SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF 15(d)
of the Securities Exchange Act of 1934
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FOR QUARTER ENDED MARCH 31, 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 (I.R.S. Employer I.D. Number)
Incorporation or of 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 March 31, 1998.
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
March 31, 1999 (Unaudited)
and September 30, 1998 3
Consolidated Statements of
Operations (Unaudited) for
the Three and Six Months ended
March 31, 1999 and 1998 4
Consolidated Statements of
Cash Flows (Unaudited) for
the Three and Six Months Ended
March 31, 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 17
Item 3. DEFAULTS UPON SENIOR SECURITIES 17
Item 5. OTHER INFORMATION 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 19
2
<PAGE>
UNITED STATES AIRCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND SEPTEMBER 30, 1998
MARCH 31, 1999 SEPTEMBER 30,
ASSETS (UNAUDITED) 1998
-------------- -------------
Current Assets
Cash $ 5,971 $ 8,070
Accounts receivable 169,160 75,902
Notes receivable 1,500 1,500
Prepaid expenses 24,578 7,844
----------- -----------
Total current assets 201,209 93,316
Note receivable, net of current portion 25,000 25,000
Investment, Neo Vision, Inc. 103,338
Property & equipment, net of
accumulated depreciation 1,586,662 47,613
Agency acquisitions, net of amortization 73,526 84,555
Goodwill, net 100,342 103,339
Course materials 12,771 13,754
Other 52,118 13,874
----------- -----------
TOTAL ASSETS 2,051,628 484,789
----------- -----------
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities
Current portion of long-term debt 22,000 26,000
Notes payable, bank 60,170 30,000
Convertible debentures & related
accrued interest 914,269 90,041
Accounts payable 430,287 90,734
Accrued expenses 310,964 214,062
Unearned tuition 79,324 62,900
----------- -----------
Total current liabilities 1,817,014 513,737
Long term debt, net of current portion 23,223 5,360
Minority Interest 136,096
----------- -----------
Total liabilities 1,976,333 519,097
----------- -----------
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 (1,838,862) (1,838,862)
Retained earnings (deficit) (3,054,558) (3,164,161)
----------- -----------
75,295 (34,308)
----------- -----------
Total liabilities and stockholders' equity $ 2,051,628 $ 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 SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
-------------------------- --------------------------
1999 1998 1999 1998
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
REVENUE
Real Estate education $ 148,861 $ 122,757 $ 257,841 $ 218,109
Travel agency 361,124 281,339 632,454 696,617
Other 90,000 180,000 1,010
----------- ----------- ----------- -----------
Total revenue 599,985 404,096 1,070,295 915,736
----------- ----------- ----------- -----------
EXPENSES
Costs of sales - travel agency 313,074 255,121 553,187 626,510
Personnel expenses 98,898 84,780 182,478 187,246
Facility cost 18,179 21,401 34,757 33,650
Other operating cost 32,557 35,024 67,681 51,896
General and administration 29,775 23,646 93,735 43,543
Depreciation and amortization 11,820 9,635 21,981 19,269
----------- ----------- ----------- -----------
504,303 429,607 953,819 962,114
----------- ----------- ----------- -----------
Income (Loss) before
interest expense 95,682 (25,511) 116,476 (46,378)
Interest expense 3,428 2,888 6,873 6,391
----------- ----------- ----------- -----------
Net Income (loss) $ 92,254 $ (28,399) $ 109,603 $ (52,769)
----------- ----------- ----------- -----------
Net income (loss) per share $ .006 $ (.002) $ .007 $ (.004)
----------- ----------- ----------- -----------
Weighted number of shares
outstanding 14,890,305 12,840,305 14,890,305 12,727,805
----------- ----------- ----------- -----------
</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 SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
-------------------- ---------------------
1999 1998 1999 1998
-------- -------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) $ 92,254 $(28,399) $ 109,603 $(52,769)
Adjustments to reconcile net to cash
used by operating activities
Depreciation 4,311 2,662 6,973 5,324
Amortization 7,510 6,973 15,009 13,945
Net increase (decrease) in current liabilities
and (increase) decrease in accounts receivable
prepaid expense and other assets (97,927) 20,141 (126,910) 34,418
-------- -------- --------- --------
Net cash provided by (used by)
operating activities 6,148 1,377 4,675 918
-------- -------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash provided from acquisition of Neo Vision, Inc. 439 439
Reduction in advance to officer 11,526 23,743
Addition to land held for development (14,666) (24,906)
Disposition (acquisition) of equipment (18,584) (765) (21,076) (1,182)
-------- -------- --------- --------
Net cash provided by (used by)
investing activities (18,145) (3,905) (20,637) (2,345)
-------- -------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in long-term debt 16,808 (9,646) 13,863 (11,979)
-------- -------- --------- --------
Net cash provided by (used by)
financing activities 16,808 (9,646) 13,863 (11,979)
-------- -------- --------- --------
Net increase (decrease) in cash 4,811 (12,174) (2,099) (13,406)
Cash Beginning of Period 1,160 19,195 8,070 20,427
-------- -------- --------- --------
Cash End of Period $ 5,971 $ 7,021 $ 5,971 $ 7,021
-------- -------- --------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
UNITED STATES AIRCRAFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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
requires 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
6
<PAGE>
NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED)
Company from United States Aircraft 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 its most recent 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
7
<PAGE>
NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED)
the proposed exchange ratio. Because of announced negative votes by members of
the Company's 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 has been recorded for accounting purposes at
$22,965. The $22,965 purchase price exceeds the book value of the net assets of
Neo Vision, Inc. at the March 31, 1999 date of acquisition by $1,097,061 which
has been allocated to the cost of the video wall systems software and
technology.
