aircraft Corporation dated April 22, 1997 See Below
10.3 Employment Agreement between Andrew Israel and
United States Aircraft Corporation dated December 31, 1995. See Below
10.4 Employment Agreement between Stuart Israel and
United States Aircraft Corporation dated December 31, 1995 See Below
22 Subsidiaries of Registrant 22
27 Financial Data Schedule 27
Exhibits 3.1 and 3.2 are incorporated by reference to the September 30, 1984
Form 10-K and Exhibits 10.1 through 10.4 are incorporated by reference to the
September 30, 1996 Form 10-K.
21
<PAGE>
UNITED STATES AIRCRAFT CORPORATION
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountant. F-2
Balance sheets as of September 30, 1997 and 1996. F-3
Statements of operations for each of the three years in the period
ended September 30, 1997. F-5
Statements of shareholders' equity for each of the three years in the
period ended September 30, 1997. F-6
Statements of cash flows for each of the three years in the period
ended September 30, 1997. F-7
Notes to the Financial Statements. F-8
F-1
<PAGE>
Independent Auditor's Report
----------------------------
The Stockholders and Board of Directors
United States Aircraft Corporation
I have audited the accompanying consolidated balance sheets of United States
Aircraft Corporation, and subsidiaries as of September 30, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three year period ended September 30,
1997. These consolidated financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
consolidated financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining on a test basis evidence
supporting the amounts and disclosure in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. I believe that my audits provide a reasonable basis for
my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of United
States Aircraft Corporation, and subsidiaries as of September 30, 1997, and the
results of their operations and their cash flows for each of the years in the
three year period ended September 30, 1997, in conformity with generally
accepted accounting principles.
ROBERT MARTIN
Mesa, Arizona
March 19, 1998
F-2
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and 1996
Assets
1997 1996
---------- ----------
Current assets
Cash $ 20,427 $ 10,137
Accounts receivable, less
allowance for doubtful accounts
of $7,500 (1997) 69,311 54,834
Notes receivable 8,000
Prepaid expenses 21,800 7,191
---------- ----------
Total current assets 119,538 72,162
Advance to officer 27,769 30,584
Notes receivable, net of current
portion 52,044
Land held for future development 577,327
Property and equipment, net of
accumulated depreciation of
$65,962 (1997) and $57,031 (1996) 57,154 58,504
Goodwill, net of accumulated
amortization of $22,428 (1997) and
$33,977 (1996) 87,308 78,278
Agency acquisitions, net of
accumulated amortization of
$5,514 (1997) 104,774
Course materials 15,718 17,683
Other 24,527 21,458
---------- ----------
$1,066,159 $ 278,669
---------- ----------
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and 1996
Liabilities and Stockholders' Equity
1997 1996
----------- -----------
Current liabilities
Current portion of long term debt $ 37,775 $ 41,137
Convertible debentures and
related accrued interest 82,938 74,059
Accounts payable 86,159 22,320
Accrued expenses 68,263 36,211
Unearned tuition 45,290 35,298
----------- -----------
Total current liabilities 320,425 209,025
Long term debt, net of
current portion 19,979 31,967
Trust deed notes payable 601,000
Commitments
Stockholders' equity
Capital Stock
Class A: $.50 par value
10,000,000 shares authorized,
7,652,504 (1997) and
6,282,504 (1996) shares
issued and outstanding 3,826,252 3,141,252
Class B: $.001 par value,
5,000,000 shares authorized
4,962,801 shares issued and
outstanding 4,963 4,963
Paid-in-capital (deficit) (751,827) (203,827)
Accumulated (deficit) (2,954,633) (2,904,711)
----------- -----------
124,755 37,677
----------- -----------
$ 1,066,159 $ 278,669
----------- -----------
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Consolidated Statement of Operations
For the Three Years Ended
September 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenue
Real estate education $ 436,710 $ 343,788 $ 142,481
Travel agency 776,544
Other 8,989 42,385 51,159
------------ ------------ ------------
Total revenue 1,222,243 386,173 193,640
Operating costs and expenses
Cost of sales - travel agency 699,669
Personnel expenses 292,437 183,700 46,887
Facility cost 57,192 22,025 5,728
Other operating costs 129,076 64,330 57,769
General and administrative 110,639 82,514 34,747
Interest 14,933 12,979 9,819
Depreciation and amortization 26,412 15,281 7,729
------------ ------------ ------------
1,330,358 380,829 162,679
------------ ------------ ------------
Income (loss) from operations (108,115) 5,344 30,961
Other expense
Loss from write off of plans and
specifications 649,999
------------ ------------ ------------
Income (loss) from continuing
operations (108,115) (644,655) 30,961
Discontinued operations
Income of Hansen & Associates, Inc.
