SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
QUARTERLY REPORT UNDER SECTION 13 OF 15(d)
of the Securities Exchange Act of 1934
----------
For quarter ended June 30, 1999, 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 I.D. Number)
Incorporation or Organization)
3625 N. 16th Street, Suite 112, Phoenix, Arizona 85016
- ------------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
(602) 263-8887
-------------------------------------------------
(Registrant's Telephone No., Including Area Code)
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 of 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 30, 1999.
NUMBER OF SHARES CLASS
---------------- -----
9,927,504 Class A
4,962,801 Class B
<PAGE>
UNITED STATES AIRCRAFT CORPORATION
COMMISSION FILE NUMBER 0-9974
FORM 10-Q
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
June 30, 1999 (Unaudited)
and September 30, 1998 3
Consolidated Statements of
Operations (Unaudited) for
the Three and Nine Months ended
June 30, 1999 and 1998 4
Consolidated Statements of
Cash Flows (Unaudited) for
the Three and Nine Months Ended
June 30, 1999 and 1998 5
Notes to Consolidated
Financial Statements 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION 18
Item 3. DEFAULTS UPON SENIOR SECURITIES 18
Item 5. OTHER INFORMATION 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURE 19
2
<PAGE>
UNITED STATES AIRCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND SEPTEMBER 30, 1998
June 30, September 30,
1999 1998
----------- -----------
ASSETS (Unaudited)
Current Assets
Cash $ 38,570 $ 8,070
Accounts receivable 136,662 75,902
Notes receivable 1,500 1,500
Prepaid expenses 27,553 7,844
----------- -----------
Total current assets 204,285 93,316
Note receivable, net of current portion 25,000 25,000
Investment, Neo Vision, Inc. 103,338
Property & equipment, net of
accumulated depreciation 1,737,840 47,613
Agency acquisitions, net of amortization 68,011 84,555
Goodwill, net 98,844 103,339
Course materials 12,279 13,754
Other 52,114 13,874
----------- -----------
Total Assets 2,198,373 484,789
----------- -----------
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities
Current portion of long-term debt 22,000 26,000
Notes payable 60,170 30,000
Convertible debentures & related accrued interest 979,523 90,041
Accounts payable 444,335 90,734
Accrued expenses 376,576 214,062
Unearned tuition 85,436 62,900
----------- -----------
Total current liabilities 1,968,040 513,737
Long term debt, net of current portion 27,073 5,360
Minority Interest 131,356
----------- -----------
Total liabilities 2,126,469 519,097
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock
Class A: $.50 par value,
10,000,000 shares authorized,
9,927,504 issued 4,963,752 4,963,752
Class B: $.001 par value,
5,000,000 shares authorized,
4,962,801 issued 4,963 4,963
Paid in capital (1,736,828) (1,838,862)
Retained earnings (deficit) (3,159,983) (3,164,161)
----------- -----------
71,904 (34,308)
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,198,373 $ 484,789
----------- -----------
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
UNITED STATES AIRCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
---------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Real Estate education $ 161,868 $ 125,268 $ 419,709 $ 343,377
Travel agency 526,889 358,153 1,159,343 1,054,770
Other -- -- 180,000 1,010
------------ ------------ ------------ ------------
Total revenue 688,757 483,421 1,759,052 1,399,157
------------ ------------ ------------ ------------
EXPENSES
Costs of sales - travel agency 507,403 323,450 1,060,590 949,960
Personnel expenses 116,385 78,864 298,863 266,110
Facility cost 32,453 14,472 67,210 48,122
Other operating cost 35,119 38,540 102,800 90,436
General and administration 56,985 29,396 150,720 72,939
Depreciation and amortization 18,624 9,913 40,605 29,182
------------ ------------ ------------ ------------
766,969 494,635 1,720,788 1,456,749
------------ ------------ ------------ ------------
Income (Loss) before
interest expense (78,212) (11,214) 38,264 (57,592)
Interest expense 26,724 7,042 33,597 13,433
------------ ------------ ------------ ------------
Net Income (loss) $ (104,936) $ (18,256) $ 4,667 $ (71,025)
------------ ------------ ------------ ------------
Net income (loss) per share $ (.007) $ (.002) $ .000 $ (.006)
------------ ------------ ------------ ------------
Weighted number of shares
outstanding 14,890,305 12,890,305 14,890,305 12,781,971
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
UNITED STATES AIRCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(104,936) $ (18,256) $ 4,667 $ (71,025)
Adjustments to reconcile net to cash