The video wall systems software and technology will be depreciated over a
fifteen year period using the straight line method. Operations of Neo Vision,
Inc. will be included in the consolidated statement of operations from March 31,
1999, the date of acquisition.
Supplemental cash flow information related to the assets acquired and
liabilities assumed from the acquisition of Neo Vision, Inc., is as follows:
Assets
Accounts receivable $ 35,652
Prepaid expenses 3,097
Property and equipment 1,524,946
Other 18,786
----------
Total $1,582,481
==========
Liabilities
Notes payable 20,170
Accounts payable 233,818
Accrued expenses 106,836
Deferred income 11,850
Convertible debentures & interest 740,480
8
<PAGE>
NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED).
Due to USAC 310,705
Minority interest 136,096
----------
Total $1,559,955
==========
Class A common shares of the
Company issued for acquisition $ 22,965
----------
Cash provided from acquisition $ 439
----------
The following unaudited consolidated statements of operations of United
States Aircraft Corporation for the six months ended March 31, 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 SIX MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
United States
Aircraft Corp. Neo Pro Forma Neo Vision
and Subsidiaries Vision, Inc. Adjustments Corporation
---------------- ------------ ----------- -----------
Revenue
<S> <C> <C> <C> <C>
Real estate education $ 257,841 $ 257,841
Travel Agency 632,454 632,454
Video Wall advertising $ 209,008 209,008
Other 180,000 (180,000)(1)
---------- ---------- -----------
Total revenue $1,070,295 209,008 $ 1,099,303
---------- ---------- -----------
Expenses
Cost of sales $ 553,187 $ 81,035 $ 634,222
Personnel expenses 182,478 67,436 249,914
Facility cost 34,757 8,147 42,904
Other operating cost 67,681 257,296 324,977
General and administration 93,735 180,000 (180,000)(1) 93,735
Depreciation and amortization 21,981 27,237 36,568 (2) 85,786
---------- ---------- -----------
Total expenses $ 953,819 $ 621,151 $ 1,431,538
---------- ---------- -----------
Income (loss) before interest Expense 116,476 (412,143) 332,235
Interest expense 6,873 54,235 61,108
---------- ---------- -----------
Net income (loss) $ 109,603 $(466,378) $ (393,343)
========== ========= ===========
Pro forma net income (loss) per
share (3) $ (.03)
</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 SIX MONTHS ENDED MARCH 1999 TO 1998
The total revenue of $1,070,295 for the six months ended March 31, 1999 is
made up of $257,841 or 24% from the real estate education segment and $632,454
or 59% from the travel agency segment with the remaining $180,000 or 17%
consisting of the management fee charged to Neo Vision, Inc. Total revenue
increased by $154,569 in 1999 compared to a $721,193 increase in 1998. The 1999
revenue increase consists of an increase in real estate education revenue of
$39,732, a decrease in travel agency sales of $64,162 and an increase in
management fees and other revenues of $178,990.
