SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
UNITED STATES AIRCRAFT CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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"PRELIMINARY COPY"
UNITED STATES AIRCRAFT CORPORATION
3625 N. 16TH STREET, SUITE 112
PHOENIX, ARIZONA 85016
(602) 263-8887
Dear Stockholders: June 15, 1999
You are cordially invited to attend a special meeting of the
stockholders of United States Aircraft Corporation (the "Company") to be held at
3121 E. Greenway Road, Suite 201, Phoenix, Arizona 85032 on June 29, 1999 at
10:00 a.m. Arizona time (the "Special Meeting").
At the Special Meeting, you will be asked to approve a proposal to
amend and restate the Company's Certificate of Incorporation, authorizing: (i)
the reclassification of the Company's Class A Common Stock and Class B Common
Stock into 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 5 shares of Class A Common Stock into
one share of New Common Stock and shares of Class B Common Stock will be
reclassified into New Common Stock on the basis of 6 1/2 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 name of the Company from United
States Aircraft Corporation to Neo Vision Corporation; and (v) make certain
technical amendments set forth in the Company's First Restated Certificate of
Incorporation attached as APPENDIX I to the Proxy Statement.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT AND
RESTATEMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION, AS BEING FAIR TO, AND
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. THE BOARD OF
DIRECTORS OF THE COMPANY RECOMMENDS THAT ITS STOCKHOLDERS VOTE FOR APPROVAL OF
THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION.
APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S CERTIFICATE
OF INCORPORATION WILL REQUIRE AN AFFIRMATIVE VOTE OF A MAJORITY OF THE
OUTSTANDING SHARES OF BOTH THE COMPANY'S CLASS A COMMON STOCK AND CLASS B COMMON
STOCK, EACH VOTING SEPARATELY AS A CLASS. IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED AT THE SPECIAL MEETING, WHETHER OR NOT YOU PLAN TO ATTEND.
ACCORDINGLY, WE URGE YOU TO COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE EVEN IF YOU PLAN TO
ATTEND THE SPECIAL MEETING. YOUR VOTE IS IMPORTANT WITH REGARD TO THE NUMBER OF
SHARES THAT YOU OWN. YOUR PROMPT RETURN OF THE COMPLETED PROXY SAVES THE COMPANY
THE EXPENSE OF COSTLY PROXY SOLICITATION.
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You may revoke your Proxy if you decide to attend the Special Meeting
and vote in person. Should you require assistance concerning your Proxy or if
you have any questions regarding the voting procedure or the Proxy Statement,
please feel free to contact the undersigned at (602) 263-8887.
Sincerely,
/s/ Harry V. Eastlick
Harry V. Eastlick
Chief Executive Officer
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"PRELIMINARY COPY"
UNITED STATES AIRCRAFT CORPORATION
3625 N. 16TH STREET, SUITE 112
PHOENIX, ARIZONA 85016
(602) 263-8887
NOTICE OF SPECIAL MEETING OF THE STOCKHOLDERS
TO BE HELD JUNE 29, 1999
Notice is hereby given that a special meeting of the stockholders (the
"Special Meeting") of United States Aircraft Corporation, a Delaware corporation
(the "Company") will be held at 3121 E. Greenway Road, Suite 201, Phoenix,
Arizona 85032 on June 29, 1999, at 10:00 a.m., Arizona time, for the following
purposes:
1. To amend and restate the Company's Certificate of Incorporation to:
(i) authorize the issuance of up to 100,000,000 shares of a single new class of
common stock, $.001 par value per share ("New Common Stock"); (ii) reclassify
the Company's Class A Common Stock and Class B Common Stock into shares of New
Common Stock on the basis of 5 shares of Class A Common Stock into one share of
New Common Stock and 6 1/2 shares of Class B Common Stock into one share of New
Common Stock; (iii) authorize the issuance of up to 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 attached as APPENDIX I to
the Proxy Statement
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Only holders of record of the Company's Class A Common Stock or Class B
Common Stock at the close of business on June 2, 1999, the record date of the
Special Meeting, are entitled to notice of and to vote at the Special Meeting
and any adjournments thereof. The approval of the proposal to amend and restate
the Company's Certificate of Incorporation requires the affirmative vote of a
majority of the outstanding shares of both the Class A Common Stock and Class B
Common Stock, each voting separately as a class.
You are cordially invited to attend the Special Meeting in person.
Whether or not you plan to attend the Special Meeting, you are urged to
complete, date, sign, and return the accompanying proxy card in the enclosed
postage-paid envelope as soon as possible. You may revoke your written proxy by
delivering a written instruction, or a duly executed proxy bearing a later date,
to the Secretary of the Company at any time prior to or at the Special Meeting
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or by attending the Special Meeting and voting in person. However, returning a
proxy now will assure your vote is counted at the Special Meeting if you are
unable to attend.
By Order of the Board of Directors,
/s/ Harry V. Eastlick
Harry V. Eastlick
Chairman of the Board of Directors
Phoenix, Arizona
June 15, 1999
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. PLEASE
COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
STOCKHOLDERS ATTENDING THE MEETING MAY VOTE PERSONALLY, IN WHICH EVENT THE
SIGNED PROXIES WILL BE REVOKED.
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"PRELIMINARY COPY"
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PROXY STATEMENT
UNITED STATES AIRCRAFT CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
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This Proxy Statement is being furnished to the stockholders of United
States Aircraft Corporation, a Delaware corporation (the "Company"), in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "Company Board") for use at the Special Meeting of Stockholders of
the Company (including any adjournments or postponements thereof) (the "Special
Meeting"), to be held on June 29, 1999 at the time and place set forth in the
accompanying notice. Only stockholders of record as of the close of business on
June 2, 1999, the record date of the Special Meeting, are entitled to notice of
and to vote at the Special Meeting.
The purpose of the Special Meeting is to consider and vote upon: a
proposal to amend and restate the Company's Certificate of Incorporation. The
First Restated Certificate of Incorporation is attached to this Proxy Statement
as APPENDIX I.
The Company seeks your approval to amend and restate the Company's
Certificate of Incorporation to: (i) authorize the issuance of up to 100,000,000
shares of New Common Stock; (ii) reclassify the currently outstanding shares of
Class A Common Stock and Class B Common Stock into shares of New Common Stock;
(iii) authorize the issuance of up to 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 attached as APPENDIX I to this Proxy Statement.
The outstanding shares of the Company's Class A Common Stock, are
traded on the NASDAQ OTC Bulletin Board under the symbol "UAIRA." The Company
intends to reserve a new symbol, "NEOV", for trading of shares of New Common
Stock on the NASDAQ OTC Bulletin Board.
This Proxy Statement and the accompanying proxy card are first being
mailed to the stockholders of the Company on or about June 15, 1999.
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE
TRANSACTIONS CONTEMPLATED THEREBY, SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE REGULATORY AUTHORITY NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT IS
JUNE 15, 1999
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE OFFER
CONTAINED IN THIS PROXY STATEMENT, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON. THIS PROXY STATEMENT DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO OR
SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT AT ANY
TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
Page
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FORWARD-LOOKING STATEMENTS................................................ 1
AVAILABLE INFORMATION..................................................... 1
SUMMARY.....................................................................2
RISK FACTORS................................................................4
SUMMARY HISTORICAL FINANCIAL DATA..........................................16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................19
THE SPECIAL MEETING........................................................31
BUSINESS OF UNITED STATES AIRCRAFT CORPORATION.............................32
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
DIRECTORS AND OFFICERS.....................................................45
PRICE RANGE OF COMMON STOCK................................................46
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.....................................46
PROPOSAL TO AMEND AND RESTATE THE COMPANY'S
CERTIFICATE OF INCORPORATION...............................................47
EXPERTS....................................................................50
LEGAL OPINIONS.............................................................50
OTHER MATTERS..............................................................50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ...............................F-1
First Restated Certificate of Incorporation........................Appendix I
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FORWARD-LOOKING STATEMENTS
Certain statements and information contained or incorporated by
reference in this Proxy Statement are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, which
statements can be identified by the use of forward-looking terminology such as
"may," "will," "believe," "expect," "anticipate," "estimate," "project" or
"continue" or the negative thereof or other comparable terminology. By their
nature, forward-looking statements 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.
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, they can give
no assurance that the expectations will be achieved.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements, and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements, and other information filed by the Company with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1924, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its Regional Office at Suite 1400, 500 West Madison Street, Chicago, Illinois
60661 and Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of
such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
the prescribed fees. The Commission maintains a Web Site that contains reports,
proxy and information statements and other information regarding the Company and
other registrants that have been filed electronically with the Commission. The
address of the Web Site is http://www.sec.gov.
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SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF
ALL MATERIAL INFORMATION REGARDING THE COMPANY, OR THE MATTERS TO BE CONSIDERED
AT THE SPECIAL MEETING. THIS SUMMARY IS QUALIFIED IN ALL RESPECTS BY THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROXY STATEMENT, THE APPENDICES
HERETO AND THE DOCUMENTS REFERRED TO HEREIN. UNLESS OTHERWISE DEFINED HEREIN,
CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROXY
STATEMENT.
THE COMPANY
The Company is engaged in the adult real estate education industry and
the travel service industry. Neo Vision, Inc., acquired on June 30, 1998,
provides advertising, programming, and information to remote audiences using
computer, video, and signal transmission technology, accomplished by showing
mixed-media programming and advertising onto video screen walls in regional
shopping malls or airports through satellite transmission from Neo Vision's
production facility in Phoenix, Arizona. See, "BUSINESS OF UNITED STATES
AIRCRAFT CORPORATION."
SPECIAL MEETING
A special meeting of stockholders of the Company (the "Special
Meeting") will be held on June 29, 1999, at 10:00 a.m., Arizona time, at 3121
East Greenway Road, Suite 201, Phoenix, Arizona. The purpose of the Special
Meeting is to consider and vote upon a proposal to amend and restate the
Company's Certificate of Incorporation. See "THE SPECIAL MEETING," and "PROPOSAL
TO AMEND AND RESTATE THE COMPANY'S CERTIFICATE OF INCORPORATION."
RECORD DATES; VOTES REQUIRED
Only holders of record of the Company's Class A Common Stock and Class
B Common Stock at the close of business on June 2, 1999 (the "Record Date") are
entitled to notice of and to vote at the Special Meeting. As of the Record Date,
there were 9,927,504 shares of the Company's Class A Common Stock outstanding,
and 4,962,801 shares of the Company's Class B Common Stock outstanding, each of
which will be entitled to one vote on each matter to be acted upon or which may
properly come before the Special Meeting. The presence of stockholders at the
Special Meeting, in person or by proxy, entitled to cast a majority of all votes
entitled to be cast at such meeting will constitute a quorum. The affirmative
vote of a majority of the outstanding shares of both the Company's Class A
Common Stock and Class B Common Stock, each voting separately as a class, is
required to approve the amendment and restatement of the Company's Certificate
of Incorporation.
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As of the Record Date, the directors and executive officers of the
Company collectively beneficially own a total of 898,708 shares of Class A
Common Stock (representing approximately 9% of the outstanding shares of Class A
Common Stock), 2,750,000 shares of Class B Common Stock (representing 55% of the
outstanding shares of Class B Common Stock), and 3,648,708 shares of the
collective outstanding shares of Class A Common Stock and Class B Common Stock
(representing approximately 24% of the collective outstanding shares of Class A
Common Stock and Class B Common Stock). All of such shares are expected to be
voted in favor of the proposal. See "THE SPECIAL MEETING - Vote Required."
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
The Company's Board of Directors has unanimously approved the proposed
amendment and restatement of the Company's Certificate of Incorporation.
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RISK FACTORS
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, WHICH STATEMENTS CAN BE IDENTIFIED BY
THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "BELIEVE,"
"EXPECT," "ANTICIPATE," "ESTIMATE," "PROJECT" OR "CONTINUE" OR THE NEGATIVE
THEREOF OR OTHER COMPARABLE TERMINOLOGY. THE FOLLOWING MATTERS AND CERTAIN OTHER
FACTORS NOTED THROUGHOUT THIS PROXY STATEMENT AND EXHIBITS HERETO AND THERETO
CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO
ANY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES,
THAT COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PREDICTED IN
ANY SUCH FORWARD-LOOKING STATEMENTS.
In considering whether to approve the proposal to amend and restate the
Company's Certificate of Incorporation, the Company's stockholders should
carefully consider, in addition to the other information in this Proxy
Statement, the following matters:
LACK OF FAIRNESS OPINION
The Company did not obtain any independent evaluation in determining
whether the difference in the exchange ratio between the Class A Common Stock
and Class B Common Stock was fair from a financial point of view. Therefore,
each stockholder must make his or her own determination as to the fairness of
the reclassification of the Company's Class A Common Stock and Class B Common
Stock without any expert advice. Stockholders should consider consulting their
own financial advisors prior to voting on the approval of the amendment and
restatement of the Company's Certificate of Incorporation. There can be on
assurance that the terms of the reclassification of the Class A Common Stock and
Class B Common Stock into new Common Stock are fair to stockholders from a
financial point of view.
DEPENDENCE UPON MANAGEMENT
Prior to the acquisition of Neo Vision, Inc., the Company's Board of
Directors consisted of Harry Eastlick, Donald Cline, Whipple Manning, and John
Thomas. In accordance with the acquisition of Neo Vision, Inc., the Company's
Board of Directors elected Anthony Christopher, Albert Lundstrom, and Jack
Eberenz as directors and executive officers of the Company. In addition, the
Company entered into employment agreements with Messrs. Christopher, Lundstrom,
Eberenz, and Eastlick. Mr. Christopher, the former principal shareholder of Neo
Vision, resigned on November 9, 1998 as both an employee and as a director;
however, in April 1999 he has agreed to return to the Company on a consulting
basis. Mr. Albert Lundstrom, the President and Chief Executive Officer from July
1, 1998, and Mr. Jack Eberenz, the Executive Vice President and Secretary from
July 1, 1998, both resigned on April 27, 1999 as employees and directors of the
Company and Neo Vision, Inc. The resignations leave Harry Eastlick, who has been
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reelected Chairman of the Board and Chief Executive Officer, as the only
remaining executive officer. There will likely be a period of adjustment as new
management of the Company is instituted. The loss of Harry Eastlick or the lack
of availability of Mr. Christopher could result in a significant decrease in the
Company's prospects for success. In addition, there is no assurance that the new
management group to be formed will be able to achieve profitability for the
Company.