used by operating activities
Depreciation 11,120 2,662 18,093 7,986
Amortization 7,503 7,251 22,512 21,196
Net increase (decrease) in current liabilities
and (increase) decrease in accounts receivable
prepaid expense and other assets 117,219 29,048 (9,691) 63,469
--------- --------- --------- ---------
Net cash provided by (used by)
operating activities 30,906 20,705 35,581 21,626
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash provided from acquisition of Neo Vision, Inc. 439
Reduction in advance to officer 4,026 27,769
Addition to land held for development (11,384) 36,290
Disposition (acquisition) of equipment (2,157) -- (23,233) (1,183)
--------- --------- --------- ---------
Net cash provided by (used by)
investing activities (2,157) (7,358) (22,794) (9,704)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in long-term debt 3,850 (3,903) 17,713 (15,884)
--------- --------- --------- ---------
Net cash provided by (used by)
financing activities 3,850 (3,903) 17,713 (15,884)
--------- --------- --------- ---------
Net increase (decrease) in cash 32,599 9,444 30,500 (3,962)
Cash Beginning of Period 5,971 7,021 8,070 20,427
--------- --------- --------- ---------
Cash End of Period $ 38,570 $ 16,465 $ 38,570 $ 16,465
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
UNITED STATES AIRCRAFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED) AND SEPTEMBER 30, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included.
For further information, refer to the audited financial statements and
footnotes thereto included in the Company's Form 10-K for the year ended
September 30, 1998.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of United States
Aircraft Corporation and its subsidiaries (hereinafter referred to as "the
Company"). All intercompany transactions have been eliminated in consolidation.
For further information concerning significant accounting policies, refer
to the audited financial statements and footnotes thereto in the Company's Form
10-K for the year ended September 30, 1998.
NOTE 3 - NEO VISION, INC. ACQUISITION
At June 30, 1998, the Company acquired all of the outstanding shares of Neo
Vision, Inc. whose principal business purpose is to provide advertising,
programming and information to remote audiences using computer, video and
transmission technology throughout the United States. The acquisition was closed
with the exchange of 2,000,000 shares of the Company's Class A common stock for
all of the outstanding shares of Neo Vision, Inc. The Exchange Agreement
required that an amendment and restatement of the Company's Certificate of
Incorporation be approved by the stockholders authorizing (i) the
reclassification of the Company's Class A Common Stock and Class B Common Stock
in a single new class of Common Stock ("New Common Stock,") pursuant to the
following ratios: shares of Class A Common Stock will be reclassified into
shares of New Common Stock on the basis of 10 shares of Class A Common Stock
into one share of New Common Stock and 13 shares of Class B Common Stock into
one share of New Common Stock; (ii) the issuance of up to 100,000,000 shares of
New Common Stock: (iii) the issuance of up to 75,000,000 shares of preferred
stock: (iv) the change of the name of the Company from United States Aircraft
6
<PAGE>
NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED)
Corporation to Neo Vision Corporation and (v) make certain technical amendments
to the Company's Certificate of Incorporation. The Exchange Agreement provides
that if the amendment and restatement of the Certificate of Incorporation is not
approved by a majority of each of the Class A and Class B stockholders, then the
Neo Vision stockholders can each elect to rescind their exchange of shares with
the Company.
Prior to March 31, 1999, the financial statements of Neo Vision, Inc. were
not consolidated with the Company, until approval of the amendment and
restatement of the Certificate of Incorporation is fully assured and, therefore,
the investment was being accounted for pursuant to the cost method. At September
30, 1998, the investment in Neo Vision, Inc., representing the initial 2,000,000
Class A Common Stock shares issued for all of the outstanding shares of Neo
Vision, Inc., has been recorded for financial reporting purposes at $22,965,
which represents the portion of the total investment in Neo Vision, Inc.
represented by the initial issuance of the Company's Class A shares.
Upon approval of the amendment and restatement of the Certificate of
Incorporation, an additional 4,577,560 shares of the new Common Stock were to be
issued to the former stockholders of Neo Vision, Inc.