The income before interest, depreciation and amortization expense improved
by $165,566 and consists of the following:
Increase in Real Estate Education 1999
income before interest, depreciation
and amortization over 1998 $ 9,980
Increases in Travel Agency 1999
income before interest, depreciation and
amortization over 1998 $ 26,790
Increase in consulting and other income $ 178,990
Increase in general
corporate overhead $ (50,194)
The increase in real estate education 1999 results over 1998 consists of
the following:
Increase
1999 1998 (Decrease)
---- ---- ----------
Revenue $257,841 $218,109 $ 39,732
-------- -------- --------
Costs and expenses
Personnel expense 134,749 117,991 16,758
Facility cost 28,728 29,345 (617)
Other operating cost 51,432 37,821 13,611
-------- -------- --------
Total 214,909 185,157 29,752
-------- -------- --------
Income before interest,
depreciation and
amortization $ 42,932 $ 35,952 $ 9,980
======== ======== ========
10
<PAGE>
The adult education division results improved by $18,001. The improvement
was due to a $39,732 increase in revenues offset by a $21,731 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 $8,737 increase in personnel expense, including additional marketing
personnel, a $617 decrease in facility costs and a $13,611 increase in other
operating costs.
The $26,790 increase in the travel agency 1999 income before interest,
depreciation and amortization consists of the following:
Increase
1999 1998 (Decrease)
---- ---- ----------
Sales $632,455 $ 696,617 $(64,162)
Cost of sales 553,187 626,510 (73,323)
-------- --------- --------
Gross profit 79,268 70,107 9,161
-------- --------- --------
Operating costs
Personnel expense 47,729 69,255 (21,526)
Facility cost 6,028 4,304 1,724
Other operating costs 16,248 14,075 2,173
-------- --------- --------
Total 70,005 87,634 (17,629)
-------- --------- --------
Income (Loss) before interest
depreciation and amortization $ 9,263 $ (17,527) $ 26,790
======== ========= ========
Sales for the travel agency operation decreased by $64,162 during the six
month period ending March 31, 1999 as compared to the agencies sales for the six
months ended March 31, 1998. Gross profit during the six months ended March 31,
1999 increased by $9,161 over the comparable period ended March 31, 1998. The
gross profit percentage increased to 12 1/2% primarily due to the decrease in
the portion of sales attributable to airline ticket sales where the gross profit
percentage is generally at 8%. Operating costs for the six months ended March
31, 1999 were $70,005 compared to $87,634 for the comparable period ended March
31, 1998. The $17,629 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.
Other revenue consists of the $180,000 of management fees from Neo Vision,
Inc., the unconsolidated subsidiary acquired on June 30, 1998 which 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. for executive
management, general and administrative expense provided by the Company.
General corporate overhead increased by $50,194 primarily due to management
compensation increases from the June 30, 1998 acquisition of Neo Vision, Inc.
The above comparison of the results of the Company's segments does not
include depreciation and amortization which is used in determining operating
income (loss) pursuant to generally accepted accounting principles. In the six
months ended March 31, 1999, depreciation and amortization expense increased by
$2,712 over depreciation and amortization for the comparable period ended March
31, 1998. Depreciation and amortization expense for the six months ended March
31, 1999 by segment is $7,451 for real estate education, $12,628 for travel
services and $1,902 for corporate. Operating income (loss) for each segment
pursuant to generally accepted accounting principles is an operating income of
$35,481 for real estate education and an operating loss of $(3,365) for travel
services with general corporate expenses of $93,735 offset by consulting fees of
$180,000, resulting in a consolidated operating income of $116,479.
11
<PAGE>
COMPARISON THREE MONTHS ENDED MARCH 1999 TO 1998
The total revenue of $599,985 for the three months ended March 31, 1999 is
made up of $148,861 or 25% from the real estate education segment and $361,124
or 60% from the travel agency segment with the remaining $90,000 or 15%
consisting of the management fee charged to Neo Vision, Inc. Total revenue
increased by $195,889 in 1999 compared to a $293,925 increase in 1998. The 1999
revenue increase consists of an increase in real estate education revenue of
$26,104, an increase in travel agency sales of $79,785 and management fees and
other revenues of $90,000.
The income before interest, depreciation and amortization expense increased
by $122,880 and consists of the following:
Increase in Real Estate Education 1999
income before interest, depreciation
and amortization over 1998 $ 20,595
Increases in Travel Agency 1999
income before interest, depreciation and
amortization over 1998 $ 18,414
Increase in consulting and other income $ 90,000
Increase in general corporate overhead $ (6,129)
The increase in real estate education 1999 results over 1998 consists of
the following:
Increase
1999 1998 (Decrease)
---- ---- ----------
Revenue $148,861 $122,757 $ 26,104
-------- -------- --------
Costs and expenses
Personnel expense 68,104 63,920 4,184
Facility cost 13,804 18,873 (5,069)
Other operating cost 27,343 20,949 6,394
-------- -------- --------
Total 109,251 103,742 5,509
-------- -------- --------
Income before interest,
depreciation and amortization $ 39,610 $ 19,015 $ 20,595
======== ======== ========
The adult education division results improved by $20,595. The improvement
was due to a $26,104 increase in revenues offset by a $5,509 increase in
operating costs. The revenue increase is the
12
<PAGE>
result of additional enrollments including those at the new East campus. The
operating cost increase consists of a $4,184 increase in personnel expense,
including additional marketing personnel, a $5,069 decrease in facility costs
and a $6,394 increase in other operating costs.