RESIGNATION OF EXECUTIVE OFFICERS
In accordance with the July 30, 1998 Exchange Agreement for the acquisition
of Neo Vision, Anthony Christopher, Albert Lundstrom and Jack Eberenz were
elected as directors and executive officers of the Company. On November 9, 1998,
Mr. Christopher resigned his position as both a director and executive officer
of the Company and Neo Vision. On April 27, 1999, Albert Lundstrom and Jack
Eberenz resigned as directors and executive officers of the Company and Neo
Vision. 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 and binding arbitration. With the
resignation of Mr. Lundstrom and Mr. Eberenz, Mr. Christopher, in April 1999,
agreed to return to the Company and Neo Vision on a consulting basis.
CONTINUING LOSSES; NEED FOR ADDITIONAL FUNDING
The Company's business activities prior to the acquisition of Neo
Vision have suffered continuing losses and Neo Vision has incurred losses since
inception. See "RISK FACTORS - "Risks Associated with Neo Vision" and "Risks
Associated with of the Company." As a result, the Company had outstanding
indebtedness of approximately $519,000 at September 30, 1998, and Neo Vision had
outstanding indebtedness of approximately $1,268,000 at such date. Although the
Company will not assume the Neo Vision indebtedness, that indebtedness will not
be repaid as a result of the acquisition of Neo Vision and will remain the
obligation of Neo Vision after the approval of the reclassification. The Company
expects that $800,000 of Neo Vision indebtedness will be converted into New
Common Stock upon the approval of the reclassification hereunder through
appropriate placement. Currently, neither the Company nor Neo Vision has the
ability to repay such debt. Further, the Company may experience increased losses
as a result of the anticipated expansion of Neo Vision's business. The Company
will require additional funding to cover these losses and expand its business.
This funding may include debt and equity financing, all of which may be highly
dilutive to the stockholders of the Company. No assurance can be given as to the
ability of the Company to obtain needed financing or the terms of such
financing. The inability of the Company to obtain necessary financing could
result in the inability of the Company to expand its business or even continue
its operations. See "CONSOLIDATED FINANCIAL STATEMENTS" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
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RISKS ASSOCIATED WITH ISSUANCE OF PREFERRED STOCK
Approval of the amendment and restatement of the Company's Certificate
of Incorporation will enable the Company to issue up to 75,000,000 shares of
preferred stock. While providing flexibility in connection with possible
financings, acquisitions, and other corporate purposes, the issuance of
Preferred Stock, among other things, could adversely affect the relative voting
power of the holders of common stock, could have a dilutive effect on earnings
per share, and under certain circumstances, be used as a means of discouraging,
delaying, or preventing a change in control of the Company. There are no
outstanding shares of Preferred Stock at the present time, or any commitments,
options or other rights presently outstanding for the issuance of Preferred
Stock. The Company has no present plan to issue shares of its Preferred Stock,
although the Company's need for additional financing increases the likelihood
the Company may find it necessary or desirable to issue Preferred Stock.
RIGHTS TO ACQUIRE SHARES
A total of 160,150 shares of New Common Stock have been reserved for
issuance upon exercise of warrants previously granted by Neo Vision at a
weighted average exercise price of $3.00 per share, and, based on the
outstanding principal and accrued interest of Neo Vision debentures (the " Neo
Vision Debentures") at March 31, 1999, 1,500,000 shares have been reserved for
issuance pursuant to such Debentures, for the payment to a Neo Vision financial
consultant for past services rendered to Neo Vision, for conversion of the
minority interest in NV-1, LLC and for conversion of the Company debentures and
accrued interest. During the terms of such options, warrants, and Neo Vision
Debentures, the holders thereof will have an opportunity to profit from an
increase in the market price of Common Stock with resulting dilution in the
interests of holders of Common Stock. The existence of such stock options and
warrants may adversely affect the terms on which the Company can obtain
additional financing, and the holders of such options and warrants can be
expected to exercise such options at a time when the Company, in all likelihood,
would be able to obtain additional capital by offering shares of its Common
Stock on terms more favorable to the Company than those provided by the exercise
of such options and warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock of the Company in the
public market following the reclassification of the Company's Class A Common
Stock and Class B Common Stock into New Common Stock could adversely affect
prevailing market prices. Of the 2,749,890 shares of New Common Stock to be
outstanding after the reclassification of the Company's Class A Common Stock and
Class B Common Stock, approximately 1,750,000 shares will be eligible for resale
in the public market without restriction. Further, the Company will have
outstanding warrants convertible into up to 160,150 shares of New Common Stock.
These outstanding warrants will be immediately exercisable.
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CHANGE IN CONTROL PROVISIONS
The Company's proposed First Restated Certificate of Incorporation (the
"Restated Certificate") and the Delaware General Corporation Law (the "General
Corporation Law") contain provisions that may have the effect of making more
difficult or delaying attempts by others to obtain control of the Company, even
when these attempts may be in the best interests of stockholders. The Restated
Certificate also authorizes the Board of Directors, without stockholder
approval, to issue one or more series of preferred stock which could have voting
and conversion rights that adversely affect the relative voting power of the
holders of Common Stock. The General Corporation Law also imposes conditions on
certain business combination transactions with "interested stockholders" (as
defined therein).
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 NASDQ OTC 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 has been 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. The
reclassification of both Class A Common Stock and Class B Common Stock into a
single new class of Common Stock may decrease the liquidity of any stockholder's
investment, especially since the reclassification will reduce the number of
freely tradable shares of Class A Common Stock to one-fifth of their former
number. Further, the Company's New Common Stock will not be traded on the NASDAQ
SmallCap market, and it is unlikely that such stock would be so traded in the
foreseeable future. The Company's New Common Stock also may constitute a "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 New Common Stock.
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.
RISKS ASSOCIATED WITH NEO VISION
NEW BUSINESS CONCEPT; LIMITED OPERATING HISTORY; CONTINUING LOSSES;
GOING-CONCERN CONSIDERATIONS
Neo Vision was incorporated in June 1997 and completed its development
stage in June 1998. Neo Vision has a limited operating history with respect to
the distribution and marketing of its video wall advertising business. Thus, Neo
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Vision will be subject to all of the risks inherent with a start-up business. In
particular, Neo Vision has had negative cash flow and operating losses since
inception. Further, Neo Vision gross revenues at the two Las Vegas locations
have declined since November 1998 and the video system at the McCarran Airport
in Las Vegas has been closed with the equipment being liquidated. Neo Vision
reported a net loss of approximately $(675,865) for the year ended September 30,
1998. Neo Vision will require capital provided by securities offerings, and in
all likelihood, significant additional capital to fully implement its business
plan and expand its operations. There can be no assurance that Neo Vision will
be able to achieve, or maintain, profitable operations or positive cash flow at
any time in the future. In addition, the report by Neo Vision's independent
certified public accountants on Neo Vision's financial statements for the fiscal
year ended September 30, 1998 states that Neo Vision's significant operating
losses raise substantial doubt about Neo Vision's ability to continue as a going
concern. See "CONSOLIDATED FINANCIAL STATEMENTS" AND "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
NEED FOR ADDITIONAL CAPITAL; RISK OF SUBSTANTIAL DILUTION
The Company anticipates that Neo Vision will require substantial
additional funding to adequately meet management's growth objectives and fully
implement its business plan. Further, in the event that Neo Vision is unable to
obtain sufficient financing, there is no assurance that Neo Vision will be able
to successfully penetrate the video wall advertising marketplace, and achieve
widespread acceptance. The Company may seek additional debt or equity financing
through banks, other financial institutions, companies, or individuals.
Management has engaged financial consultants to assist in obtaining $500,000 to
$750,000 in additional capital. However, no assurance can be given that the
Company will be able to obtain any such additional equity or debt financing on
satisfactory terms or at all. No assurance can be given that any such financing,
if obtained, will be adequate to meet Neo Vision's needs for the foreseeable
future. If the Company is not able to successfully obtain sufficient capital,
through securities offerings and from additional sources, Neo Vision's ability
to continue as a viable line of business for the Company will be substantially
impaired.
EXISTING DEBT OBLIGATIONS
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 $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
8
<PAGE>
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.
UNCERTAINTY OF WIDESPREAD MARKET ACCEPTANCE OF PRODUCTS; LIMITED MARKETING
EXPERIENCE
Neo Vision started marketing its video wall advertising service in June
1998. Neo Vision has entered into two agreements, both in Las Vegas, Nevada, to
provide its video wall advertising service and Neo Vision has not been
successful in selling advertising on the Las Vegas walls. Neo Vision is
negotiating other agreements to offer its service to various malls and airports
throughout the country. However, there can be no assurance that additional
agreements will be executed in the near future or that existing agreements will
be profitable. As is typical with new services, demand and market acceptance for
Neo Vision's services are subject to a high level of uncertainty. The
profitability will be highly dependent on its ability to persuade its potential
customers to implement the use of its video wall technology rather than more
traditional methods of advertising. Achieving widespread market acceptance for
the video wall advertising service will require substantial marketing efforts
and the expenditure of sufficient funds to create brand recognition, customer
demand, and to cause potential customers to consider the potential benefits of
Neo Vision's service as against more traditional advertising methods to which
they have long been accustomed. Moreover, Neo Vision's ability to achieve
widespread market acceptance will depend in part on Neo Vision's ability to
locate, hire, and retain sufficient qualified marketing personnel and to fund
marketing efforts. There can be no assurance that the video wall advertising
9
<PAGE>
service will achieve widespread market acceptance or that Neo Vision's marketing
efforts will result in profitable operations.
CERTAIN FACTORS AFFECTING OPERATING RESULTS
Neo Vision's operating results will be affected by a wide variety of
factors that could adversely affect its total revenue and profitability. These
factors, many of which are beyond the control of the Company and Neo Vision,
include creating and continuing interest in video wall advertising; Neo Vision's
success in obtaining and maintaining customer satisfaction with video wall
advertising; the level and timing of the demand for Neo Vision's services and
Neo Vision's ability to expand its personnel, equipment, and administrative
support functions; changes in the mix of services it provides; technological
changes; and competition and competitive pressures on prices. Neo Vision's
revenue and results of operations also may be subject to fluctuations based upon
general economic conditions. If there were to be a general economic downturn or
a recession, there would be a material adverse effect on Neo Vision's business,
operating results, and financial condition.
LACK OF DIVERSIFICATION; RISKS OF INVESTING IN LIMITED PRODUCTS
The success of Neo Vision's business, will depend almost entirely on
the market acceptance of the video wall method of advertising. The plan of
operation, therefore, subjects Neo Vision to the economic fluctuations within
the advertising industry and increases the risk associated with its operations.
This primary dependence on one type of service renders Neo Vision more
vulnerable than companies with a more diversified offering of services.
Significant delays in development could greatly affect Neo Vision's
competitiveness. There can be no assurance that Neo Vision's video wall method
of advertising will not become obsolete earlier than anticipated. There also can
be no assurance that the Company will be able to devote sufficient resources to
the research and development effort required to enable Neo Vision to meet future
technological changes. An investment in any aspect of the technological industry
is speculative and historically has involved a high degree of risk.
RISK OF LONG TERM ACCEPTANCE OF VIDEO WALL ADVERTISING
Because Neo Vision's video wall advertising method is new, it is
difficult to estimate the acceptance by potential advertising service users and
in turn, rates of rejection or dissatisfaction with the video wall method of
advertising. The failure of Neo Vision to achieve long-term acceptance of the
video wall method of advertising would have a material adverse effect upon Neo
Vision, and thus the Company's business.
MANAGEMENT OF GROWTH
The Company plans to expand Neo Vision's business significantly over
the next 12 months. The expansion of Neo Vision's business will require it to
enhance its operational, financial, and information systems; to motivate and
10
<PAGE>
manage its existing personnel and to attract and retain additional managerial,
technical, and marketing personnel; to enhance its technical equipment; and to
expand the development and marketing of video wall method of advertising. The
failure of Neo Vision to expand its systems, personnel, equipment, and
administrative resources on an effective basis could have a material adverse
effect on Neo Vision's business, and thus the Company's business, operating
results, and financial condition.
NEED FOR ADDITIONAL DEVELOPMENT OF CERTAIN PRODUCTS
The Company anticipates that Neo Vision's future research and
development activities combined with experience gained from future users of its
video wall advertising service could result in the need for further refinement
and development. The Company also expects Neo Vision to modify its services for
particular locations. There can be no assurance that unforeseen circumstances
will not require expensive additional development of Neo Vision's video wall
advertising service. In addition, the Company may in the future need to make
improvements of its video wall advertising service in order for it to remain
competitive. The costs for any such improvements may be substantial.
COMPETITION
Neo Vision's business is primarily proprietary in nature. Neo Vision
does not have patent protection for any of its proprietary technology and does
not believe that such protection is available. Thus, potential competitors could
implement advertising services similar to Neo Vision's video walls. Therefore,
no assurance can be given that Neo Vision's method of video wall advertising
will be able to successfully compete with these potential competitors. Further,
Neo Vision will be competing against advertising companies who utilize more
traditional methods of advertising and have established relationships with
potential Neo Vision clients.
YEAR 2000 COMPLIANCE
Neo Vision has assessed its Year 2000 issues and its readiness for this
potential problem. Neo Vision has examined its information technology systems
and believes that, given that its operations do not depend on information
technology as such, the Year 2000 should have no effect on its information
technology systems.
Further, Neo Vision has assessed its non-information technology systems
and believes that Neo Vision is Year 2000 compliant because it is operated using
personal, as opposed to mainframe, computer technology. These personal computers
were purchased in the last three years and run on a standard operating system.
In addition, all software run by Neo Vision is standard, off-the-shelf software
purchased in the last three years. Thus, due to the dates of purchase of its
systems, Neo Vision believes that all of its systems are Year 2000 compliant.
Beginning in January 1999, Neo Vision began seeking assurances from the
11
<PAGE>
manufacturers of its personal computers that such computers are indeed Year 2000
compliant. This will complete Neo Vision's internal examination of Year 2000
issues.