At June 30, 1998, the Company's Board of Directors believed the superior
potential growth of Neo Vision, Inc., compared to the Company's then current
lines of business, justified an exchange ratio where the Neo Vision, Inc.
shareholders would have an approximate 80% ownership in the Company when the
exchange was completed. Because the Company did not have sufficient authorized
shares, the Exchange Agreement provided for the issuance of the initial
2,000,000 shares of Class A Common Stock at closing, and the issuance of the
additional shares to bring their Neo Vision shareholders' interest to 80% after
authorization of additional shares at a special meeting of the Company's
shareholders. A preliminary proxy for the special stockholders meeting that was
originally scheduled for September 24, 1998, was filed with the Securities and
Exchange Commission (SEC), and contained a recommendation to the stockholders by
the Company Board of Directors to vote for the amendments to the Certificate of
Incorporation that would allow the issuance of the additional shares.
The Company filed amendments to the proxy statement with the SEC on
February 16, 1999 and subsequent to that filing, the Company's management became
concerned as to whether the reasons for recommending the original exchange ratio
continued to be justified. On March 8, 1999, a special meeting of the Board of
Directors of the Company was held to review the current status of the proxy for
the special stockholders meeting and to make a current evaluation of the Neo
Vision, Inc. acquisition. The Board meeting was adjourned to allow management
and the Board to further evaluate the transaction.
As a result of the further evaluation, the Company Board of Directors
determined that a current evaluation of the original factors does not justify an
80% ownership of the Company by the former Neo Vision, Inc. shareholders.
Accordingly, the Company Board of Directors concluded that they could no longer
recommend a vote to amend and restate the Company's Certificate of Incorporation
that would authorize the New Common Stock to allow the completion of the
exchange based on the the proposed exchange ratio. Because of announced negative
7
<PAGE>
NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED)
votes by members of the Company's Board of Directors, it was determined that the
proposal to restate and amend the Company's Certificate of Incorporation would
be defeated.
Because of the non-approval of the New Common Stock, each of the six former
Neo Vision, Inc. shareholders had a right to elect to rescind the Exchange
Agreement. An election notice and form was provided to the former Neo Vision,
Inc. shareholders on March 18, 1999 with the election to be made by them no
later than March 31, 1999. All six of the former Neo Vision shareholders have
elected not to rescind. Accordingly, the Company will continue to own 100% of
the outstanding shares of Neo Vision, Inc. and in accordance with the terms of
the Exchange Agreement, the Company will issue no additional shares to the
former Neo Vision, Inc. shareholders.
Accordingly, on March 31, 1999, the acquisition of Neo Vision, Inc. became
fully assured and Neo Vision, Inc. is included in the consolidated balance sheet
with the acquisition being accounted for by the purchase method. The 2,000,000
shares of Class A common stock that was originally recorded for accounting
purposes at $22,965 has been re-measured and adjusted to $125,000, which
represents the fair value at March 31, 1999 of the 2,000,000 Class A shares
issued for the Neo Vision, Inc. acquisition. The $125,000 purchase price exceeds
the book value of the net assets of Neo Vision, Inc. at the March 31, 1999 date
of acquisition by $1,260,466 which has been allocated to the cost of the video
wall systems software and technology.
The video wall systems software and technology is being depreciated over a
fifteen year period using the straight line method. Operations of Neo Vision,
Inc. has been included in the consolidated statement of operations from March
31, 1999, the date of acquisition.
Supplemental cash flow information related to the assets and liabilities
consolidated as a result of the acquisition of Neo Vision, Inc., is as follows:
Assets
Accounts receivable $ 35,652
Prepaid expenses 3,097
Property and equipment 1,685,087
Other 18,786
----------
Total $1,742,622
==========
Liabilities
Notes payable 20,170
Accounts payable 233,818
Accrued expenses 26,640
Deferred income 14,638
Convertible debentures & interest 880,734
Due to USAC 310,705
Minority interest 131,356
----------
Total $1,618,061
==========
8
<PAGE>
NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED).
Class A common shares of the
Company issued for
acquisition $ 125,000
----------
Cash provided from
acquisition $ 439
----------
The following unaudited pro forma consolidated statements of operations of
Unites States Aircraft Corporation for the nine months ended June 30, 1999 sets
forth the consolidation of United States Aircraft Corporation with Neo Vision,
Inc. under the purchase method of accounting as if the acquisition was completed
on October 1, 1998.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
United States
Aircraft Corp. Pro Forma Neo Vision
and Subsidiaries Neo Vision, Inc. Adjustments Corporation
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Real estate education $ 419,709 $ 419,709
Travel Agency 1,159,343 1,159,343
Video Wall advertising $ 209,008 209,008
Other 195,000 (195,000)(1) --
----------- ----------- -----------
Total revenue $ 1,774,052 209,008 $ 1,788,060
----------- ----------- -----------
Expenses
Cost of sales $ 1,043,800 $ 97,824 $ 1,141,624
Personnel expenses 289,913 76,386 366,299
Facility cost 64,670 10,658 75,328
Other operating cost 99,697 260,399 360,096
General and administration 150,720 195,000 (195,000)(1) 150,720
Depreciation and amortization 33,414 34,428 63,023 (2) 130,865
----------- ----------- -----------
Total expenses $ 1,682,214 $ 674,695 $ 2,224,932
----------- ----------- -----------
Income (loss) before interest Expense 91,838 (465,687) (436,872)
Interest expense 11,219 76,615 87,834
----------- ----------- -----------
Net income (loss) $ 80,619 $ (542,302) $ (524,706)
=========== =========== ===========
Pro forma net income (loss) per share (3) $ (.04)
</TABLE>
- ----------
(1) To eliminate intercompany management fees.