dba Property Masters 4,397 11,671 (2,356)
Gain on disposal of Hansen &
Associates, Inc. dba Property
Masters 53,796
------------ ------------ ------------
Net income (loss) $ (49,922) $ (632,984) $ 28,605
------------ ------------ ------------
Net income (loss) per share from
continuing operations $ (.01) $ (.06) $ -
Net income (loss) per share from
discontinued operations .01
------------ ------------ ------------
Net income (loss) per share $ - $ (.06) $ -
------------ ------------ ------------
Weighted number of shares
outstanding 11,391,138 10,808,846 9,870,305
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Three Years Ended
September 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Capital Stock
-------------
Paid-in
Number Number Capital
of Shares Amount of Shares Amount (Deficit) (Deficit)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 4,159,450 $ 2,078,725 4,962,801 $ 4,963 $ 396,173 $(12,300,332)
Year ended September 30, 1995
Shares issued in payment
of debt 748,054 374,027
Net income 28,605
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1995 4,907,504 $ 2,453,752 4,962,801 $ 4,963 $ 396,173 $ (2,271,727)
Year ended September 30, 1996
Shares issued in acquisition
of Western College, Inc. 1,000,000 500,000 (450,000)
Shares issued in payment for
services rendered 375,000 187,500 (150,000)
Net (loss) (632,984)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1996 6,282,504 $ 3,141,252 4,962,801 $ 4,963 $ (203,827) $ (2,904,711)
Shares issued in acquisition of
Western College, Inc. 200,000 100,000 (80,000)
Shares issued in travel agency
operations acquisition 500,000 250,000 (200,000)
Shares issued in acquisition of
land held for future development 250,000 125,000 (100,000)
Shares issued in payment for
services rendered 420,000 210,000 (168,000)
Net (loss) (49,922)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1997 7,652,504 $ 3,826,252 4,962,801 $ 4,963 $ (751,827) $ (2,954,633)
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
UNITED STATES AIRCRAFT CORPORATION
Consolidated Statements of Cash Flows
For the Three Years Ended
September 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income, (loss) $ (49,922) $(632,984) $ 28,605
Adjustments to reconcile net
income, (loss) to cash provided
by (used in) operating activities
(Income) loss from discontinued operations (4,397) (11,671) 2,356
Depreciation 10,788 8,792 3,250
Amortization 15,624 8,079 4,735
Allowance for doubtful accounts 7,500
Gain on disposal of operations (53,796)
Class A Shares issued in payment
for services rendered 42,000 37,500
Gain from write off of long term debt (30,000)
Gain from write off of accruals (50,574)
Loss from write off of plans
and specifications 649,999
Change in assets and liabilities
net of effects from acquisition
Accounts receivable (21,977) (31,661) 16,469
Other (3,069) (15,466)
Prepaid expenses (14,609) (5,939) (361)
Accounts payable 63,839 6,338 (7,423)
Accrued expenses 32,052 (14,678) 1,109
Unearned tuition 9,992 20,240 5,524
--------- --------- ---------
Net cash provided by (used in)
operating activities of continuing operations 34,025 (11,451) 3,690
Net cash provided by (used in) discontinued
operations 2,917 (589)
--------- --------- ---------
Net cash provided by (used in) operating
activities 34,025 (8,534) 3,101
Cash flows from investing activities
Changes in advance to officer 2,815 (4,399) 2,064
Increase in notes receivable (60,044)
Cash provided from acquisition of
Western College, Inc. 4,145
Addition to land for future development (577,327)
Proceeds from disposition of operations 60,044
Additions to intangible assets, net (131,172)
Additions to property and equipment (7,580) (8,826) (26,959)
--------- --------- ---------
Net cash (used in) investing activities (713,264) (9,080) (24,895)
Cash flows from financing activities