In establishing a Year 2000 remediation program, Neo Vision has entered
its next phase by implementing an examination procedure for its third-party
suppliers and vendors. As a component of this program, in January 1999 Neo
Vision began to send written requests for assurances that these third parties
are addressing their own Year 2000 issues. Most significantly, Neo Vision
intends to address the Year 2000 readiness state of the providers of its
satellite delivery system by requesting a written Year 2000 compliance program
which these providers are implementing. In the event that any suppliers or
vendors do not exhibit Year 2000 readiness to the satisfaction of management,
such suppliers or vendors will be replaced as management deems appropriate.
The cost of Neo Vision's Year 2000 compliance program has not had, and
is not expected to have, a material impact on its results of operations,
financial condition, or liquidity. Neo Vision has not been required to
prematurely replace equipment due to Year 2000 issues, nor has it needed to hire
Year 2000 solution providers. Further, Neo Vision does not anticipate the
necessity of such expenses in the future. Finally, Neo Vision anticipates that
the cost of ensuring compliance of third parties will be minimal.
Neo Vision anticipates, in its reasonably likely worst case Year 2000
scenario, that the failure of its clients and suppliers to adequately address
their own Year 2000 issues could impact such parties' ability to provide the
materials used in constructing new video walls or to make payments for Neo
Vision's services. In addition, the failure of the providers of the satellite
delivery system to address Year 2000 issues could negatively impact Neo Vision's
ability to transmit signals onto its video walls, which could interrupt the
images displayed on these walls. This could adversely affect Neo Vision's
business, financial condition, cash flows, and results of operations.
Neo Vision's greatest Year 2000 concern is the transmission of signals
onto its video walls. Neo Vision is in the process of completing its contingency
plans for such an event. In the event of an interruption of the satellite
delivery system, Neo Vision anticipates being able to reroute the signals for
delivery over conventional land lines at little additional cost. Neo Vision
believes that the cost to engage stand-by providers for signal delivery
outweighs the potential benefit of such contracts at this time. If Neo Vision is
not satisfied with the steps taken by the satellite provider to prepare for the
Year 2000, Neo Vision will contract for additional providers at that time. Neo
Vision anticipates receiving this information and making this determination by
July 1999. This analysis, and any action taken as a result of this analysis,
will complete Neo Vision's contingency plans. Even if action is necessary, Neo
Vision anticipates that its contingency plans will be completed by August 1999.
12
<PAGE>
RISKS ASSOCIATED WITH THE SCHOOL AND TRAVEL OPERATIONS
LACK OF PROFITABLE OPERATIONS
The Company's real estate school, travel agency, and real estate lines
of business experienced a net loss of $(189,484) and a net loss of $(49,922) for
the fiscal years ended September 30, 1998 and 1997, respectively. No assurance
can be given that the Company will be able to attain or maintain a profitable
level of operations for these lines of business in the future, or that it will
not continue to incur operating losses. Management expects the addition of Neo
Vision ultimately will improve its operating results; however, since Neo Vision
has just completed its development stage and advertising sales have not been
successful, no assurance can be given that it will contribute to the
profitability of the Company or that the Company's non-Neo Vision lines of
business will not cause additional losses.
GOING-CONCERN CONSIDERATIONS
At September 30, 1998, the Company was in default on certain
convertible debentures, and had a working capital deficiency of $414,921.
Management is taking actions to alleviate these conditions, including seeking
additional financing, which the Company's management believes will provide the
opportunity for the Company to continue as a going concern. However, no
assurance can be given that the Company will be successful in obtaining
necessary financing or that the Company will continue as an operating entity
without additional financing. In addition, 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. See "CONSOLIDATED FINANCIAL STATEMENTS" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
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 that
matured in December 1996 plus related accrued interest payable at September 30,
1998 of approximately $33,600. The Company has had no contact from the debenture
holders, who if they elected not to convert the debentures into common shares
pursuant to the debentures, could bring legal action against the Company. The
debentures and accrued interest would be converted into approximately 120,067
Class A Shares (24,013 New Common Shares) if the debenture holders elected to
convert. The Company currently does not have the ability to pay any of the
defaulted debentures and no assurance can be given that the Company will have
sufficient capital to pay such debts.
13
<PAGE>
DEPENDENCY ON ECONOMIC CONDITIONS ON THE ADULT EDUCATION AND TRAVEL SERVICE
BUSINESS
The Company's real estate school and travel agency line of business is
largely dependent on economic growth in its market area. At present, adult
education serves the real estate industry, which is experiencing significant
growth. Real estate education generally declines when real estate activity
declines. Travel services also generally follow general economic trends. If the
current economic activity slows, the depressed economy could slow and possibly
frustrate the Company's operations.
COMPETITION
The markets in which the Company sells its real estate school and
travel agency services are highly competitive. In the travel services industry,
the Company faces competition from larger and better capitalized companies, such
as American Express and Thomas Cook, which are better able to withstand
operating losses and the effects of a cyclical market. In the real estate school
industry, the Company competes with numerous local real estate schools offering
similar instructional courses.
YEAR 2000 COMPLIANCE
The Company has assessed its Year 2000 issues and its readiness for
this potential problem. The Company has examined its information technology
systems and believes that, given that the Company's operations do not depend on
information technology as such, the Year 2000 should have no effect on its
information technology systems.
Further, the Company has assessed its non-information technology
systems and believes that it is Year 2000 compliant because the Company is
operated using personal, as opposed to mainframe, computer technology. These
personal computers were purchased in the last three years and run on a standard
operating system. In addition, all software run by the Company is standard,
off-the-shelf software purchased in the last three years. Thus, due to the dates
of purchase of its systems, the Company believes that all of its systems are
Year 2000 compliant. Beginning in January 1999, the Company began seeking
assurances from the manufacturers of its personal computers that such computers
are indeed Year 2000 compliant. This will complete the Company's internal
examination of Year 2000 issues.
In establishing a Year 2000 remediation program, the Company has
entered its next phase by implementing an examination procedure for its
third-party suppliers and vendors. As a component of this program, in January
1999 the Company began to send written requests for assurances that these third
parties are addressing their own Year 2000 issues. Most significantly, the
Company intends to address the Year 2000 readiness state of its reservations
system provider, which is operated using mainframe technology, by requesting a
written Year 2000 compliance program which this provider is implementing. In the
event that any suppliers or vendors, including its reservation system provider,
14
<PAGE>
do not exhibit Year 2000 readiness to the satisfaction of management, such
suppliers or vendors will be replaced as management deems appropriate.
The cost of the Company's Year 2000 compliance program has not had, and
is not expected to have, a material impact on the Company's results of
operations, financial condition, or liquidity. The Company has not been required
to prematurely replace equipment due to Year 2000 issues, nor has the Company
needed to hire Year 2000 solution providers. Further, the Company does not
anticipate the necessity of such expenses in the future. Finally, the Company
anticipates that the cost of ensuring compliance of third parties will be
minimal.
The Company anticipates, in its reasonably likely worst case Year 2000
scenario, that the failure of its clients and suppliers to adequately address
their own Year 2000 issues could impact such parties' ability to provide the
information used in booking travel arrangements or to make payments for travel
agency services to the Company. In addition, the failure of the providers of the
travel agency reservations system could negatively impact the Company's ability
to make reservations for its customers. This could adversely affect the
Company's business, financial condition, cash flows, and results of operations.
The Company's greatest Year 2000 concern is the travel agency
reservations system. The Company has considered contingency plans for such an
event, but has ultimately concluded that no such plans are feasible due to the
centralized nature of the airline reservations system. However, due to the
importance of this system to the entire industry, the Company anticipates that
the providers of this system will provide assurances of their own Year 2000
compliance. If this system fails as a result of a Year 2000 problem, the Company
could lose revenue generated from booking reservations. If such failure was
prolonged, the Company's financial condition could be negatively impacted.
LIQUIDITY
The Company had a working capital deficiency of $414,921 at September
30, 1998. Obtaining positive working capital and the completion of the Company's
expansion is dependent on the successful expansion of the Company's travel
segment, Neo Vision's video wall advertising business, renegotiations of certain
current liabilities, and obtaining other long-term financing.
15
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The summary historical operating data, balance sheet data and cash flow
data for the Company for each of the years ended September 30, 1994, 1995, 1996,
1997 and 1998 are derived from the audited financial statements of the Company
as reported in its Annual Reports on Form 10-K. The pro forma financial data is
based on the audited financial statements of the Company and of Neo Vision, Inc.
The summary historical operating data, balance sheet data, and cash
flow data, for the Company for the six months ended March 31, 1999 and 1998 are
derived from the unaudited financial statements as reported in its quarterly
report on Form 10-Q.
The summary consolidated financial data should be read in conjunction
with and is qualified in its entirety by, the respective audited financial
statements and notes thereto of the Company, included on pages F-1 through F-26,
the audited financial statement and note thereto as of September 30, 1998 and
for the year then ended of Neo Vision, Inc. starting on page F-35, and the six
month March 31, 1999 unaudited financial statements of the Company on pages F-27
through F-34.
16
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
FOR THE YEAR ENDED SEPTEMBER 30,
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Revenues $110,480 $193,640 $ 386,173 $1,222,243 $1,875,354
Gross profit -- -- -- 76,875 117,864
Income (loss)
before interest
expense, dep. and
amortization 7,011 48,509 33,604 (66,770) (129,582)
Depreciation and
Amortization 9,629 7,729 15,281 26,412 39,766
Interest Expense 37,950 9,819 12,979 14,933 20,136
Minority interest -- -- -- -- --
(Loss) from Write
Off of Plans and
Spec -- -- (649,999) -- --
Income (loss) from
Discontinued
Operations(1) (4,373) (2,356) 11,671 38,149(2) --
Net Income (loss) (44,941) 28,605 (632,984) (69,966) (189,484)
Net Income (loss)
per share (.01) (.00) (.06) (.01) (.01)
BALANCE SHEET DATA:
Total Assets 802,690 803,169 278,669 1,046,115 484,789
Long-term debt 404,307 127,933 31,967 620,979 5,360
Minority interest
Total Liabilities 622,161 220,008 240,992 941,404 519,097
Shareholders'
Investment 180,529 583,161 36,677 104,711 (34,308)
CASH FLOW DATA:
Cash provided (used)
in operating
activities (11,187) 3,690 (8,534) 34,025 (6,142)
Cash provided (used)
in investing activities (606) (24,895) (9,080) (117,264) 13,076
Cash provided by
financing activities 2,599 25,663 22,092 93,529 (19,291)
- ----------
(1) The four years ended September 30, 1996 have been restated to reflect
Hansen & Associates, Inc. dba Property Masters as a discontinued operation.
(2) Encludes the $33,752 gain on the sale of Hansen and Associates, Inc. dba
Property Masters.
(3) The Pro forma 1998 financial data reflects information based on the
assumption that the acquisition of Neo Vision, Inc. was consummated as of
October 1, 1997 and that the exchange of shares and conversion of the Neo
Vision debentures was completed.
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<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
FOR THE SIX MONTHS ENDED MARCH 31, 1999
1998 1999
---- ----
STATEMENT OF OPERATIONS DATA:
Revenues $ 915,736 $ 1,070,295
Gross profit 70,107 79,268
Income (loss)
before interest
expense, dep. and
amortization (27,109) 138,457
Depreciation and
Amortization 19,269 21,981
Interest Expense 6,391 6,873
Net Income (loss) (52,769) 109,603
Net Income (loss)
per share (.00) .01
BALANCE SHEET DATA:
Total Assets 2,051,628
Long-term debt 23,223
Minority interest 136,096
Total Liabilities 1,976,333
Shareholders'
Investment 75,295
CASH FLOW DATA:
Cash provided (used)
in operating activities 4,675 918
Cash provided (used)
in investing activities (20,637) (2,345)
Cash provided by
financing activities 13,863 (11,979)
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON 1998 TO 1997
The total revenue of $1,875,354 for the year ended September 30, 1998
is made up of $494,258 or 26% from the real estate education segment and
$1,281,689 or 68% from the travel agency segment with the remaining $99,407 or
6% consisting of consulting and miscellaneous income. Total revenue increased by
$653,111 in 1998 compared to a $836,070 increase in 1997. The 1998 revenue
increase consists of increases in real estate education revenue of $57,548,
travel agency sales of $505,145 and consulting and other revenues of $90,418.
The loss before interest, depreciation and amortization expense
increased by $62,812 and consists of the following:
Increase in Real Estate Education 1998
income before interest, depreciation
and amortization over 1997 $ 39,313
Increases in Travel Agency 1998
loss before interest, depreciation and
amortization over 1997 $ (3,395)
Increase in consulting and other income $ 90,418
Increase in general
corporate overhead $(189,148)
The increase in real estate education 1998 results over 1997 consists
of the following:
Increase
1998 1997 (Decrease)
---- ---- ----------
Revenue $494,258 $436,710 $57,548
-------- -------- -------
Costs and expenses
Personnel expense 251,414 245,085 6,329
Facility cost 61,553 54,659 6,894
Other operating cost 91,772 86,760 5,012
-------- -------- -------
Total 404,739 386,504 18,235
-------- -------- -------
Income before interest,
depreciation and
amortization $ 89,519 $ 50,206 $39,313
======== ======== =======
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<PAGE>
The adult education division results improved by $39,313. The
improvement was due to a $57,548 increase in revenues offset by a $18,235
increase in operating costs. The revenue increase is the result of additional
enrollments including those at the new East campus, and due to a $6,320 increase
in advertising revenue related to the publication of the Renewal News. The
operating cost increase consists of an $6,329 increase in personnel expense,
$6,894 increase in facility costs and $5,012 increase in other operating costs.