(2) Pro forma depreciation of the video wall systems software and technology on
the straight line method over an estimated useful life of 15 years.
(3) Based on weighted average shares of 14,890,305.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON NINE MONTHS ENDED JUNE 1999 TO 1998
The total revenue of $1,759,052 for the nine months ended June 30, 1999 is
made up of $419,709 or 24% from the real estate education segment and $1,159,343
or 66% from the travel agency segment with the remaining $180,000 or 10%
consisting of the management fee charged to Neo Vision, Inc. Total revenue
increased by $359,895 in 1999 compared to a $1,088,553 increase in 1998. The
1999 revenue increase consists of an increase in real estate education revenue
of $76,332, a increase in travel agency sales of $104,573 and an increase in
management fees and other revenues of $178,990.
The net loss improved by $75,692 and consists of the following:
Increase in Real Estate Education 1999
operating income over 1998 $ 30,386
Decrease in Travel Agency 1999
operating loss over 1998 $ 5,333
Loss from Neo Vision, Inc. from
March 31, 1999 (date of acquisition)
Through June 30, 1999 $ (38,544)
Increase in consulting and other income $ 178,990
Increase in general corporate overhead $ (80,305)
Increase in interest expense $ (20,164)
The increase in real estate education 1999 results over 1998 consists of
the following:
Increase
1999 1998 (Decrease)
-------- -------- --------
Revenue $419,709 $343,377 $ 76,332
-------- -------- --------
Costs and expenses
Personnel expense 206,946 180,573 26,373
Facility cost 49,362 44,240 5,122
Other operating cost 70,621 57,887 12,734
Depreciation and amortization 11,176 9,459 1,717
-------- -------- --------
Total $338,105 $292,159 $ 45,946
-------- -------- --------
Operating income $ 81,604 $ 51,218 $ 30,386
======== ======== ========
10
<PAGE>
The adult education division results improved by $30,386. The improvement
was due to a $76,332 increase in revenues offset by a $45,946 increase in
operating costs. The revenue increase is the result of additional enrollments
including those at the new East campus. The operating cost increase consists of
a $26,373 increase in personnel expense, including additional marketing
personnel, a $5,122 increase in facility costs, a $12,734 increase in other
operating costs, and a $1,717 increase in depreciation and amortization.
The $5,333 decrease in the travel agency 1999 operating loss consists of
the following:
Increase
1999 1998 (Decrease)
----------- ----------- -----------
Sales $ 1,159,343 $ 1,054,770 $ 104,573
Cost of sales 1,043,800 949,960 93,840
----------- ----------- -----------
Gross profit $ 115,543 $ 104,810 $ 10,733
Operating costs
Personnel expense 82,966 85,537 (2,571)
Facility cost 15,337 3,882 11,455
Other operating costs 29,076 32,549 (3,473)
Depreciation and amortization 19,385 19,396 (11)
----------- ----------- -----------
Total $ 146,764 $ 141,364 $ 5,400
----------- ----------- -----------
Operating loss $ (31,221) $ (36,554) $ 5,333
=========== =========== ===========
Sales for the travel agency operation increased by $104,573 during the
nine-month period ending June 30, 1999, as compared to the agencies' sales for
the nine months ended June 30, 1998. Gross profit during the nine months ended
June 30, 1999 increased by $10,733 over the comparable period ended June 30,
1998. The gross profit percentage for both periods remained at 10%. Operating
costs for the nine months ended June 30, 1999 were $146,764 compared to $141,364
for the comparable period ended June 30, 1998. The $5,400 decrease in operating
costs results from the reduction of travel agents to a staff level appropriate
for the sales volume of the travel agency segment offset by increases in
facility costs due to the opening of an additional retail branch.