Increase in convertible debentures
and related accrued interest 8,879 17,609
Increase in trust deed notes payable 601,000
Class A shares issued for acquisitions 95,000
Proceeds from long term debt 36,822 49,354
Decrease in long term debt (15,350) (32,339) (23,691)
--------- --------- ---------
Net cash provided by financing activities 689,529 22,092 25,663
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 10,290 4,478 3,869
Cash, beginning of year 10,137 5,659 1,790
--------- --------- ---------
Cash, end of year $ 20,427 $ 10,137 $ 5,659
--------- --------- ---------
</TABLE>
The accompanying note are an integral part of these financial statements.
F-7
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of significant accounting policies
- ---------------------------------------------------
Nature of organization
- ----------------------
Unites States Aircraft Corporation (Company) was incorporated in Delaware on
October 6, 1978, and commenced operations in April, 1980. The Company, operating
solely in Arizona provides real estate educational services through its wholly
owned subsidiaries Western College, Inc. and Ford Schools, Inc. Travel agency
services are provided through its wholly owned operating division FirsTravel.
Principles of consolidation
- ---------------------------
The consolidated financial statements include the accounts of United States
Aircraft Corporation and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Recognition of revenue
- ----------------------
Real estate education services tuition fees are generally paid in advance and
recorded as unearned tuition. Tuition revenue is recognized when students attend
classes. Travel agency revenues are recognized at the time of booking travel
arrangements.
Included in revenue during the year ended September 30, 1996, is $30,000 related
to the reduction of certain accrued obligations recorded in prior years.
Industry segments
- -----------------
During 1997, approximately 44% of the Company's travel agency revenue was
received from the airline industry. In 1997, the major airlines reduced their
commission rate from ten percent to eight percent, and set a maximum amount paid
on certain commissions. The company subsequently adopted a policy of charging a
service fee for airline tickets issued, and will continue to promote other forms
of leisure travel, such as tours and cruises, where the commissions are
generally higher. However, any adverse change in the airline industry could have
a material effect on the future operations of the Company.
Accounts receivable
- -------------------
The Company uses the reserve method of accounting for doubtful accounts. At
September 30, 1996, all accounts receivable were considered fully collectible.
F-8
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial statements (continued)
Note 1 - Summary of significant accounting policies (continued)
- ---------------------------------------------------------------
Income taxes
- ------------
Deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been included in the financial statements or
income tax returns. Deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Investment tax credits are recognized as a reduction of the provision for income
taxes using the flow-through method to the extent realization is assured.
Property and equipment
- ----------------------
Property and equipment consists of office furniture and equipment, and is
depreciated using the straight line method over their estimated useful lives
ranging from five to ten years.
Allowance for doubtful accounts
- -------------------------------
The allowance for doubtful accounts represents an amount which, in managements
judgement, will be adequate to absorb probable losses on existing accounts
receivable that may become uncollectible.