The travel services operation was started on July 1, 1997 with the
purchase of an existing travel agency and the operating results are included for
the year ended September 30, 1998 with comparable amounts for the three months
from the date of acquisition to September 30, 1997 as follows:
Increase
1998 1997 (Decrease)
---- ---- ----------
Sales $1,281,689 $776,544 $505,145
Cost of sales 1,163,825 699,669 464,156
---------- -------- --------
Gross profit 117,864 76,875 40,989
---------- -------- --------
Operating costs
Personnel expense 99,811 48,553 51,258
Facility cost 8,297 2,534 5,763
Other operating costs 29,184 41,821 (12,637)
---------- -------- --------
Total 137,292 92,908 44,384
---------- -------- --------
(Loss) before interest
depreciation and
amortization $ (19,428) $(16,033) $ 3,395
========= ======== ========
Sales for the travel agency operation increased by $505,145 for the
year ended September 30, 1998 over the agencies sales for the three months ended
September 30, 1997 with a gross profit increase of $40,989. The gross profit
percentage declined from 9.9% to 9.2% primarily due to an increase in the
portion of sales attributable to airline ticket sales where the gross profit
percentage is generally at 8%. Operating costs for the year ended September 30,
1998 were $137,292 compared to $92,908 for the three months ended September 30,
1997, which reflects the November 1997 combination of the two acquired travel
agency operations into one in order to reduce the fixed operating costs to
approximate $30,000 per quarter.
Other revenue includes $90,000 of management fees from Neo Vision,
Inc., the unconsolidated subsidiary acquired on June 30, 1998 and other
miscellaneous income of $9,407 which exceeded other miscellaneous income for
1997 by $418. 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.
20
<PAGE>
General corporate overhead increased by $189,148 primarily due to
management compensation increases of $140,265 resulting primarily from the June
30, 1998 acquisition of Neo Vision, Inc. and professional fee increases of
$19,368.
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 year
ended September 30, 1998, depreciation and amortization expense increased by
$13,354 over depreciation and amortization for fiscal year ended September 30,
1997, primarily due to increased amortization related to the amortization of the
goodwill related to the travel agency acquisition. Depreciation and amortization
expense for the year ended September 30, 1998 by segment is $12,877 for real
estate education, $22,534 for travel services and $4,355 for corporate.
Operating income (loss) for each segment pursuant to generally accepted
accounting principles is an operating income of $76,910 for real estate
education and an operating loss of $(44,111) for travel services with general
corporate expenses being $222,283 resulting in a consolidated operating loss of
$(189,484).
On September 30, 1997 the Company sold its wholly-owned subsidiary
Hansen and Associates, Inc. d/b/a 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 income of
$4,397 with no comparable amount for 1998.
COMPARISON 1997 TO 1996
The total revenue of $1,222,243 for the year ended September 30, 1997
is made up of $436,710 or 36% from the real estate education segment and
$776,544 or 63% from the travel agency segment with the remaining 1% being other
miscellaneous income. Total revenue increased by $836,070 in 1997 compared to a
$192,533 increase in 1996. The 1997 revenue increase consists of increases in
real estate education revenue of $92,922, travel agency sales of $776,544,
offset by a decrease in other revenue of $33,396.
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
Income before interest, depreciation
and amortization over 1996 $22,820
Loss before interest, depreciation and
amortization 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
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<PAGE>
The reduction in real estate education 1997 results from 1996 consists
of the following:
INCREASE
1997 1996 (DECREASE)
---- ---- ----------
REVENUE $436,710 $343,788 $92,922
------- ------- ------
Costs & expenses
Personnel expense 245,085 186,406 58,679
Facility cost 54,659 20,026 34,633
Other operating costs 86,760 64,320 22,430
------ ------ ------
Total 386,504 270,762 115,742
------- ------- -------
Income before interest,
depreciation and amortization $ 50,206 $ 73,026 $(22,820)
======== ======== ========
The income before interest, depreciation and amortization 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 a
$58,679 increase in personnel expense, $34,633 increase in facility cost, 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 699,669
--------
Gross Profit 76,875
Personnel 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)
========
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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.
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 operations 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 $33,752 in 1997 with no comparable amount
in 1996.
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:
Decrease 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)
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<PAGE>
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
======== ======== ========
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
======== ======== ========
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<PAGE>
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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The working capital deficit decreased $381,466 from September 30, 1997
to $420,421 at September 30, 1998 and increased by $1,195,384 from September 30,
1998 to $1,615,805 at March 31, 1999. Current assets decreased by $26,222 from
1997 to $93,316 at September 30, 1998. The decrease consists of a $12,357
decrease in cash, a $6,591 increase in accounts receivable, a $6,500 decrease in
notes receivable related to the sale of Hansen & Associates, Inc., d/b/a
Property Masters and a $13,956 decrease in prepaid expenses.
Current assets increased by $107,893 from September 30, 1998 to
$201,209 at March 31, 1999. 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 expense over the remainder of
the fiscal year.
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<PAGE>
Current liabilities decreased $407,688 from 1997 to $513,737. The
decrease consists of a $11,775 decrease in the current portion of long-term
debt, a $30,000 increase in notes payable related to a one year line of credit
with a bank, a decrease of the trust deeds payable due to the transfer of the
California land to RVP-LLC, a $7,103 increase related to the accrued interest on
the debentures, a $4,575 increase in accounts payable and a $145,799 increase in
accrued expenses which consisted of the $153,805 increase in estimated
compensation due executive officers offset by decreases in other accruals.
Unearned tuition increased by $17,610 due to the increased enrollments.
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.
Advances to an officer made pursuant to the officer's compensation
program decreased by $27,769 to zero at September 30, 1998. The long term note
receivable of $25,000 at September 30, 1998 and March 31, 1999 is related to the
sale of Hansen and Associates, Inc. At September 30, 1998, property and
equipment decreased by $9,541 as a result of equipment acquisitions of $3,520
offset by depreciation of $13,061. 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
==========
In the fiscal year 1998, goodwill increased by $16,031 with a $20,000
addition due to the Western College, Inc. acquisition offset by amortization for
1998 and decreased by an additional $2,997 for amortization in the six months
ended March 31, 1999. Course materials decreased by $1,964 due to the
amortization recorded for the fiscal year 1998 and by $983 due to amortization
in the six months ended March 31, 1999. Other assets decreased by $18,455 for
fiscal year 1998 and increased by $38,244 during the six months ended March 31,
1999.
26
<PAGE>
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 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.
On June 30, 1998 the Company approved the transfer to RVP-LLC of the
35.66 acres of land in Glenn County, California subject to trust deeds payable
in the amount of $601,000. The 35.66 acres of land transferred to RVP-LLC
resulted in $12,516 being included as the original investment in RVP-LLC. The
$12,516 represents the excess of the land cost at June 30, 1998 over the balance
of the trust deeds payable and it has been included in the Company's general and
administrative expenses for the year ended September 30, 1998. The land was
acquired for the purpose of developing the initial recreational vehicle park of
the planned chain of RV parks. The holder of the second trust deed filed a
notice of default due to non-payment of interest. The LLC determined not to
reinstate the defaulted trust deed and in August 1998, RVP-LLC lost the
California land in a foreclosure sale. There are no collection activities being
pursued by the trust deed noteholders and management does not believe there will
be any collection efforts.
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
27
<PAGE>
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 decreased by $14,619 due to payments of $26,394 less the
$11,775 decrease in the current portion in fiscal year 1998 and 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 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 acquisition of Neo Vision
and 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
28
<PAGE>
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 $37,142 at March 31, 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 ($3.75 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 $8,333. 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 $90,734, accrued expenses of $214,062 and unearned tuition
of $62,900. (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 $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.
29
<PAGE>
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 September 30, 1998, Neo Vision also has other current liabilities
consisting of a note payable to a bank of $15,000, accounts payable of $273,721,
accrued expenses of $119,259 and unearned revenue of $15,148. Further, at
September 30, 1998, Neo Vision has unpaid management fees due to the Company of
$80,373.
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Reference is made to the financial statements, the report thereon, the
notes thereto, and the supplemental data commencing at page F-1 of this Proxy
Statement.
30
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to the holders of the Company's
Class A Common Stock and Class B Common Stock as of the Record Date and is
accompanied by a form of proxy, which is being solicited by the Company's Board
for use at the Special Meeting to be held on June 29, 1999 at 10:00 a.m. Arizona
time, at 3121 East Greenway Road, Suite 201, Phoenix, Arizona and any
postponements or adjournments thereof. Only stockholders of record as of the
close of business on June 2, 1999, the Record Date, are entitled to notice of
and to vote at the Special Meeting or any postponements or adjournment thereof.
EACH HOLDER OF THE COMPANY'S CLASS A COMMON STOCK AND CLASS B COMMON
STOCK IS REQUESTED TO COMPLETE, DATE, AND SIGN THE ACCOMPANYING PROXY AND RETURN
IT PROMPTLY TO THE COMPANY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THE COMPANY'S STOCKHOLDERS SHOULD NOT FORWARD ANY CERTIFICATES WITH
THEIR PROXIES.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, stockholders of the Company will consider and
vote on: (i) a proposal to amend and restate the Company's Certificate of
Incorporation, including: (a) authorizing the issuance of up to 100,000,000
shares of New Common Stock, (b) reclassifying of the Company's Class A Common
Stock and Class B Common Stock into New Common Stock, (c) authorizing the
issuance of up to 75,000,000 shares of preferred stock, (d) changing the name of
the Company to Neo Vision Corporation, and (e) making certain technical
amendments set forth in the Company's First Restated Certificate of
Incorporation, including changing the purpose provisions of the Certificate of
Incorporation to reflect the Company's current business activities, updating the
address of the Company's statutory agent, and revising the Certificate of
Incorporation to more correctly reflect Delaware law, and (ii) such other
business as may properly come before the Special Meeting or any adjournments or
postponement thereof.
QUORUM AND VOTING REQUIREMENT
The presence of stockholders at the Special Meeting, in person or by
proxy, entitled to cast a majority of all votes entitled to be cast at the
meeting will constitute a quorum for the transaction of business. Any proxy
marked "abstain" as to any matter will be counted as present for purposes of
determining the existence of a quorum, but will not be counted as a vote for
such matter, thus having the same effect as a "no" vote on such matter.
31
<PAGE>
The affirmative vote of a majority of the outstanding shares of both
the Company's Class A Common Stock and Class B Common Stock, each class voting
separately, entitled to be voted at the Special Meeting is required to approve
the proposal to amend and restate the Company's Certificate of Incorporation.
As of the Record Date, there are 9,927,504 shares of the Company's
Class A Common Stock entitled to vote at the Special Meeting and 4,962,801
shares of the Company's Class B Common Stock entitled to vote at the Special
Meeting, with each share being entitled to one vote. As of the Record Date, the
directors and executive officers of the Company collectively beneficially own a
total of 898,708 shares of Class A Common Stock (representing approximately 9%
of the outstanding shares of Class A Common Stock), 2,750,000 shares of Class B
Common Stock (representing approximately 55% of the outstanding shares of Class
B Common Stock), and 3,648,708 shares of the collective outstanding Class A
Common Stock and Class B Common Stock (representing approximately 24% of the
collective outstanding shares of Class A Common Stock and Class B Common Stock).
All of these shares are expected to be voted in favor of the proposal to amend
and restate the Company's Certificate of Incorporation.
RECORD DATES; VOTES REQUIRED
Only holders of record of the Company's Class A Common Stock and Class
B Common Stock at the close of business on June 2, 1999 (the "Record Date") are
entitled to notice of and to vote at the Special Meeting. As of the Record Date,
there were 9,927,504 shares of the Company's Class A Common Stock outstanding,
and 4,962,801 shares of the Company's Class B Common Stock outstanding, each of
which will be entitled to one vote on each matter to be acted upon or which may
properly come before the Special Meeting. The presence of stockholders at the
Special Meeting, in person or by proxy, entitled to cast a majority of all votes
entitled to be cast at such meeting will constitute a quorum. The affirmative
vote of a majority of the outstanding shares of both the Company's Class A
Common Stock and Class B Common Stock, each voting separately as a class, is
required to approve the amendment and restatement of the Company's Certificate
of Incorporation.
RECOMMENDATION
The Company's Board has unanimously approved the amendment and
restatement of the Company's Certificate of Incorporation. The Company's Board
believes that the transactions are fair to and in the best interests of the
Company and its stockholders in order to allow required financing including the
conversion of the outstanding debentures, acquisitions and other corporate
purposes. The Company's Board unanimously recommends that the Company's
stockholders vote FOR: APPROVAL OF THE AMENDMENT TO AND RESTATEMENT OF THE
COMPANY'S CERTIFICATE OF INCORPORATION.
32
<PAGE>
VOTING AND REVOCATION OF PROXIES
Any holder of the Company's Class A Common Stock or Class B Common
Stock who has executed and delivered a proxy may revoke it at any time before it
is voted by attending the Special Meeting and voting in person or by giving
written notice of revocation or submitting a signed proxy bearing a later date
to the Company, Attention: Secretary, provided such notice or proxy is actually
received by the Company prior to the vote of the stockholders. The shares of the
Company's Class A Common Stock and Class B Common Stock represented by properly
executed proxies received at or before the Special Meeting and not subsequently
revoked will be voted as directed by the stockholders submitting such proxies.
Unless contrary instructions are given, proxies received by the Company will be
voted FOR: APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION AND WILL BE VOTED IN THE DISCRETION OF THE PROXY
HOLDERS ON ANY OTHER MATTERS PROPERLY PRESENTED FOR CONSIDERATION AT THE SPECIAL
MEETING OR ANY ADJOURNMENT THEREOF.
The presence at the Special Meeting in person or by proxy of holders of
record of a majority of the shares of the Company's Class A Common Stock and
Class B Common Stock, will constitute a quorum for the transaction of business
at the Special Meeting, and a majority of the outstanding shares of the Class A
Common Stock and a majority of the outstanding shares of the Class B Common
Stock, in each case present in person or represented by proxy, shall constitute
a quorum for the separate class votes required in connection with the proposal
to amend and restate the Company's Certificate of Incorporation. Any proxy
marked "abstain" will be counted as present for purposes of determining the
existence of a quorum, but will not be counted for voting purposes on such
matter. The Company's Bylaws permit the holders of a majority of the shares
presented at the Special Meeting, whether or not constituting a quorum, to
adjourn the Special Meeting or any adjournment thereof.
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies from its
stockholders. In addition to the use of the mails, proxies may be solicited
personally or by telephone or facsimile by directors, officers, and other
employees of the Company, who will not be specially compensated for such
solicitation activities. A third party may also be engaged to perform soliciting
activities. In such event, the Company expects to compensate such firm for its
activities. Arrangements also will be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of shares held of record by such persons, and
such person will be reimbursed for their reasonable expenses incurred in that
effort by the Company.