11
<PAGE>
Neo Vision, Inc. had an operating loss of $450,687 during the nine months
ended June 30, 1999 with a operating loss of $38,544 during the three months
from the date of acquisition through June 30, 1999. The Neo Vision ,Inc loss is
summarized as follows:
Nine Months Six Months Three Months
Ended Ended Ended
June 30, 1999 March 31, 1998 June 30, 1999
--------- --------- ---------
Sales $ 209,008 $ 209,008 $
Cost of sales 97,824 81,035 16,789
--------- --------- ---------
Gross profit $ 111,184 $ 127,973 $ (16,789)
Operating costs
Personnel expense 76,386 67,436 8,950
Facility cost 10,658 8,147 2,511
Other operating costs 260,399 257,296 3,103
Management fees 180,000 180,000
Depreciation and amortization 34,428 27,237 7,191
--------- --------- ---------
Total $ 561,871 $ 540,116 $ 21,755
--------- --------- ---------
Operating loss $(450,687) $(412,143) $ 38,544
========= ========= =========
During the three months ended June 30, 1999, there were no advertising
sales for the Neo Vision, Inc. subsidiary while the management and sales force
was reorganized and the new "Mall TV" program was instituted. Mall TV is a audio
video program produced by Neo Vision to be transmitted, using the Neo Vision
technology, to malls that have its audio video system. The "Mall TV" program
commenced operations in August 1999 at the existing Las Vegas Nevada mall
location and advertising sales efforts by the new sales staff also started in
August 1999. Advertising sales potential at the Las Vegas mall location is
expected to be approximately $45,000 per month. Operating costs of $21,755
during the three months ended June 30, 1999 is the fixed costs during the three
month period while Neo Vision, Inc. was instituting the " Mall TV" program and
reorganizing its management and sales team.
Other revenue consists of the $180,000 of management fees from Neo Vision,
Inc., the subsidiary acquired on June 30, 1998, that was not consolidated until
March 31, 1999. The management fee exceeded other miscellaneous income for 1998
by $178,990. The management fee of $180,000 represents the $30,000 per month
charge to Neo Vision, Inc. until March 31, 1999 for executive management,
general and administrative expense provided by the Company.
General corporate overhead increased by $72,939 primarily due to management
compensation increases from the June 30, 1998 acquisition of Neo Vision, Inc.
Interest expense increased by $20,164 over the nine month period ended June
30, 1998 with all of the increase resulting from the Neo Vision, Inc
acquisition.
12
<PAGE>
COMPARISON THREE MONTHS ENDED JUNE 1999 TO 1998
The total revenue of $688,757 for the three months ended June 30, 1999 is
made up of $161,868 or 24% from the real estate education segment and $526,889
or 76% from the travel agency segment with no advertising revenue from Neo
Vision, Inc during the three months ended June 30, 1999. Total revenue increased
by $205,336 in 1999 compared to a $367,360 increase in 1998. The 1999 revenue
increase consists of an increase in real estate education revenue of $36,600 and
an increase in travel agency sales of $168,736.
The net loss increased by $86,680 during the quarter ended June 30, 1999
and consists of the following:
Increase in Real Estate Education 1999
operating income over 1998 $ 22,951
Increase in Travel Agency 1999
operating loss over 1998 $(21,290)
Loss from Neo Vision, Inc. from
March 31, 1999 (date of acquisition)
Through June 30, 1999 $(38,544)
Increase in general corporate overhead $(30,115)
Increase in interest expense $(19,682)
The increase in real estate education for the quarter ended June 30, 1999
results over the same quarter in 1998 consists of the following:
Increase
1999 1998 (Decrease)
-------- -------- --------
Revenue $161,868 $125,268 $ 36,600
-------- -------- --------
Costs and expenses
Personnel expense 72,197 62,582 9,615
Facility cost 20,634 14,895 5,739
Other operating cost 19,189 20,066 (877)
Depreciation and amortization 3,725 4,553 (828)
-------- -------- --------
Total $115,745 $102,096 $ 13,649
-------- -------- --------
Operating income $ 46,123 $ 23,172 $ 22,951
======== ======== ========
The adult education division results improved by $22,951. The improvement
was due to a $36,600 increase in revenues offset by a $13,649 increase in
operating costs. The revenue increase is the result of additional enrollments
including those at the new East campus. The operating cost increase consists of
a $9,615 increase in personnel expense, including additional marketing
personnel, a $5,739 decrease in facility costs, a $877 decrease in other
operating costs, and a $828 decrease in depreciation and amortization.