The decrease in the travel agency 1999 loss before interest, depreciation
and amortization consists of the following:
Increase
1999 1998 (Decrease)
---- ---- ----------
Sales $361,125 $ 281,339 $ 79,786
Cost of sales 313,074 255,121 57,953
-------- --------- --------
Gross profit 48,051 26,218 21,833
-------- --------- --------
Operating costs
Personnel expense 30,793 20,879 9,914
Facility cost 4,874 2,528 2,346
Other operating costs 4,823 13,664 (8,841)
-------- --------- --------
Total 40,490 37,071 3,419
-------- --------- --------
Income (Loss) before interest
depreciation and amortization $ 7,561 $ (10,853) $ 18,414
======== ========= ========
Sales for the travel agency operation increased by $79,786 for the quarter
ended March 31, 1999 over the agencies' sales for the three months ended March
31, 1998, with a gross profit increase of $21,833. The gross profit percentage
improved from 9% to 13% primarily due to an increase in the portion of sales
attributable to cruise and tours sales where the gross profit percentage
generally ranges from 10% to 16%. Operating costs for the quarter were $40,490
compared to $37,071 for the three months ended March 31, 1999.
Other revenue consists of the $90,000 of management fees from Neo Vision,
Inc., the subsidiary acquired on June 30, 1998, and not consolidated until the
acquisition was fully assured on March 31, 1999. The management fee of $90,000
represents the $30,000 per month charge to Neo Vision, Inc. for executive
management, general and administrative expense provided by the Company.
General corporate overhead increased by $6,129.
In the quarter ended March 31, 1999, depreciation and amortization
increased by $2,185 and interest expense increased by $540 as compared to the
three months ended March 31, 1998.
13
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The working capital deficit increased by $1,195,384 from September 30, 1998
to $1,615,805. Current assets increased by $107,893 from September 30, 1998 to
$201,209. The increase consists of a $2,099 decrease in cash, a $93,258 increase
in accounts receivable, and a $16,734 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 $1,303,277 from September 30, 1998 to
$1,817,014 at March 31, 1999. The increase consists of a $3,551 increase in the
accrued interest related to the Company's convertible debentures, a $820,677
increase related to the Neo Vision, Inc. convertible debentures, a $339,553
increase in accounts payable, including $233,818 applicable to Neo Vision, Inc.,
a $96,902 increase in accrued expenses which consists primarily of increases in
the accrued expense related to Neo Vision, Inc. Unearned tuition increased by
$16,424.
The long term note receivable of $25,000 at March 31, 1999 is related to
the sale of Hansen and Associates, Inc. At March 31, 1999, property and
equipment increased by $1,539,049 as a result of equipment additions of
$1,546,022 offset by depreciation of $6,973. The equipment additions during the
period ended March 31, 1999 consist of $21,076 in additions by the Company
consisting primarily of $18,583 of office furniture and equipment for the travel
segment and $1,524,946 related to the Neo Vision, Inc. acquisition, which has
been consolidated as of March 31, 1999, consisting of the following:
Video software and systems $1,097,061
Video walls equipment 324,188
Central Office computerized
transmission center equipment 93,166
Office furniture and equipment 10,531
----------
$1,524,946
==========
Goodwill decreased by $2,997 for amortization in the six months ended March
31, 1999. Course materials decreased by $983 due to amortization in the six
months ended March 31, 1999. Other assets increased by $38,244 during the six
months ended March 31, 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. The operating agreement provides that the Company will
manage RVP-LLC and that profits and losses will be allocated 90% to a trust
whose trustee is the individual from whom the RV Park consulting fee has been
earned, with the remainder allocated to the Company.