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<PAGE>
BUSINESS OF UNITED STATES AIRCRAFT CORPORATION
INTRODUCTION
Prior to the acquisition of Neo Vision, the Company was engaged in the
adult real estate education industry, the travel services industry, and the
ownership of real estate related to the planned development of a chain of RV
Parks. The Company intends to continue in these businesses; however the RV Park
operation is in the planning phase and the acquisition and development of parks
will not be launched until the project is capitalized. 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 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, 1996, 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.
The Company was incorporated in Delaware on October 6, 1978 and began
operations in April 1980. The principal executive offices of the Company are
located at 3625 N. 16th Street, Suite 112, Phoenix, Arizona 85016, telephone
number (602) 263-8887.
NEO VISION, INC.
Neo Vision, Inc. ("Neo Vision") provides advertising, programming, and
information to remote audiences using computer, video, and signal transmission
technology. This is accomplished by showing mixed-media programming and
advertising onto video screen walls ("video walls") in regional shopping malls
or airports through satellite transmission from Neo Vision's production facility
in Phoenix, Arizona.
Neo Vision's video walls are highly visible and can range from 6-12
feet in height to 10-30 feet in width, depending upon the particular
configuration of each mall or airport site. The sound system accompanying the
screen is designed to make it the center of attraction and highly audible. The
audio sound system is programmed to adjust its volume according to the traffic
in the mall at any given time. The visual image is greater than that of a
television.
Neo Vision was incorporated in Arizona on June 29, 1997, and until June
1998 was a development stage company. Neo Vision has a 75% interest in NV-1,
LLC, an Arizona limited liability company formed in August 1997. NV-1, LLC owns
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and operates the first video wall using Neo Vision's technology that is located
at Meadows Mall in Las Vegas, Nevada. References to Neo Vision herein include
NV-1, LLC, unless the context indicates otherwise.
CONCEPT
Neo Vision was conceived as a means to deliver cost-effective
advertising to large shopping audiences. Neo Vision sells advertisements
(showings) in the form of 30-second units to national, regional, and local
companies. These showings are put on Neo Vision video walls twice during a
90-minute time period. During this same 90-minute period, Neo Vision integrates
music, video, and public service showings. In general, Neo Vision will show each
30-second advertising spot approximately 440 times monthly, depending upon the
season of the year and operating hours.
Neo Vision seeks to persuade potential customers to use its services as
an alternative or supplemental advertisement placement strategy because the cost
per thousand of potential customers reached by an advertiser on a Neo Vision
video wall is much less than competing advertisement placement strategies.
MARKET
Malls with 8 to 12 million customers visited annually are Neo Vision's
primary target, with a secondary emphasis on major airport terminals. Neo
Vision's video walls advertising methods not only offer advertisers significant
advantages over other forms of advertising, but can also help direct the impulse
purchases of each mall visitor.
Neo Vision's video walls allow advertisers to send a direct message to
the potential customers who are shopping in a mall. This substantially increases
the likelihood of increasing sales by providing messages that motivate the
customers to seek out immediately available products and services to meet their
needs and impulse buying decisions.
Moreover, malls are seeking an atmosphere to assist them in increasing
repeat visits to the mall and increasing the length of the customers' visits.
One strategy malls may seek to employ is to provide exciting visual effects and
entertainment. In addition, advertisers at airports seek to attract travelers
arriving in a city to their products and services. Neo Vision meets these needs
by offering high-impact programming combining multi-media effects, music, news,
current events, and advertising in a visually charged atmosphere.
Further, Neo Vision believes that advertisers will seek to employ Neo
Vision's video walls as an alternative or supplemental placement strategy that
is more cost effective than competing advertisement placement strategies.
Traditional advertising is becoming more expensive and agencies are being
directed to cut costs. Up to now, their focus has been on reducing management
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layers and cutting internal costs. Neo Vision offers a way to reduce their
client's expenditures without reducing their own payroll or profitability.
MARKETING STRATEGY
Neo Vision's marketing strategy is based on securing specific target
locations to establish its video walls. The plan is designed to be implemented
with strategic partners that will enhance Neo Vision's presence within the
marketplace.
Neo Vision intends to seek to sell a maximum of 50 to 60 ads per screen
per month. To accomplish this in each major market, Neo Vision intends to employ
an in-house sales force, but also will develop a relationship with local sellers
of mall and street advertising. The size of each sales unit will depend upon the
number of malls serviced in each market area and the overall size of the market.
Additionally, Neo Vision intends to enter into strategic partner relationships
with national advertising agencies to fill the ad spots within the 90-minute
periods employed in its marketing strategy. This also will determine the number
of in-house sales personnel required.
Ads will be sold on a contractual basis with standard industry
discounts offered for six and twelve month contracts. Because advertising is so
time-sensitive, a small premium will be charged for ad changes, when made weekly
by the advertising companies and their agencies.
Neo Vision will advertise in trade publications and attend trade shows
on a regular basis. Standard public relations, media events, and other
strategies will be staged at the opening of each new market. Neo Vision will
expand its markets by targeting locations with high patron traffic counts such
as airports, trade shows, convention centers, and sports arenas, both national
and international.
PRODUCTION AND TRANSMISSION
Neo Vision does not design or produce advertisements shown on its video
walls. Instead, production of advertisements is undertaken by advertising
agencies or their agents that specialize in creating advertising for their
clients. The Neo Vision system operates in the following manner:
1. The 30-second commercials are sent to Neo Vision's Phoenix,
Arizona headquarters where each beta or analog tape is converted
to a world-wide standard digital video/audio format known as
MPEG-2 compression technology.
2. These digital files are transferred by satellite or internet
connections to the malls or other customer locations, and then
are stored on a computer designed to Neo Vision's specifications.
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3. At a preprogrammed time, the computer converts the MPEG-2 format
back to analog video for transmission and playback through a
video projector located at the specified site onto a video wall.
The result is an audio/visual product presented to shoppers in regional
shopping malls or travelers arriving at airports.
Neo Vision's system technology is administered internally by a Neo
Vision computer specialist.
DEVELOPMENT
Neo Vision has constructed three video walls in Las Vegas, Nevada at a
total cost of $471,546 and has purchased approximately $91,477 in equipment for
its main transmission facilities of its Phoenix, Arizona office. During its
development phase, Neo Vision invested approximately $362,000 in the development
of its video wall system, consisting primarily of consulting fees to technical
personnel. All of these development costs have been included in the operating
costs for Neo Vision during the year ended September 30, 1998.
LAS VEGAS VIDEO WALLS
The first Neo Vision video wall was installed in Meadows Mall, Las
Vegas, Nevada in April 1998. Two additional video walls were installed in June
1998 in the "D" concourse in the McCarran International airport in Las Vegas,
Nevada, that opened in June 1998. Sales of advertising for the Las Vegas video
walls have not been successful and the two screens at McCarran International
Airport have been closed. The approach and management of the marketing
activities for Neo Vision is being reorganized and the resolution of the
McCarran Airport location is being negotiated.
Neo Vision leases wall space for its video walls at McCarran Airport
and Meadows Mall in Las Vegas, Nevada under operating lease agreements, expiring
June 2003 and September 2002, respectively. The base rent under the McCarran
lease is increased annually by the greater of 5% or 20% of the gross billings
for advertising on the video walls. The Meadows Mall agreement provides for the
payment of rent at a rate of 15% of the gross consideration received for
advertising on the video wall. Rent expense under these lease agreements for the
year ended September 30, 1998 was $60,000.
FUTURE SITES
Subject to the availability of sufficient capital, Neo Vision plans to
expand its video wall concept in malls and airports throughout the United
States.
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PRICING
Each showing consists of a 30 second spot appearing approximately 440
times monthly. Neo Vision's current monthly pricing for a showing is
approximately $2,950 in malls and $3,950 in airports. Neo Vision believes this
pricing is substantially less than radio, television, and newspaper advertising
costs on a per customer basis in the comparable markets.
TECHNOLOGY
Neo Vision does not hold any patents on any of its technologies
relating to its video wall system. Neo Vision does not believe that its
technology can be patented. Thus, Neo Vision relies on proprietary know-how and
confidential information and employs confidentiality agreements with its
employees and contractors to protect the processes, concepts, and documentation
associated with its proprietary rights. However, such methods do not afford
complete protection and there can be no assurance that competitors will not
independently develop technology similar to Neo Vision's video wall system.
SUPPLIERS
Neo Vision's video walls are constructed to specification by third
party contractors. The average cost of developing a new video wall is
approximately $250,000, subject to variation based upon size and configuration
of a video wall in a particular location. A video wall system generally consists
of a screen, projector audio system, and computer controls that are all readily
available from various manufacturers. The installation of a video wall system is
completed by general contractors under the supervision of Neo Vision staff and
is expected to be completed and operating approximately four to six weeks after
site approval.
All contracts with consultants or providers of services are short-term
agreements and management believes that services will continue to be available
and it is therefore unnecessary to obtain long-term commitments.
COMPETITION
Neo Vision is not aware of any advertising systems similar to Neo
Vision's current video wall system. Neo Vision's competition in airports
currently consists of fixed advertising (primarily static boards) and other
similar structures. There is at least one company offering an advertising
service consisting of a series of three monitors attached to their booth in the
center of a mall aisle. This format provides low visual impact and, because of
the size of the screen, the sound and picture have limited visibility.
However, because of the proprietary nature of Neo Vision's video wall
system, competitors could seek to duplicate Neo Vision's technology. Thus, Neo
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Vision will seek sufficient capital for Neo Vision to deploy its video wall
system in order to create brand name recognition and economies of scale.
EMPLOYEES
At September 30, 1998, Neo Vision had six employees, two of which are
managerial, two of which are technical, one of which is involved with sales, and
one of which is administrative. Further, Neo Vision employs five independent
contractors, three of whom provide technical services to Neo Vision, and two of
whom are sales representatives in Las Vegas, Nevada.
OFFICES
Neo Vision leases approximately 700 square feet of office space in
Phoenix, Arizona where its administrative, production, and transmission
facilities are located, at an annual rent of approximately $12,720.
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ADULT EDUCATION
GENERAL
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.
Effective May 1, 1998, the Company adopted the name Westford College,
Inc. for its adult education operation. The school and its courses of study are
approved by the Arizona Department of Real Estate.
In 1998, 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 classroom
setting. The Arizona Department of Real Estate is currently reviewing this
requirement in order to consider 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.
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During the three years ended September 30, 1998, student enrollments
and tuition revenues were as follows:
Average
Students Revenue Tuition
-------- ------- -------
Sales Licensing
1998 1,249 $294,715 $235.96
1997 1,049 $261,099 $248.90
1996 937 $204,453 $218.19
Broker Licensing
1998 38 $ 13,340 $351.05
1997 34 $ 14,840 $436.47
1996(1) 41 $ 18,507 $451.39
Renewal
1998 10,896 $152,977 $ 14.04
1997 9,835 $134,206 $ 13.64
1996(1) 7,252 $106,908 $ 14.74
- ----------
(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.
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
decreasing when real estate activity decreases. In the fiscal year 1998, 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 classrooms, are located as follows:
West Campus 4425 West Olive, Suite #128
Glendale, Arizona
Northeast Campus 3121 East Greenway Rd., Suite #201
Phoenix, Arizona
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STRATEGY
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 15,000. The
magazine includes the class schedule for both locations along with relevant
articles and paid advertising revenue in the year ended September 30, 1998 was
$24,679. The Company has launched a program to increase the circulation, and the
advertising revenue plus expand the editorial content. Utilizing its existing
base in adult real estate education, the Company intends to expand and profit
from the adult career education field. Subject to the availability of any
necessary financing, 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. The Company may seek to acquire other adult education schools,
although the Company has not identified any particular acquisition candidates.
COMPETITION
At September 30, 1998, there were approximately four proprietary
schools for real estate training in the Phoenix metropolitan area that offered
both license and license renewal education. The Company believes that another
metropolitan Phoenix based school has the largest market share in Arizona,
although the Company does not know its total market share. 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.
TRAVEL SERVICES
GENERAL
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 by processing
the tickets and reservations for such agents.
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Sales for the travel agency segment for the year ended September 30,
1998 and the three months from acquisition through September 30, 1997 were as
follows:
1998 1997
---- ----
Airline tickets $ 682,955 $339,217
Hotels 117,116 81,861
Automobiles 31,934 26,255
Cruises 247,822 116,508
Tours 189,905 161,362
Other 11,957 51,341
---------- --------
Total Sales $1,281,689 $776,544
========== ========
STRATEGY
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.
COMPETITION
The Company's travel services business competes with large national
travel agencies, including American Express and Thomas Cook, as well as with
many smaller local travel agencies.
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.
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PROPERTIES
The Company maintains is corporate offices at 3625 N. 16th Street,
Suite 112, Phoenix, Arizona 85016, telephone number (602) 263-8887.
Westford 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 lease expiring in May 2001. 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 increasing to $2,343 over the term of the lease, plus common area charges
that approximate $585 per month.
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 currently $333.
EMPLOYEES
The Company has 12 employees. Further, the Company had approximately
175 independent contractor, home-based travel agents and 15 to 20 independent,
contractor instructors for the real estate training school.
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SECURITY OWNERSHIP OF PRINCIPAL
STOCKHOLDERS, DIRECTORS, AND OFFICERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Class A Common Stock and Class B Common
Stock as of March 31, 1999, held by each director and executive officer of the
Company, all directors and executive officers as a group, persons known by the
Company to hold more than 5% of the Company's Class A Common Stock or Class B
Common Stock. The table also provides information with respect to the pro forma
beneficial ownership of the Company's New Common Stock held by each director and
executive officer of the Company, all directors and executive officers as a
group, and all persons expected by the Company to hold on a pro forma basis more
than 5% of the New Common Stock:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A CLASS B NEW
COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED PERCENT OWNED PERCENT OWNED PERCENT
- ------------------------ ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS & OFFICERS:
Harry V. Eastlick 603,708 6.0% 2,600,000(2) 52.3% 520,741 18.9%
Donald E. Cline 115,000 1.1% 50,000 1.0% 30,692 1.1%
Whipple H. Manning 65,000 .6% 50,000 1.0% 20,692 *%
John R. Thomas 115,000 1.1% 50,000 1.1% 30,692 1.1%
Directors and Executive
Officers as a group
(four persons) 898,708 8.8% 2,750,000 55.4% 602,817 19.9%
OWNER OF 5% OR MORE
Anthony Christopher(3) 1,371,600 13.8% -- -- 274,320 9.9%
Albert C. Lundstrom(4) 614,000(1) 6.1% -- -- 122,800 4.4%
</TABLE>
- ----------
* Less than one percent.