13
<PAGE>
The $21,290 increase in the travel agency operating loss during the quarter
ended June 30, 1999 consists of the following:
INCREASE
1999 1998 (DECREASE)
--------- --------- ---------
Sales $ 526,888 $ 358,153 $ 168,735
Cost of sales 490,613 323,450 167,163
--------- --------- ---------
Gross profit $ 36,275 $ 34,703 $ 1,572
Operating costs
Personnel expense 35,237 16,282 18,955
Facility cost 9,309 (422) 9,731
Other operating costs 12,828 18,474 (5,646)
Depreciation and amortization 6,757 6,935 (178)
--------- --------- ---------
Total $ 64,131 $ 41,269 $ 22,862
--------- --------- ---------
Operating loss $ (27,856) $ (6,566) $ 21,290
========= ========= =========
Sales for the travel agency operation increased by $168,735 during the
three-month period ending June 30, 1999, as compared to the agencies' sales for
the three months ended June 30, 1998. Gross profit during the three months ended
June 30, 1999 increased by $1,572 over the comparable period ended June 30,
1998. The gross profit percentage decreased to 7 1/2% primarily due to the
increase in the portion of sales attributable to airline ticket sales. Operating
costs for the three months ended June 30, 1999 were $64,131 compared to $41,269
for the comparable period ended June 30, 1998. The $22,862 increase in operating
costs results primarily from the opening of a new retail branch.
The Neo Vision, Inc. operating loss of $38,544 is analyzed in the
comparison of the operating results for the nine months ended June 30, 1999.
General corporate overhead increased by $30,115 primarily due to management
compensation increases from the June 30, 1998 acquisition of Neo Vision, Inc.
Interest expense increased by $19,682 over the three month period ended
June 30, 1998 with all of the increase resulting from the Neo Vision, Inc
acquisition.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Prior to March 31, 1999, the financial statements of Neo Vision, Inc. were not
consolidated with the Company until the amendment and restatement of the
Certificate of Incorporation was fully assured. In March 1999, the Company's
Board of Directors determined that the proposal to restate and amend the
Company's Certificate of Incorporation would be defeated. Pursuant to the June
30, 1998 Exchange Agreement, each of the six former Neo Vision, Inc.
shareholders had a right to elect to rescind the Exchange Agreement. All six of
the former Neo Vision shareholders have elected not to rescind. The Company will
continue to own 100% of the outstanding shares of Neo Vision, Inc. and in
accordance with the Exchange Agreement, the Company will issue no additional
shares to the former Neo Vision, Inc. shareholders.
14
<PAGE>
As a result, on March 31, 1999, the acquisition of Neo Vision, Inc. became
fully assured and Neo Vision, Inc. has been included in the Company's March 31,
1999 consolidated balance sheet with the acquisition being accounted for by the
purchase method. For additional information regarding the acquisition of Neo
Vision, Inc., see Note 3 of the June 30, 1999 consolidated financial statements
included elsewhere in this report.
The working capital deficit increased by $1,343,354 from September 30, 1998
to $1,763,755. Current assets increased by $110,969 from September 30, 1998 to
$204,285. The increase consists of a $30,500 increase in cash, a $60,760
increase in accounts receivable, and a $19,709 increase in prepaid expenses,
which relates primarily to advance payments of costs and expenses that will
benefit future periods and will be charged to expenses over the remainder of
this fiscal year.
Current liabilities increased by $1,454,303 from September 30, 1998 to
$1,968,040 at June 30, 1999. The increase consists of a $5,327 increase in the
accrued interest related to the Company's convertible debentures, a $884,155
increase related to the Neo Vision, Inc. convertible debentures, a $353,601
increase in accounts payable, including $224,500 applicable to Neo Vision, Inc.,
a $162,514 increase in accrued expenses which consists primarily of increases in
the accrued expense related to Neo Vision, Inc. Unearned tuition increased by
$22,536.