Plans and specifications
- ------------------------
The Company owns plans and specifications for the turbo-prop engine conversion
for the DC-3/C-47 aircraft, and has investigated methods of realizing this
investment. Possible methods to realize the Company's investment in the plans
and specifications include a new licensing agreement, sale of the plans and
specifications, acquisition or by obtaining financing and successful future
development. As of September 30, 1997, the Company was unable to identify any
cash flows from its investment in the plans and specifications. Accordingly, an
impairment loss of $649,999, that represents the excess of the carrying amount
over the present value of the identifiable net cash flow, has been included in
operations for the year ended September 30, 1996.
Goodwill
- --------
Goodwill results from acquisitions of subsidiaries in which the acquisition cost
exceeded the book value of the net assets acquired. Goodwill is being amortized
using the straight line method over 25 years.
F-9
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 1 - Summary of significant accounting policies (continued)
- ---------------------------------------------------------------
Agency acquisitions
- -------------------
Agency acquisitions result from acquiring travel agency operations and assets in
which the acquisition cost exceeded the book value of net assets acquired and
represent the travel agency's base of customers and home-based travel agents.
Agency acquisitions are being amortized using the straight line method over five
years.
Course materials
- ----------------
Course materials represent the initial cost of the Principles of Real Estate
textbook. The textbook is updated annually and the annual costs are expensed as
incurred. Due to the acquisition of Western College, Inc. and the resulting
change in the use of the textbook, the Company is amortizing the initial cost
over a ten year period.
Net income (loss) per share
- ---------------------------
Net income (loss) per share amounts are based upon the average number of shares
outstanding. The effect of debentures convertible into Class A common stock on
the net income (loss) per share calculations are antidilutive and therefore, are
not included in the earnings per share calculations.
Advertising
- -----------
The Company expenses advertising coats when the advertisment occurs. Total
advertising expenses amounted to $11,308, $8,045 and $ 627 in 1997, 1996 and
1995, respectively. There were not any capitalized advertising costs for the
periods presented..
Use of estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassification
- ----------------
Certain items included in prior years' financial statements have been
reclassified to conform to the current year financial statement classification.
F-10
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 2 - Income taxes
- ---------------------
At September 30, 1997, the Company had the following net operating loss and
credit carryovers for income tax purposes:
Taxable Year of Net
Year Expiration Operating Loss
---- ---------- --------------
1983 1998 $369,000
1984 1999 886,000
1985 2000 197,000
1986 2001 116,000
1987 2002 35,000
1989 2004 190,000
1990 2005 110,000
1991 2006 56,000
1993 2008 23,000
1994 2009 39,000
1996 2011 556,000
1997 2012 77,000
The income tax effect of the net operating loss carryforward gives rise to a
deferred income tax asset as follows:
1997 1996
---- ----
Net operating loss carryforwards $ 2,654,000 $ 2,807,000
----------- -----------
Gross deferred tax assets $ 1,327,000 $ 1,403,500
Deferred tax asset valuation allowance 1,327,000 (1,403,500)
----------- -----------
Net deferred tax asset $ -- $ --
----------- -----------
The gross deferred tax deferred tax asset is reduced by a valuation allowance
based in management's estimate that it is more likely than not that the tax
benefits will not be realized. The decrease in the valuation allowance during
the year ended September 30, 1997, is $76,500.
Note 3 - Advances to officer
- ----------------------------
Advances to officer represent non-interest bearing advances with no stated terms
of repayment.
F-11
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to consolidated Financial Statements (continued)
Note 4 - Notes receivable
- -------------------------
The Company has notes receivable from an individual resulting from the sale of
Hansen & Associates, Inc. dba Property Masters. The notes are due in varying
monthly installments, including interest at 7.5 % through September, 2009.
Note 5 - Acquisitions
- ---------------------
Effective January 1, 1996 the Company acquired all of the outstanding shares of
Western College, Inc. a real estate training organization whose operations have
been combined with the Company's wholly owned subsidiary, Ford Schools, Inc. The
acquisition was through a tax-free exchange of stock, resulting in the issuance
of 1,000,000 shares of the Company's Class A common stock plus an agreement to
issue an additional 600,000 Class A shares over the following three years
contingent on the gross tuition revenue equaling or exceeding $250,000 per year.