** All of the officers and directors of the Company can be reached at the
offices of the Company c/o United States Aircraft Corporation, 3625 N. 16th
Street, Suite 112, Phoenix, Arizona 85016.
(1) Includes 102,400 shares of Class A Common Stock held by LEC & Associates,
LLC, of which Mr. Lundstrom is a member.
(2) Includes 2,475,000 shares held in escrow by Security Packfic Bank (now Bank
of America).
(3) Mr. Christopher's address is 6632 E. Moreland, Scottsdale, Arizona 85257.
(4) Mr. Lundstrom's address is 3015 N. Hayden Road, #2049, Scottsdale, Arizona
85251.
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PRICE RANGE OF COMMON STOCK
The Company's Class B common stock is not publicly traded. The
Company's Class A common stock is traded on the NASDAQ OTC Bulletin Board under
the symbol "UAIRA". At September 30, 1998 and for the eight prior quarters, no
significant market has existed for the Company's 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. At May 17, 1999, the closing price of the
Company's Class A Common Stock was $.06 per share.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On December 18, 1998, the Company engaged Semple & Cooper, LLP
Certified Public Accountant to examine their financial statements for the year
ended September 30, 1998. The report on the financial statements for the years
ended September 30, 1997 and 1996 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope, or accounting principles. During the years ended September 30, 1997 and
1996 and the subsequent interim period to December 18, 1998, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure. The
change of accountants was approved by the Board of Directors on December 18,
1998 and the former accountant was not engaged in order to have the same
accountants for the Company and Neo Vision, Inc.
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PROPOSAL TO AMEND AND RESTATE THE COMPANY'S
CERTIFICATE OF INCORPORATION
On June 2, 1999, the Board of Directors approved a proposal 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 750,000,000 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. The Board of
Directors recommends a vote "for" the proposed amendment and restatement of the
Company's Certificate of Incorporation. The full text of the proposed First
Restated Certificate of Incorporation as proposed to be adopted is included as
APPENDIX I to this Proxy Statement. If approved by the stockholders, the
proposed amendment and restatement will become effective upon the filing of the
First Restated Certificate of Incorporation with the Secretary of State of
Delaware, which will occur as soon as reasonably practicable.
The Board of Directors believes that it is in the Company's and its
stockholders' best interests to authorize 100,000,000 shares of New Common Stock
in order to have a significant amount of authorized but unissued shares
available for issuance to meet business needs as they arise. The Board of
Directors believes that the availability of 100,000,000 shares of New Common
Stock will provide the Company with the flexibility to issue New Common Stock
for possible future financing, including the conversion of existing Company and
Neo Vision debt, stock dividends or distributions, acquisitions, stock option
plans, or other proper corporate purposes which may be identified in the future
by the Board of Directors, without the possible expense and delay of a special
stockholders' meeting. The issuance of shares of New Common Stock may have a
dilutive effect on earnings per share and, for persons who do not purchase
additional shares to maintain their pro rata interest in the Company, on such
stockholders' percentage voting power.
The Board of Directors believes it is in the Company's and its
stockholders' best interests to reclassify its Class A Common Stock and Class B
Common Stock into a new single class of Common Stock (the "New Common Stock").
The Board of Directors believes New Common Stock will make the Company more
marketable to outside investors, thus providing additional flexibility to raise
capital in connection with possible financings, acquisitions, and other
corporate purposes, including the possibility of a future public offering.
Further, the Board of Directors believes that a single class of common stock
will provide stockholders with greater liquidity.
The authorized shares of New Common Stock in excess of those issued in
connection with the reclassification of the Company's Class A Common Stock and
Class B Common Stock will be available for issuance at such times and for such
corporate purposes as the Board of Directors may deem advisable, without further
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action by the Company's stockholders, except as may be required by applicable
law or by the rules of any stock exchange or national securities association
trading system on which the securities may be listed or traded. Holders of New
Common Stock will have no preemptive rights.
Except for the reclassification of the Company's Class A Common Stock
and Class B Common Stock and the conversion of certain debentures issued by Neo
Vision into shares of New Common Stock, the Company has no arrangements,
agreements, understandings, or plans at the present time for the issuance or use
of the additional shares of New Common Stock proposed to be authorized. The
Board of Directors does not intend to issue any New Common Stock except on terms
which the Board of Directors deems to be in the best interests of the Company
and its then existing stockholders. Any future issuance of New Common Stock will
be subject to the rights of holders of outstanding shares of any Preferred Stock
which the Company may issue in the future.
The Board of Directors believes that it is in the Company's and its
stockholders' best interests to provide for 75,000,000 authorized shares of
Preferred Stock to provide additional flexibility in connection with possible
financings, acquisitions, other corporate purposes, and in certain
circumstances, to be used as a means of discouraging, delaying, or preventing a
change of control of the Company. The Board of Directors, without further
approval of the stockholders, has the authority to fix the rights and terms
relating to dividends, conversion, voting, redemption, liquidation preferences,
sinking funds and any other rights, preferences, privileges, and restrictions
applicable to each such series of Preferred Stock. A purpose of authorizing the
Board of Directors to determine such rights and preferences is to eliminate
delays associated with a stockholder vote on specific issuances. There currently
are no commitments or options or other rights outstanding for the issuance of
Preferred Stock. The Company has no present plan to issue shares of its
Preferred Stock.
The Board of Directors believes that it is in the Company's and its
stockholders' best interests to change the name of the Company to "Neo Vision
Corporation" The Board of Directors believes that Neo Vision Corporation will
more accurately describe the Company's primary line of business and in turn,
assist the Company in achieving market penetration in the advertising industry.
The Board of Directors believes that the name Neo Vision Corporation will help
the Company create a strong identity, develop an appropriate product image, and
attain name recognition.
The Board of Directors believes that it is in the Company's and its
stockholders best interest to make certain technical amendments to the Company's
Certificate of Incorporation including, a revised purpose for the Company, a
revised current address of its registered agent, Prentice-Hall, and revised
provisions to more correctly reflect current Delaware law. These technical
amendments are set forth in the Company's First Restated Certificate of
Incorporation.
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DELAWARE GENERAL CORPORATION LAW
The Delaware General Corporation Law summarized below may have the
effect of discouraging, delaying, or preventing hostile takeovers, including
those that might result in a premium over the market price, or discouraging,
delaying, or preventing changes in control or management of the Company.
In general, Delaware corporate law prohibits a publicly held Delaware
corporation from engaging, under certain circumstances, in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person becomes an interested
stockholder, unless (i) prior to the date at which the stockholder became an
interested stockholder, the Board of Directors approved either the business
combination or the transaction in which the stockholder becomes an interested
stockholder; (ii) upon consummation of the transaction in which the stockholder
becomes an interested stockholder, the stockholder owned at least 85% of the
outstanding voting stock of the Company (excluding shares held by directors who
are officers or held in certain employee stock plans); or (iii) the business
combination is approved by the Board of Directors and by two-thirds of the
outstanding voting stock of the Company (excluding shares held by the interested
stockholder) at a meeting of stockholders (and not by written consent) held on
or subsequent to the date of the business combination. An "interested
stockholder" is generally a person who, together with affiliates and associates,
owns (or at any time within the prior three years did own and who is now an
affiliate or associate of the Company) 15% or more of the Company's voting
stock. Section 203 defines a "business combination" to include certain mergers,
consolidations, stock sales and asset based transactions, and certain other
transactions resulting in a financial benefit to the interested stockholder.
STOCKHOLDER VOTE REQUIRED
The holders of a majority of the outstanding shares of both the Class A
Common Stock and Class B Common Stock of the Company, each voting as a separate
class, must approve the amendment and restatement of the Company's Certificate
of Incorporation. As of the Record Date, the former shareholders of Neo Vision
and the Company's directors and officers collectively beneficially own 2,898,708
shares of Class A Common Stock (representing approximately 29% of the
outstanding shares of Class A Common Stock), and 2,750,000 shares of the
outstanding shares of Class B Common Stock (representing approximately 55% of
the outstanding shares of Class B Common Stock). All of such shares are expected
to be voted in favor of the proposal to amend and restate the Company's
Certificate of Incorporation.
The Board of Directors unanimously recommends a vote FOR: APPROVAL OF
THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION.
49
<PAGE>
EXPERTS
The financial statements relative of the Company included in this Proxy
Statement and have been audited by Robert Martin, independent public accountant,
for the fiscal year ended September 30, 1997, as indicated in his report with
respect thereto, and are included herein in reliance upon the authority of Mr.
Martin as an expert in giving said report.
The financial statements of Neo Vision and the Company included in this
Proxy Statement have been audited by Semple & Cooper, LLP, independent public
accountants, for the fiscal year ended September 30, 1998, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
LEGAL OPINIONS
The validity of the shares of the Company's New Common Stock will be
passed on for the Company by O'Connor, Cavanagh, Anderson, Killingsworth &
Beshears, a professional association, Phoenix, Arizona ("Counsel").
OTHER MATTERS
The Company's Board of Directors does not intend to bring any matter
before the Special Meeting other than as specifically set forth in the Notice of
Special Meeting of Stockholders, nor does it know of any matter to be brought
before the Special Meeting by others. If, however, any other matters properly
come before the Special Meeting, it is the intention of the proxy holders to
vote such proxy in accordance with the decision of a majority of the Company's
Board of Directors.
50
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
UNITED STATES AIRCRAFT CORPORATION
Page
----
Reports of Independent Certified Public Accountant. F-2 and F-3
Balance sheets as of September 30, 1998 and 1997. F-4 and F-5
Statements of operations for each of the three years in
the period ended September 30, 1998. F-6
Statements of shareholders' equity for each of the three
years in the period ended September 30, 1998. F-7
Statements of cash flows for each of the three years in
the period ended September 30, 1998. F-8
Notes to the Financial Statements. F-9 through F-26
Unaudited quarterly financial statements
Balance sheet as of March 31, 1999 F-27
Statements of operations for the six months
ended March 31, 1999 and 1998 F-28
Statements of cash flows for the six months
ended March 31, 1999 and 1998 F-29
Notes to financial statements F-30 through F-34
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF NEO VISION, INC.
(A WHOLLY-OWNED UNCONSOLIDATED SUBSIDIARY AT SEPTEMBER 30, 1998)
Report of Independent Certified Public Accountant F-35
Consolidated Balance Sheet as of September 30, 1998 F-36
Consolidated Statement of Operations for the year
ended September 30, 1998 F-37
Consolidated Statement of Changes in Stockholders' Equity
for the year ended September 30, 1998 F-38
Consolidated Statement of Cash Flows for the year ended
September 30, 1998 F-39
Notes to Consolidated Financial Statements F-40
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
United States Aircraft Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of United States
Aircraft Corporation and Subsidiaries as of September 30, 1998, and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position, of United States
Aircraft Corporation and Subsidiaries as of September 30, 1998, and the results
of its operations, changes in shareholders' equity, and its cash flows for the
year than ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 18 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Semple & Cooper, LLP
Certified Public Accountants
Phoenix, Arizona
December 22, 1998
F-2
<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 the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the two 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
two year period ended September 30, 1997, in conformity with generally accepted
accounting principles.
ROBERT MARTIN
Mesa, Arizona
March 19, 1998
F-3
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
ASSETS
1998 1997
---------- ----------
Current assets
Cash $ 8,070 $ 20,427
Accounts receivable, less
allowance for doubtful accounts
of $7,500 (1997) 75,902 69,311
Notes receivable 1,500 8,000
Prepaid expenses 7,844 21,800
---------- ----------
Total current assets 93,316 119,538
Advance to officer 27,769
Notes receivable, net of current
portion 25,000 32,000
Land held for future development 577,327
Investment
Neo Vision, Inc. 103,338
Property and equipment, net of
accumulated depreciation of
$ 79,023 (1998) and $ 65,962 (1997) 47,613 57,154
Goodwill, net of accumulated
amortization of $26,397 (1998) and
$ 22,428 (1997) 103,339 87,308
Agency acquisitions-goodwill, net of
accumulated amortization of $25,733
(1998) and $5,514 (1997) 84,555 104,774
Course materials 13,754 15,718
Other 13,874 24,527
---------- ----------
Total assets $ 484,789 $1,046,115
========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS'
1998 1997
----------- -----------
Current liabilities
Current portion of long term debt $ 26,000 $ 37,775
Notes Payable 30,000
Trust deed notes payable 601,000
Convertible debentures and
related accrued interest 90,041 82,938
Accounts payable 90,734 86,159
Accrued expenses 214,062 68,263
Unearned tuition 62,900 45,290
----------- -----------
Total current liabilities 513,737 921,425
Long term debt, net of
current portion 5,360 19,979
Commitments
Stockholders' equity
Capital Stock
Class A: $.50 par value
10,000,000 shares authorized,
9,927,504 (1998) and
7,652,504 (1997) shares
issued and outstanding 4,963,752 3,826,252
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) (1,838,862) (751,827)
Accumulated (deficit) (3,164,161) (2,974,677)
----------- -----------
(34,308) 104,711
----------- -----------
Total liabilities and
Stockholders' equity $ 484,789 $ 1,046,115
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE YEARS ENDED
SEPTEMBER 30, 1998, 1997, AND 1996
1998 1997 1996
----------- ----------- -----------
Revenue
Real estate education $ 494,258 $ 436,710 $ 343,788
Travel agency 1,281,689 776,544
Other 99,407 8,989 42,385
----------- ----------- -----------
Total revenue 1,875,354 1,222,243 386,173
Operating costs and expenses
Cost of sales - travel agency 1,163,825 699,669
Personnel expenses 351,224 292,437 183,700
Facility cost 69,851 57,192 22,025
Other operating costs 120,249 129,076 64,330
General and administrative 299,787 110,639 82,514
Interest 20,136 14,933 12,979
Loss from write off of plans and
Specifications 649,999
Depreciation and amortization 39,766 26,412 15,281
----------- ----------- -----------
2,064,838 1,330,358 1,030,828
----------- ----------- -----------
Income (loss) from continuing
operations (189,484) (108,115) (644,655)
Discontinued operations
Income of Hansen & Associates, Inc.