The long term note receivable of $25,000 at June 30, 1999 is related to the
sale of Hansen and Associates, Inc. At June 30, 1999, property and equipment
increased by $1,690,227 as a result of equipment additions of $1,708,320 offset
by depreciation of $18,093. The equipment additions during the period ended June
30, 1999 consist of $7,229 in additions by the Company for the travel segment
and $1,701,091 related to the Neo Vision, Inc. acquisition, which has been
consolidated as of March 31, 1999, consisting of the following:
Video software and systems $ 1,260,466
Video walls equipment 336,928
Central Office computerized
transmission center equipment 93,166
Office furniture and equipment 10,531
-----------
$ 1,701,091
===========
Goodwill decreased by $4,495 for amortization in the nine months ended June
30, 1999. Course materials decreased by $1,475 due to amortization in the nine
months ended June 30, 1999. Other assets increased by $38,240 during the nine
months ended June 30, 1999.
The Company has formed RVP-LLC, an Arizona limited liability company for
the purpose of owning recreational vehicle parks that will be leased to and
operated by the Company; however the RV Park operation will not be launched
until the project is capitalized. The project is to be capitalized from
15
<PAGE>
consulting fees for the RV park consulting services provided. However, for
financial reporting purposes the consulting fee revenue will not be recognized
until it is received, since there is insufficient evidence to assure its
realization. Management believes the consulting fee, which is expected to be a
one-time occurrence, will be collected before December 31, 1999. The costs
related to earning the consulting fee consisted primarily of executive
compensation and travel all of which has been expensed as incurred and included
in general and administrative expense. At June 30, 1999 the members equity of
RVP-LLC has not been recognized until the capital contributions are received.
The July 1997 and August 1997 purchase price of the travel agencies
exceeded the identifiable 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 in fiscal year 1997,
$26,397 in fiscal year 1998 and $16,544 in the nine months ended June 30, 1999.
Long-term debt increased by $21,713 during the nine months ended June 30,
1999. The convertible debentures of $56,450 of United States Aircraft
Corporation 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 New Common Stock, although no assurance that
such a conversion will be elected by the debenture holders. If the debenture
holders do not elect to convert into the Company's New Common Stock, they could
demand payment and seek enforcement through legal action; however, the Company
has had no contact from the debenture holders.
The report by the Company's independent certified public accountants on the
Company's financial statements for the fiscal year ended September 30, 1998
states that the Company's significant operating losses raise substantial doubt
about the Company's ability to continue as a going concern. The net loss for the
year ended September 30, 1998 primarily results from the increase in general and
administrative expenses related to increases in the management team and their
compensation, which have been made to facilitate the planned expansion including
the acquisition and expansion of Neo Vision, Inc. In April 1999, the Company
accepted the resignation of two of its executive officers, which reduces general
and administrative expenses to its historical level. Management projects that
all of its operating units will operate at a sufficient profit to cover all of
its general and administrative expenses during the year ended September 30,
1999. To accomplish its planned expansion and resulting profitability,
management has adopted a program to expand its existing services operations plus
the acquisition of other service organizations; however, the expansion program
requires the resolution of its working capital deficiency and the infusion of
additional capital for which the following program has been adopted.
The internal sources of liquidity include the projected profitability and
expansion of its adult education and travel segments, the collection of the net
consulting fee, and the anticipated conversion of the convertible debentures,
all of which are expected to resolve the current working capital deficiency.
However, the Company intends to expand its newly acquired Neo Vision operation
by the expected installation of 2 and 24 video walls in the years ended
September 30, 1999 and 2000, respectively at a projected cost of $150,000 for
each wall. The planned expansion will require capital from external sources of
approximately $500,000 to $750,000 by December 1999. Neo Vision has engaged
16
<PAGE>
financial advisors to assist in the funding of its capital needs for the planned
expansion, including private placements. Management believes that the funding
will be a convertible debt financing, equipment lease financing or the preferred
stock to be authorized, and that it will be funded in time to complete the
expected installation of video walls in the years ended September 30, 1999 and
2000. However, the Company does not intend to make material commitments for
further capital expenditures until financing becomes available. Additionally,
the Company is 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. No assurance can
be given that the acquisitions or installation of the video walls will be
completed or the private placement to obtain the required capital infusion will
be successful.
OUTSTANDING DEBENTURES OF THE COMPANY AND NEO VISION
The Company has outstanding convertible debentures of $56,450 plus related
accrued interest of $38,918 at June 30, 1999. These debentures bear interest at
rates of 12% to 14% per annum and were due in December 1996. Currently, the
debentures remain unpaid and are in default. The debentures are convertible, at
the option of the holder, into common shares at the rate of $.75 of outstanding
amount for one share of Class A Common Stock ($.75 of outstanding amount for one
share of New Common Stock). (See discussion elsewhere in this Management's
Discussion and Analysis.)