The acquisition is being accounted for by the purchase method. The 1,000,000
shares of Class A common stock has been recorded for accounting purposes at
$50,000. During the year ended September 30, 1997, and additional 200,000 shares
of Class A common stock were issued pursuant to the acquisition and recorded for
accounting purposes at $20,000. The $70,000 purchase price exceeds the book
value of the net assets of Western College, Inc. by $79,361 which has been
allocated as follows:
Property and equipment $31,713
Goodwill 47,648
The property and equipment is being depreciated over seven years and the
goodwill is being amortized over 25 years. Operations of Western College have
been included in the consolidated statement of operations from the date of
acquisition.
Supplemental cash flow information related to the assets acquired and
liabilities assumed from the acquisition of Western College, Inc., is as
follows:
Assets
Accounts receivable $ 4,500
Property and equipment 31,713
Goodwill 47,648
Deposits 1,904
-------
85,765
Liabilities
Current liabilities 13,587
Long-term debt 6,323
-------
19,910
Class A common shares of
the Company issued for
acquisition 70,000
-------
Cash provided from acquisition $ 4,145
-------
F-12
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 5 - Acquisitions (continued)
- ---------------------------------
The Company, through asset acquisitions, implemented its travel services
division on July 1, 1997. Effective July 1, 1997, the Company purchased certain
assets of Travel Easy Inc., and in August, 1997, the assets of FirsTravel, both
of which were full service travel agencies. The Travel Easy agency has been
closed and its approximately 175 independent contractor Home Based Travel Agents
became affiliated with the Company's travel agency operated as FirsTravel.
The acquisition of the Company's travel agency operations resulted in the
acquisition cost exceeding the book value of the net assets acquired by
$110,288. The excess has been recorded as agency acquisitions. At September 30,
1997, accumulated amortization on the agency acquisition is $5,514.
The results of operations of Western College, Inc., are included in the
consolidated statement of operations since January 1, 1996, the date of
acquisition. The results of operations of the travel services division are
included in the consolidated statement of operations beginning July 1, 1997, the
date of acquisition.
The following supplemental unaudited pro forma information has been prepared
assuming Western College, Inc., and the predecessor travel services operations
had been acquired as of the start of the years ended September 30:
1997 1996 1995
---- ---- ----
Revenue $5,727,606 $2,874,314 $ 699,727
---------- ---------- ----------
Net income (loss) $ 102,887 $ (472,461) $ 42,507
---------- ---------- ----------
Per share based on weighted
average shares of 10,870,305 $ (.01) $ (.04) $ --
---------- ---------- ----------
Note 6 - Goodwill
- -----------------
The acquisition of the Company's wholly owned subsidiaries, Western College,
Inc. and Ford Schools, Inc. each resulted in the acquisition cost exceeding the
book value of the net assets acquired. The excess has been recorded as goodwill
and is summarized as follows:
Ford Schools, Inc. $ 62,088 25 years
Western College, Inc. 47,648 25 years
--------
109,736
Less accumulated
amortization 22,428
--------
$ 87,308
--------
F-13
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 7 - Convertible debentures
- -------------------------------
The convertible debentures of $56,450 and accrued interest of $26,488 in 1997
and $17,609 in 1996 that were due in December, 1996, are convertible into common
shares at $.75 per share. Currently, the debentures remain unpaid and are in
default.
Note 8 - Long term debt
- -----------------------
At September 30, 1997 and 1996, long term debt consists of the following:
1997 1996
------- -------
Note payable, bank, due in monthly
principal payments of $833 plus
interest at 10.5% per annum $16,665 $20,000
Notes and payables to trade creditors
with interest ranging from 10% to 18% 41,089 53,104
------- -------
57,754 73,104
Less current portion 37,775 41,137
------- -------
$19,979 $31,967
------- -------
At September 30, 1997, maturities of long term debt are as follows:
Year ended
September 30,
-------------
1998 $37,775
1999 15,604
2000 4,375
--------
$ 57,754
--------
Substantially all assets are pledged as collateral for long term debt.