dba Property Masters 4,397 11,671
Gain on disposal of Hansen &
Associates, Inc. dba Property
Masters 33,752
----------- ----------- -----------
Net income (loss) $ (189,484) $ (69,966) $ (632,984)
----------- ----------- -----------
Net income (loss) per share from
continuing operations $ (.01) $ (.01) $ (.06)
Net income (loss) per share from
discontinued operations $ $ $
----------- ----------- -----------
Net income (loss) per share $ (.01) $ (.01 $ (.06)
----------- ----------- -----------
Weighted number of shares
outstanding 13,309,055 11,391,138 10,808,846
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED
SEPTEMBER 30, 1998, 1997, AND 1996
<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, 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) (69,966)
--------- ---------- --------- ------ ----------- -----------
Balance, September 30, 1997 7,652,504 $3,826,252 4,962,801 $4,963 $(751,827) $(2,974,633)
Year ended September 30, 1998
Shares issued in acquisition
of Western College, Inc. 200,000 100,000 (80,000)
Shares issued for loan guarantee 75,000 37,500 (30,000)
Shares issued in acquisition of
Neo Vision, Inc. 2,000,000 1,000,000 (977,035)
Net Income (189,484)
--------- ---------- --------- ------ ----------- -----------
Balance, September 30, 1998 9,927,504 $4,963,752 4,962,801 $4,963 $(1,838,862) $(3,164,161)
========= ========== ========= ====== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
UNITED STATES AIRCRAFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED
SEPTEMBER 30, 1998, 1997, AND 1996
1998 1997 1996
--------- --------- ---------
Cash flows from operating activities
Net income, (loss) (189,484) $ (69,966) $(632,984)
Adjustments to reconcile net
income, (loss) to cash provided
by (used in) operating activities
(Income) loss from discontinued operations (4,397) (11,671)
Depreciation 13,061 10,788 8,792
Amortization 26,705 15,624 8,079
Allowance for doubtful accounts 7,500
Gain on disposal of operations (33,752)
Class A Shares issued in payment
for services rendered 7,500 42,000 37,500
Gain from write off of long term debt (30,000)
Loss from write off of plans
and specifications 649,999
Change in assets and liabilities
net of effects from acquisition
Accounts receivable (5,591) (21,977) (31,661)
Other (70,273) (3,069) (15,466)
Prepaid expenses 13,956 (14,609) (5,939)
Notes payable 30,000
Accounts payable 4,575 63,839 6,338
Accrued expenses 145,799 32,052 (14,678)
Unearned tuition 17,610 9,992 20,240
--------- --------- ---------
Net cash provided by (used in) operating
activities of continuing operations (6,142) 34,025 (11,451)
Net cash provided by (used in) discontinued
operations 2,917
--------- --------- ---------
Net cash provided by (used in) operating
activities (6,142) 34,025 (8,534)
Cash flows from investing activities
Changes in advance to officer 27,769 2,815 (4,399)
Decrease in notes receivable 12,500
Cash provided from acquisition of
Western College, Inc.
Addition to land for future development (51,327)
Investment in RVP-LLC (23,673)
Additions to intangible assets, net (61,172)
Additions to property and equipment (3,520) (7,580) (8,826)
--------- --------- ---------
Net cash (used in) investing activities 13,076 (117,264) (9,080)
Cash flows from financing activities
Increase in convertible debentures
and related accrued interest 7,103 8,879 17,609
Increase in trust deed notes payable 100,000
Proceeds from long term debt 36,822
Decrease in long term debt (26,394) (15,350) (32,339)
--------- --------- ---------
Net cash provided by financing activities (19,291) 93,529 22,092
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents (12,357) 10,290 4,478
Cash, beginning of year 20,427 10,137 5,659
--------- --------- ---------
Cash, end of year $ 8,070 $ 20,427 $ 10,137
--------- --------- ---------
The accompanying notes are an integral part of these financial statements.
F-8
<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. doing business
as Westford College. 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 except Neo Vision, Inc.
that was acquired on June 30, 1998. All significant intercompany transactions
and balances have been eliminated in consolidation.
Neo Vision, Inc has not been consolidated until its acquisition has been fully
assured. See Note 6.
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 1998 and 1997, approximately 53% and 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.
F-9
<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, 1996, 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.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the
asset and industry conditions. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
F-10
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or net realizable value. As
more fully described in the preceding paragraph, "plans and specifications", the
Company recorded an impairment loss of $649,999 during 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.
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.
EARNINGS PER SHARE
Basic earnings per share amounts are based upon the average number of shares
outstanding. The effect of debentures convertible into Class A common stock and
outstanding stock options on the earnings per share calculations are
antidilutive and therefore diluted earnings per share are not presented.
ADVERTISING
The Company expenses advertising costs when the advertisement occurs. Total
advertising expenses amounted to $14,417, $11,308 and $8,045 in 1998, 1997 and
1996, respectively. There were not any capitalized advertising costs for the
periods presented.
F-11
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION:
The Company has elected to follow Accounting Principles Board Opinion No.25,
Accounting for Stock Issued to Employees (APB 25) and the related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recorded. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No.123, Accounting for Stock-Based
Compensation (Statement No.123).
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.
NOTE 2 - INCOME TAXES
At September 30, 1998, the Company had the following net operating loss and
credit carryovers for income tax purposes:
Taxable Year of Net
Year Expiration Operating Loss
---- ---------- --------------
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:
1998 1997
---- ----
Net operating loss carryforwards $ 663,000 $ 2,654,000
--------- -----------
Gross deferred tax assets $ 316,000 $ 1,327,000
Deferred tax asset valuation allowance 316,000 1,327,000
---------- -----------
Net deferred tax asset
---------- -----------
F-12
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - INCOME TAXES (CONTINUED)
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, 1998, is $1,011,000.
NOTE 3 - ADVANCES TO OFFICER
Advances to officer represent non-interest bearing advances with no stated terms
of repayment.
NOTE 4 - NOTES RECEIVABLE
The Company has notes receivable from the sale of Hansen & Associates, Inc. dba
Property Masters consisting of the following:
Note receivable from individual due in
semi-annual payments plus interest at 71/2% $26,500
Less current portion 1,500
-------
Balance September 30, 1998 $25,000
-------
NOTE 5 - INVESTMENTS - RVP-LLC
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-L.L.C. 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 of the RV Parks program from which it will contribute
$1,700,000 to RVP-LLC. 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 revenue with an infrequent occurrence,
F-13
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INVESTMENTS - RVP-LLC (CONTINUED)
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 over the period of the project. On June
30, 1998 the Company approved the transfer to RVP-LLC of the 35.66 acres of land
in Glenn County, California subject to trust deeds payable in the amount of
$601,000. The 35.66 acres of land transferred to RVP-LLC resulted in $12,516
being included as the original investment in RVP-LLC. The $12,516 represents the
excess of the land cost at June 30, 1998 over the balance of the trust deeds
payable and it has been included in the Company's general and administrative
expenses for the year ended September 30, 1998. The land was acquired for the
purpose of developing the initial recreational vehicle park of the planned chain
of RV parks. The holder of the second trust deed filed a notice of default due
to non payment of interest. The LLC determined not to reinstate the defaulted
trust deed and in August 1998, RVP-LLC lost the California land in a foreclosure
sale. There are no collection activities being pursued by the trust deed
noteholders and management does not believe there will be any collection
efforts.
At September 30, 1998, the members equity of RVP-LLC is $1,707,500 and consists
of 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 until the capital contribution of $1,700,000 is received. The
Company's interest in the RVP-LLC, if the capital contributions were recognized,
would be approximately $135,988.
NOTE 6 - 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 each of the years ended September 30, 1998 and 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 $90,000
purchase price exceeds the book value of the net assets of Western College, Inc.
by $99,361 which has been allocated as follows:
Property and equipment $31,713
Goodwill 67,648
F-14
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - ACQUISITIONS (CONTINUED)
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
-------
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 acquisitions are being accounted for by the purchase method. The acquisition
price of $160,643 included the assumption of certain liabilities totaling
$110,643 and the issuance of 500,000 shares of Class A common stock which has
been recorded for accounting purposes at $50,000. The acquisition of the
Company's travel agency operations resulted in the acquisition cost exceeding
the cost of the assets acquired by $110,288. The excess has been recorded as
agency acquisitions-goodwill. At September 30, 1998 and 1997, accumulated
amortization on the agency acquisition is $25,733 and $5,514, respectively.
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.
F-15
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - ACQUISITIONS (CONTINUED)
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
---- ----
Revenue $5,727,606 $2,874,314
---------- ----------
Net income (loss) $ 102,887 $ (472,461)
---------- ----------
Per share based on weighted
average shares of 10,870,305 $ .01 $ (.04)
---------- ----------
At June 30, 1998 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 merger 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 Company from United States Aircraft Corporation to Neo Vision Systems, Inc.
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.
The financial statements of Neo Vision, Inc. will not be consolidated with the
Company, until approval of the amendment and restatement of the Certificate of
incorporation is fully assured and the investment is 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. The investment, Neo Vision, Inc, includes the
following:
F-16
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Acquisition of Neo Vision, Inc
common shares $ 22,965
Management Fees Receivable
from Neo Vision Inc. 80,373
--------
$103,338
========
Upon approval of the amendment and restatement of the Certificate of
Incorporation an additional 3,977,560 shares of the New Common Stock will be
issued to the former stockholders of Neo Vision, Inc., approximately 973,000
shares of the New Common Stock will be in exchange for the outstanding Neo
Vision, Inc. convertible debentures and 753,000 shares of the New Common Stock
issued in payments of fees to a Neo Vision, Inc. financial advisor. When the
acquisition of Neo Vision, Inc. is fully assured it will be accounted for under
the purchase method of accounting with a reverse merger and Neo Vision, Inc.
being the acquired for financial reporting purposes. See Note 16 for pro forma
financial information showing the consolidated pro forma balance sheet and
operating statements as if the acquisition was fully assured and consummated at
September 30, 1998.
The management fees are expected to be received from the future operating
profits of Neo Vision, Inc. and the proceeds of its planned capital infusion.
NOTE 7 - 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. 67,648 25 years
---------
129,736
Less accumulated
amortization 26,397
---------
$ 103,339
=========
NOTE 8 - CONVERTIBLE DEBENTURES
The convertible debentures of $56,450 and accrued interest of $33,591 in 1998
and $26,488 in 1997 that were due in December, 1996, are convertible into common
shares at $.75 per share. Currently, the debentures remain unpaid and are in
default, since payment of principal and interest was due in December 1996;
however, the Company has had no contact from the debenture holders.
F-17
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - LONG TERM DEBT
At September 30, 1998 and 1997, long term debt consists of the following:
1998 1997
---- ----
Note payable, bank, due in monthly
principal payments of $833 plus
interest at 10.5% per annum $ 8,333 $16,665
Notes and payables to trade creditors
with interest ranging from 10% to 18% 23,027 41,089
------- -------
31,360 57,754
Less current portion 26,000 37,775
------- -------
$ 5,360 $19,979
------- -------
At September 30, 1998, maturities of long term debt are as follows:
Year ended
September 30,
-------------
1999 $26,000
2000 5,000
2001 360
-------
$31,360
Substantially all assets are pledged as collateral for long term debt.
NOTE 10 - TRUST DEED NOTES PAYABLE
At September 30, 1997, trust deed notes payable consist of the following:
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
--------
During the year ended September 30, 1998 the land held for future development
subject to the trust deeds payable was transferred to RVP-LLC a limited
liability company formed by the Company. See Note 5.
F-18
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - 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,
-------------
1999 $ 40,154
2000 35,812
2001 30,445
--------
$106,411
--------
Rent expense under these operating leases totaled $73,022, $59,002 and $17,800
for the years ended September 30, 1998, 1997 and 1996 respectively.
The Company is not currently involved in any material litigation.
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.
The Company intends to request stockholder authorization for New Common Shares
and the reclassification of the Class A and Class B shares into the New Common
shares. See Note 6.
F-19
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - CAPITAL STOCK
On June 30, 1998 the Board of Directors adopted the 1998 Stock Option Plan. A
maximum of 2,500,000 shares of the Company's New Common Stock may be issued
under the plan. The plan is divided into two programs: The Discretionary Grant
Program for executive officers, directors, employees, etc; and the Automatic
Option Program for directors.
Following is a summary of the status of stock options for employees and
directors for the year ended September 30, 1998:
Number of Weighted Avg.
Options Exercise Price
------- --------------
Balance at September 30, 1997 $ $
Granted in 1998 1,342,500 1.00
---------- --------
Outstanding at September 30, 1998 $1,342,500 $ 1.00
========== ========
Of the above options 375,000 have expired due to the resignation of an officer.
The remaining 967,500 options expire on June 30, 2008.
All stock options issued to employees have an exercise price not less than the
fair market value of the Company's common stock on the date of grant. In
accordance with accounting for such options utilizing the intrinsic value
method, there is no related compensation expense recorded in the Company's
financial statements for the year ended September 30, 1998. Had compensation
cost for stock-based compensation been determined based on the fair value of the
options at the grant dates consistent with the method of SFAS 123, the Company's
net loss and loss per share for the year ended September 30, 1998, would have
been reduced to the pro forma amounts presented below:
September 30, 1998
------------------
Net loss
As reported $(189,484)
Pro forma (243,184)
Basic loss per share:
As reported $ (.01)
Pro forma (.02)
The fair value of options grants is estimated as of the date of grant utilizing
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1998, expected life of options of 10 years, expected
volatility of 3.18%, risk-free interest rates of 8.0%, and a 0% dividend yield.
The weighted average fair value at date of grant for options granted during 1998
approximated $.04.
F-20
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 and 1996.