As of June 30, 1999, Neo Vision had approximately $810,750 in outstanding
convertible debentures bearing interest at rates of between 10% and 12% per
annum, with total accrued interest at June 30, 1999 of $105,000. These
debentures were issued in multiple series beginning in 1997 and ending in 1998.
The Neo Vision debentures provide that the principal and accumulated interest
are convertible to Neo Vision common stock at the rate of one share of Neo
Vision common stock for each $1.00 (or $1.25 for certain debentures) of
outstanding principal amount and accrued interest of debentures upon completion
of a transaction that results in unrestricted securities of Neo Vision (or with
respect to certain of the debentures its successor) being issued and
outstanding. The Company believes that the terms of the debentures either
require the conversion of the debentures into New Common Stock upon the
effectiveness of a registration statement for the conversion of the debentures
or if a registration statement is not filed, that the debenture holders will
elect to convert their debentures pursuant to a private placement offering.
Of the total outstanding Neo Vision debentures, $420,000 were due in
December 1998 with the remainder due in May 1999. Neo Vision has not paid any of
the past-due debentures. Neo Vision currently cannot repay such debentures. The
Company has received signed agreements from substantially all of the debenture
holders to convert their convertible debentures and related accrued interest
into shares of the Company's New Common Stock. The Company plans to offer to
exchange these debentures for shares of New Common Stock upon their
authorization through a private placement.
Based on the Series A and B conversion rate of $1 per share and the Series
C conversion rate of $1.25 per share as adjusted for the acquisition of Neo
Vision by the Company approximately 4,500,000 shares of New Common Stock would
be issued if all of the debenture holders elected to convert.
17
<PAGE>
However, no assurances can be given that the debenture holders will in fact
convert their debentures into shares of New Common Stock. In the event that such
debenture holders do not so convert their debentures, the Company intends to
seek to refinance such debentures. However, in the event the debentures are not
converted, and the Company is unable to refinance such indebtedness, then Neo
Vision may be unable to continue its operations.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company currently is in default on the payment of various convertible
debentures in the outstanding principal amount of $56,450 and Neo Vision, Inc.
is in default on the payment of its convertible debentures of approximately
$810,750. The Company and Neo Vision, Inc. currently do not have the ability to
pay any of its defaulted debt and no assurance can be given that the Company
will have sufficient capital to pay such debts. Reference is made to Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Outstanding Debentures of the Company and Neo Vision for a discussion
of the convertible debentures of the Company and Neo Vision, Inc.
ITEM 5. OTHER INFORMATION
The Board of Directors approved an amendment and restatement of its
Certificate of Corporation and the Company intends to seek the approval of a
majority of the Class A and Class B outstanding shares of record as of August
31, 1999 by written consent. The Company intends to obtain the shareholders
consent as soon as possible and to file the amended and restated Certificate of
Incorporation with the state of Delaware immediately thereafter. The amended and
restated Certificate of Incorporation will: (i) authorize the issuance of
100,000,000 shares of a single new class of Common Stock, $.001 par value (the
"New Common Stock"); (ii) reclassify the Company's Class A Common Stock and
Class B Common Stock into shares of New Common Stock on a one for one basis;
(iii) authorize the issuance of 75,000,000 shares of preferred stock; (iv)
change the name of the Company to Neo Vision Corporation; and (v) make certain
technical amendments set forth in the Company's First Restated Certificate of
Incorporation.
On September 3, 1999, the Company agreed to sell one of its two campuses to
the President and Vice-President of the real estate education operation. The
sales proceeds include the return of 1,200,000 Class A shares of common stock,
the termination of the employment contracts with the officers including the
forgiveness of any obligation of the Company to the selling officers and 23
non-compete payments to the Company of $1,750. The sale includes the sale of the
name Westford College. The Company intends to expand the operation of its
remaining campus through the implementation of distance learning using its
technology capabilities and to adopt the name ReNewal Education Corporation for
its adult education operations. The Board of Directors has authorized the
Chairman to form a limited partnership to acquire the Class A shares for $120,
000 cash which approximates the recent market value of the Class A shares.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27 - Financial Data Schedule
(b) Reports on Form 8-K
The registrant filed current report on Form 8-K on April 5, 1999 with
respect to the election by the six former Neo Vision, Inc. shareholders' to not
rescind the Exchange Agreement.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
United States Aircraft Corporation
Date: September, 13 1999 /s/ Harry V. Eastlick
-------------------- ----------------------------------------
Harry V. Eastlick
Chairman of the Board and Chief
Financial Officer
19
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