The Company has earned a consulting fee of $412,999 relating to its
research project on the recreational vehicle park industry net of its
contribution to RVP-LLC. The Company for over two years has investigated the
recreational vehicle park industry and instituted a program to establish a chain
of RV parks. In connection therewith, the Company has earned a consulting fee
for its research and development from an unrelated individual, who desires to
participate in the RV Park program, from
14
<PAGE>
which it will contribute $1,700,000 to RVP-L.L.C. The net consulting fee at
September 30, 1998 consists of the following:
* Fee, net of contribution to RVP-L.L.C. $300,000
* Equity in RVP-L.L.C. 112,999
--------
$412,999
========
The consulting fee revenue was earned upon completion of the research and
the agreement with the unrelated individual who is the trustee of the family
trust that holds 90% of RVP-LLC. 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
in the year ending September 30, 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 September 30, 1998, the members equity of RVP-LLC is $1,707,500 and
consists primarily of the $1,700,000 capital contribution to be received from
the consulting fee which for financial reporting purposes reduces the member's
equity of RVP-LLC. The Company will not recognize any equity in RVP-LLC until
the capital contribution of $1,700,000 is received. The Company's interest in
RVP-LLC, if the capital contributions were recognized, would be approximately
$135,988.
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 $11,029 in the six months ended March 31, 1999.
Long-term debt increased by $17,863 during the six months ended March 31,
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
15
<PAGE>
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 5 and 12 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 August 1999. Neo Vision has engaged
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, 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 year ended September 30, 1999. 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 AND OTHER INDEBTEDNESS OF THE COMPANY AND NEO VISION
The Company has outstanding convertible debentures of $56,450 plus related
accrued interest of $33,591 at September 30, 1998. 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 ($7.50 of
outstanding amount for one share of New Common Stock). The Company also has long
term debt of $31,360 of which $26,000 is a current liability. The long term debt
consists of a note payable from a bank of $1,666. This note is due in monthly
principal payments of $833 plus interest at 10.5% per annum. Additionally, the
Company has notes payable to trade creditors in the amount of $23,027. These
notes payable carry interest rates ranging from 10% to 18%. The Company has
other current liabilities consisting of notes payable to a bank of $30,000,
accounts payable of $196,469, accrued expenses of $204,128 and unearned tuition
of $67,474. (See discussion elsewhere in this Management's Discussion and
Analysis.)
As of March 31, 1999, Neo Vision had approximately $800,000 in outstanding
convertible debentures bearing interest at rates of between 10% and 12% per
annum, with total accrued interest at March 31, 1999 of $84,000. 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
16
<PAGE>
$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, approximately 885,000 shares of New Common
Stock would be issued if all of the debenture holders elected to convert.
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.
At March 31, 1999, Neo Vision also has other current liabilities consisting
of notes payable of $20,170, accounts payable of $233,818, accrued expenses of
$106,836 and unearned revenue of $11,850. Further, at March 31, 1999, Neo Vision
has unpaid management fees and costs due to the Company of $11,850
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
$800,000. 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 -
Managements Discussion and Analysis of Financial Condition and Results of
Operations, Outstanding Debentures and Other Indebtedness of the Company and Neo
Vision for a discussion of the convertible debentures of the Company and Neo
Vision, Inc.
17
<PAGE>
ITEM 5. OTHER INFORMATION
On June 30, 1998, the Company acquired Neo Vision, Inc. in tax-free
exchange of 2,000,000 of the Company's Class A common shares for all of the
outstanding shares of Neo Vision, Inc.
On March 31, 1999, the acquisition of Neo Vision, Inc. became fully assured
when the six Neo Vision shareholders elected not to rescind the Exchange
Agreement. Reference is made to Note 3 of the March 31, 1999 financial
statements for a complete discussion of the Neo Vision, Inc. acquisition.
On April 27, 1999, Mr. Albert Lundstrom, a director and the President and
Chief Executive Officer, and Mr. Jack Eberenz, a director and the Executive Vice
President and Secretary, both resigned as employees and directors of the Company
and Neo Vision, Inc. The Board of Directors has agreed to negotiate a settlement
agreement with Mr. Lundstrom and Mr. Eberenz and if a satisfactory settlement
cannot be reached, the parties have agreed to mediation or binding arbitration.
Harry V. Eastlick, who served as Chairman of the Board and Chief Executive
Officer until June 30, 1998, has been reelected as Chairman of the Board and
Chief Executive Officer.
The Company intends to hold a special shareholders meeting as soon as
possible to present a proposal to amend and restate the Company's Certificate of
Incorporation. The amendment is expected to propose to amend the Company's
Certificate of Incorporation to: (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; (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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27 - Financial Data Schedule
(b) Reports on Form 8-K
The registrant filed a current report on Form 8-K on March 18, 1999 with
respect to the election notice and form related to the six former Neo Vision,
Inc. shareholders' right to elect to rescind the Exchange Agreement.
18
<PAGE>
SIGNATURES
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: June 2, 1999 /s/ Harry V. Eastlick
----------------- ----------------------------------
Harry V. Eastlick
Chairman of the Board and
Chief Financial Officer
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