Note 9 - Trust deed notes payable
- ---------------------------------
At September 30, 1997, trust deed notes payable consist of the following:
<TABLE>
<S> <C>
First trust deed, bearing interest at 14.5% per annum, payable in
$2,066 monthly installments of interest only, due February, 1999 $171,000
Second trust deed, bearing interest at 16% per annum, payable in
$1,333 monthly installments of interest only, due February, 1999 100,000
Seller carryback, bearing interest at 10% per annum, payable in
$2,750 monthly installments only, due February, 2001 330,000
--------
$601,000
--------
</TABLE>
F-14
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 9 - Trust deed notes payable (continued)
- ---------------------------------------------
At September 30, 1997, maturities of trust deed notes payable are as follows:
Year ended
September 30,
-------------
1998 $ -
1999 271,000
2000 -
2001 330,000
--------
$601,000
--------
The Company anticipates that amounts due under trust deed notes payable will be
paid from the sale of the land held for future development.
During the year ended September 30, 1997, the Company incurred interest costs of
$42,507 of which $14,933 was charged to interest expense and $27,574 was
capitalized and included in land held for future development.
At September 30, 1997, interest payments are delinquent on the second trust deed
and seller carryback and these are in defaults. Subsequent to September 30,
1997, under the terms of the second trust deed, the holder has filed for
foreclosure.
Note 10 - Commitments and contingencies
- ---------------------------------------
The real estate training services operation leases two classroom facilities,
which include an office facility, pursuant to long term leases with monthly rent
of $4,500. The travel agency operation leases office facilities pursuant to a
long term lease with monthly rent of $333. The Company also has leased certain
computer equipment at a monthly rental of $450 plus taxes and insurance.
Minimum lease payments on long term operating leases are as follows:
Year ended
September 30,
-------------
1998 $ 52,867
1999 40,154
2000 35,812
2001 30,445
--------
$159,278
--------
Rent expense under these operating leases totaled $59,002, $17,800, and $5,250
for the years ended September 30, 1997, 1996 and 1995 respectively.
F-15
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 10 - Commitments and contingencies (continued)
- ---------------------------------------------------
The Company is not currently involved in any material litigation.
Note 11 - Going concern considerations
- --------------------------------------
During the year ended September 30, 1997, the company incurred an operating loss
of $108,115, and at September 30, 1997, was in default on certain trust deed
notes and convertible debentures, and had a working capital deficiency of
$200,887.
Management is taking actions to alleviate these conditions, which will provide
the opportunity for the Company to continue as a going concern. These actions
include the continuation of the expansion of the real estate education segment
and the reduction of the travel services operating costs both of which are
expected to increase operating profits; the arrangement of a $30,000 revolving
line of credit; the planned formation of a Real Estate Investment Trust (REIT)
and the sale or contribution of the California land to the REIT.
Note 12 - Capital stock
- -----------------------
The Company's articles of incorporation authorize issuance of two classes of
stock, Class A common stock and Class B common stock. The rights of the Class A
and Class B stockholders differ in the following respects:
The Class A stock has a preference in distribution of the Company's
assets upon liquidation in the amount of $.50 per share. The
liquidation preference is to be reduced by $.005 for each $.01 of
dividends paid on the Class A stock.
Dividends are not to be paid on the Class B stock until dividends
aggregating $.50 per share have been paid on the Class A stock.
Thereafter, both classes of stock are to share ratably in dividends.
When an aggregate of $1.00 per share in dividends has been paid on the
Class A stock, the Class A stock and the Class B stock are to be
identical in all respects.
Note 13 - Discontinued operations
- ---------------------------------
On September 30, 1997, the Company sold its wholly-owned subsidiary Hansen &
Associates, Inc. dba Property Masters to the President of Hansen & Associates,
Inc. Operating results of Hansen & Associates, Inc. are shown separately in the
accompanying income statements as discontinued operations for the years ending
September 30, 1997, 1996, and 1995.
F-16
<PAGE>
UNITED STATES ARICRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial statements (continued)
Note 14 - Disclosure about fair value of financial instruments
- --------------------------------------------------------------
The carrying amounts of cash, accounts receivable, accounts payable, and
unearned tuition approximate fair value because of the short maturity of those
instruments. Financial instruments in notes receivable and land held for future
development have no quoted market prices and, accordingly, a reasonable estimate
of fair market value could not be make without incurring excessive costs.
However, the Company believes by reference to stated interest rates and land
held, that the fair value of the assets would not differ significantly from the
carrying value.
Based on prevailing interest rates, the Company estimates that the fair value of
the Company's long-term debt, convertible debentures and related accrued
interest, and trust deed notes payable, approximates carrying value.
Note 15 - Supplemental disclosure of cash flow information
- ----------------------------------------------------------
The following is the cash paid for interest for the three years ended September
30, 1997, 1996, and 1995:
1995 $1,162
1996 $6,841
1997 $27,106
Supplementary schedule of non-cash activities:
For the year ended September 30, 1995:
Conversion long term debt to common stock $374,027
For the year ended September 30, 1996:
Class A shares issued in payment for services rendered $37,500
For the year ended September 30, 1997:
Class A shares issued in payment for services rendered $42,000
The Class A shares issued during the years ended September 30, 1997 and 1996
were to the board of directors, and an officer and shareholder of the Company.
F-17
<PAGE>
UNITED STATES ARICRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial statements (continued)
Note 16 - Business segments
- ---------------------------
In 1995 and 1996, the Company's operations consisted of real estate educational
services. In 1997, it expanded into the travel services business, and certain
financial information related to these two business segments for 1997 are
summarized as follows:
Real Estate Travel Corporate &
education services eliminations Consolidated
--------- -------- ------------ ------------
Sales $ 436,710 $ 776,544 $ 8,989 $ 1,222,243
Operating income 38,713 (27,113) (119,715) (108,115)
Identifiable assets 216,583 164,256 685,320 1,066,159
Capital expenditures 4,248 11,570 (8,238) 7,580
Depreciation and
amortization 12,519 10,023 3,870 26,412
Note 17 - Subsequent event
- --------------------------
Effective February 26, 1998, the Company obtained a $30,000 line of credit from
Valley Bank of Arizona. This note payable bears interest at 10.5% and is payable
in monthly installments of interest only until February 26, 1999, when the
entire principal amount is due. The note is collateralized by substantially all
of the assets of the Company and is guaranteed by the board of directors and a
separate property trust of a member of the board of directors.
F-18
Exhibit 22
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
Ford Schools, Inc. Arizona
Western College, Inc. Arizona
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 20,427
<SECURITIES> 0
<RECEIVABLES> 84,811
<ALLOWANCES> 7,500
<INVENTORY> 0
<CURRENT-ASSETS> 119,538
<PP&E> 123,116
<DEPRECIATION> 65,962
<TOTAL-ASSETS> 1,066,159
<CURRENT-LIABILITIES> 320,425
<BONDS> 620,979
0
0
<COMMON> 3,831,215
<OTHER-SE> (3,706,460)
<TOTAL-LIABILITY-AND-EQUITY> 1,066,159
<SALES> 1,222,243
<TOTAL-REVENUES> 1,222,243
<CGS> 1,289,013
<TOTAL-COSTS> 1,289,013
<OTHER-EXPENSES> 26,412
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,933
<INCOME-PRETAX> (108,115)
<INCOME-TAX> 0
<INCOME-CONTINUING> (108,115)
<DISCONTINUED> 58,193
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,922)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