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, 1998, 1997, and 1996:
1996 $ 6,841
1997 $27,106
1998 $ 8,783
Supplementary schedule of non-cash activities:
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
Acquisition of land held for future development:
Class A shares issued 25,000 Assumption of trust deed notes payable 501,000
Class A shares issued in acquisition of Western College, Inc. 20,000
Class A shares issued in acquisition of travel agency operations 50,000
Notes receivable received as consideration for sale of business 60,044
F-21
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (CONTINUED)
For the year ended September 30, 1998:
Class A shares issued in acquisition of Western College, Inc 20,000
Class A shares issued in acquisition of Neo Vision, Inc. 22,965
Class A shares issued for loan guarantee 7,500
The Class A shares issued for services during the years ended September 30,1997
and 1996 were to the board of directors, and an officer and shareholder of the
Company.
NOTE 16 - BUSINESS SEGMENTS
In 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 1998 and 1997 is
summarized as follows:
<TABLE>
<CAPTION>
Real Estate Travel Corporate &
Education Services Eliminations Consolidated
--------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Year ended September 30, 1997
Sales $436,710 $ 776,544 $ 8,989 $1,222,243
Operating income 38,713 (27,113) (119,715) (108,115)
Identifiable assets 216,583 164,256 665,276 1,046,115
Capital expenditures 4,248 11,570 (8,238) 7,580
Depreciation and
amortization 12,519 10,023 3,870 26,412
Year ended September 30, 1998
Sales $494,258 $1,281,689 $ 99,407 $1,875,354
Operating income 76,910 (44,111) 222,283 (189,454)
Identifiable assets 240,871 102,946 140,972 484,789
Capital expenditures 3,520
Depreciation and
Amortization 12,877 22,534 4,355 39,766
</TABLE>
F-22
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 - PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro forma Consolidated Balance Sheets of United Stated
Aircraft Corporation as of September 30, 1998 sets forth the consolidation of
United States Aircraft Corporation with Neo Vision, Inc. under the purchase
method of accounting with a reverse merger and Neo Vision, Inc. being the
acquirer for financial reporting purposes. The pro forma adjustments report the
exchange of the Class A and Class B shares for the New Common stock, the
issuance of 4,577,560 additional New Common shares pursuant to the Exchange
Agreement and approximately 1,126,000 of New Common shares for the conversion of
the Neo Vision, Inc. convertible debentures.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS - September 30, 1998
<TABLE>
<CAPTION>
United States
Aircraft Corp. Pro Forma Pro Forma
and Subsidiaries Neo Vision, Inc. Combined Adjustments Consolidated
---------------- ---------------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $ 8,070 $ 83,577 $ 91,647 $ 91,647
Accounts Receivable 75,902 22,699 98,601 98,601
Notes Receivable 1,500 1,500 1,500
Prepaid expenses 7,844 1,349 9,193 9,193
----------- ----------- ------------ ----------
Total current asets 93,316 107,625 200,941 200,941
Investment, Neo Vision, Inc. 103,338 103,338 (103,338)(3)(4)(5)
Note receivable, net of
current portion 25,000 25,000 25,000
Property & equipment, net 47,613 584,094 631,707 631,707
Agency acquisition, net of
amortization 84,555 84,555 84,555
Goodwill, net 103,339 103,339 103,339
Course materials 13,754 13,754 13,754
Other 13,874 18,768 32,642 32,642
----------- ----------- ------------ ----------
Total assets 484,789 710,487 1,195,276 1,091,938
----------- ----------- ------------ ----------
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities
Note Payable, bank 30,000 15,000 45,000 45,000
Current portion of
long-term debt 26,000 26,000 26,000
Convertible debentures &
related accrues interest 90,041 746,164 836,205 (746,164)(6) 90,041
Accounts payable 90,734 273,721 364,455 364,455
Accrued expenses 214,062 119,259 333,321 (100,301)(6) 233,020
Unearned revenue 62,900 15,148 78,048 78,048
----------- ---------- ----------- ----------
Total current liabilities 513,737 1,169,292 1,683,029 836,564
Due to United States Aircraft Corp. 80,373 80,373 (80,373)(5)
Long term debt, net 5,360 5,360 5,360
Minority Interest in Neo Vision LLC 130,436 130,436 130,436
Stockholders' Equity - Capital stock
Class A: $.50 par value,
9,927,504 issued 4,963,752 4,963,752 (4,963,752)(1)
Class B: $.001 par value,
4,962,801 issued 4,963 4,963 (4,963)(2)
Common Stock, Neo Vision, Inc 6,250 6,250 (6,250)(4)
New Common Shares
$.001 par value, 7,078,303 issued 7,078 (1)(2)(3)(6) 7,078
</TABLE>
F-23
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - PRO FORMA FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Paid in Capital (1,838,862) (1,838,862) 2,627,227 (1)(2)(3)(6) 788,364
Retained earnings (deficit) (3,164,161) (675,864) (3,840,025) 3,164,161 (4) (675,864)
----------- ---------- ----------- ----------
(34,308) (669,614) (703,922) 119,578
----------- ---------- ----------- ----------
Total liabilities and
stockholders' equity $ 484,789 $ 710,487 $ 1,215,320 $1,091,938
----------- ---------- ----------- ----------
</TABLE>
See explanation of pro forma adjustments below.
Pro Forma Adjustments:
1. To record the exchange of Class A shares outstanding for the New Common
shares on the basis of 10 Class A shares for 1 New Common Share.
2. To record the exchange of Class B shares outstanding for the New Common
shares on the basis of 13 Class B shares for 1 New Common shares.
3. To record the 4,577,560 additional New Common shares to be issued to the
former Neo Vision, Inc. shareholders pursuant to the June 30, 1998 exchange
agreement.
4. To record elimination of intercompany investment on Neo Vision, Inc using
the purchase method of accounting with a reverse merger and Neo Vision, Inc
being the acquirer for financial reporting purposes.
5. To eliminate intercompany receivables and payables.
6. To record the conversion of the Neo Vision, Inc. convertible debentures
accrued interest to September 30, 1998 and the payment of financial
consulting fees all through the issuance of approximately 1,126,000 shares
of New Common stock.
F-24
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - PRO FORMA FINANCIAL INFORMATION (CONTINUED)
The following unaudited consolidated statements of operations of Unites States
Aircraft Corporation for the year ended September 30, 1998 sets forth the
consolidation of United States Aircraft Corporation with the Neo Vision, Inc.
under the purchase method of accounting as of the acquisition was competed on
October 1, 1998.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
United States
Aircraft Corp. Pro Forma Pro Forma
and Subsidiaries Neo Vision, Inc. Adjustments Consolidated
---------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue
Real Estate Education $ 494,258 $ 494,258
Travel Agency 1,281,689 1,281,689
Video Wall Advertising $ 102,209 102,209
Other 99,407 745 (90,000) (1) 10,152
---------- ----------- -----------
Total Revenue 1,875,354 102,954 1,888,308
---------- ----------- -----------
Expenses
Cost of Sales Travel Agency 1,163,825 1,163,825
Personnel Expenses 351,224 297,029 648,253
Facility Cost 69,851 81,360 151,211
Other Operating Cost 120,249 181,725 368,074
General and Administration 299,787 90,000 (90,000) (1) 299,787
Depreciation and Amortization 39,766 37,909 77,675
---------- ----------- -----------
Total Expenses 2,044,702 688,023(3) 2,642,725
---------- ----------- -----------
Income (Loss) Before Interest
Expense and Minority Interest, (169,348) (585,069) (754,417)
Interest Expense 20,136 135,359 155,495
Minority Interest in Neo
Vision Ll C Loss (44,564) (44,564)
---------- ----------- -----------
Net Income (Loss) $ (189,484) $ (675,864) $ (865,348)
---------- ----------- -----------
Pro Forma Net Income (Loss) Per
New Common Shares (2) (.06)
-----------
</TABLE>
- ----------
(1) To eliminate intercompany management fees.
(2) Based on pro forma shares of 7,078,303 to be outstanding after the exchange
of Class A and B shares for the New Common shares to be authorized and the
New Common shares to be issued in the acquisition of Neo Vision, Inc., the
conversion of the Neo Vision, Inc. convertible debentures and the payment
of financial consulting fees.
(3) The Neo Vision, Inc. expenses included in the audited financial statements
have been reclassified in the pro forma statement of operations to the
groupings used by the Company.
F-25
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has sustained continuing
operating losses.
As shown in the accompanying statement of operations, the Company has incurred a
net loss of $189, 484 for the year ended September 30, 1998. Unaudited
information subsequent to September 30, 1998 indicates that losses are
continuing. As of September 30, 1998, the accompanying balance sheet reflects
$14,264 in net shareholders' deficit and negative working capital of $414, 921.
The above conditions indicate that the Company may be unable to continue in
existence. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts, or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue in existence.
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.
Management projects that all of its operating units including Neo Vision, Inc
will operate at a sufficient profit to cover all of its general and
administrative expenses during the year ended September 30, 1999. To accomplish
the planned expansion and the resulting profitability management has adopted a
program to expand its existing service operations plus the acquisition of other
service organizations; however the expansion program requires the infusion of
additional capital for which a program has been adopted.
F-26
<PAGE>
UNITED STATES AIRCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND SEPTEMBER 30, 1998
March 31, 1999 September 30, 1998
ASSETS (Unaudited)
----------- ------------------
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.
F-27
<PAGE>
UNITED STATES AIRCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
1999 1998
------------ ------------
REVENUE
Real estate education $ 257,841 $ 218,109
Travel agency 632,454 696,617
Other 180,000 1,010
------------ ------------
Total revenue 1,070,295 915,736
------------ ------------
EXPENSES
Cost of sales-travel agency 553,187 626,510
Personnel expenses 182,478 187,246
Facility cost 34,757 33,650
Other operating cost 67,681 51,896
General and administration 93,735 43,543
Depreciation and amortization 21,981 19,269
------------ ------------
953,819 962,114
------------ ------------
Income (loss) before interest expense 116,476 (46,378)
INTEREST EXPENSE 6,873 6,391
------------ ------------
Net income (loss) $ 109,603 $ (52,769)
------------ ------------
NET INCOME (LOSS) PER SHARE $ .007 $ (.004)
------------ ------------
WEIGHTED NUMBER OF SHARES OUTSTANDING 14,890,305 12,727,805
The accompanying notes are an integral part of these statements.
F-28
<PAGE>
UNITED STATES AIRCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 109,603 (52,769)
Adjustments to reconcile net to cash
used by operating activities
Depreciation 6,973 5,324
Amortization 15,009 13,945
Net increase (decrease) in current liabilities
and (increase) decrease in accounts receivable
prepaid expense and other assets (126,910) 34,418
--------- ---------
Net cash provided by (used by)
operating activities 4,675 918
CASH FLOWS FROM INVESTING ACTIVITIES
Cash provided from acquisition of Neo Vision, Inc. 439
Reduction in advance to officer 23,743
Addition to land (24,906)
Disposition (acquisition) of equipment (21,076) (1,182)
--------- ---------
Net cash provided by (used by)
investing activities (20,637) (2,345)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in long-term debt 13,863 (11,979)
--------- ---------
Net cash provided by (used by)
financing activities 13,863 (11,979)
--------- ---------
Net increase (decrease) in cash (2,099) (13,406)
Cash, Beginning of Period 8,070 20,427
--------- ---------
Cash, End of Period $ 5,971 $ 7,021
--------- ---------
The accompanying notes are an integral part of these statements.
F-29
<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") except Neo Vision, Inc whose exchanges agreement was entered into on
June 30, 1998. Neo Vision has not been consolidated until its acquisition has
been fully assured. The balance sheet as of December 31, 1998 for Neo Vision,
Inc and the related statements of operations and cash flows for the three months
ended December 31, 1998 are presented in Note 3 and pro forma financial
information is presented in Note 4. 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 - ACQUISITION - NEO VISION INC.
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 merger 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 Company from United States Aircraft Corporation to Neo Vision Corporation
and (v) make certain technical amendments to the Company's Certificate of
F-30
<PAGE>
UNITED STATES AIRCRAFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED)
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 has 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
F-31
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED)
of the exchange based on the proposed exchange ratio. Because of announced
negative 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 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
F-32
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED)
Convertible debentures &
interest 740,480
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
----------
F-33
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED).
The following unaudited consolidated statements of operations of Unites 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. Pro Forma Neo Vision
and Subsidiaries Neo Vision, Inc. Adjustments Corporation
---------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
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)
</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.
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Shareholders and Board of Directors of
Neo Vision, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Neo Vision, Inc.
and Subsidiary as of September 30, 1998, and the related consolidated statements
of operations, changes in shareholders' equity (deficit), and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Neo Vision, Inc. and
Subsidiary as of September 30, 1998, and the results of its operations, changes
in shareholders' equity (deficit), and its cash flows for the year then ended,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Semple & Cooper, LLP
Certified Public Accountants
Phoenix, Arizona
December 2, 1998
F-35
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 1998
ASSETS
Current Assets:
Cash and cash equivalents (Note 1) $ 83,577
Accounts receivable, net (Note 1) 22,699
Debt issue costs, net (Note 1) 18,588
Prepaid expenses 1,349
-----------
Total Current Assets 126,213
-----------
Property and Equipment: (Note 1)
Furniture and fixtures 9,783
Home office equipment 92,565
Video walls 519,655
-----------
622,003
Less: accumulated depreciation (37,909)
-----------
584,094
-----------
Deposits 10,000
Deferred Financing costs (Note 1) 8,768
-----------
Total Assets 18,768
-----------
$ 729,075
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Note payable (Note 2) $ 15,000
Convertible debentures (Note 3) 800,750
Accounts payable 273,721
Accrued taxes and other 25,950
Accrued interest payable 57,312
Deferred revenue 15,148
Due to a related entity (Note 4) 80,373
-----------
Total Current Liabilities 1,268,254
=========
Commitments (Note 5) --
Minority Interests (Note 1) 130,436
-----------
Shareholders' Equity (Deficit):
Common stock, $.001 par value, 25,000,000
shares authorized, 6,250,000 shares issued
and outstanding 6,250
Accumulated deficit (675,865)
-----------
(669,615)
-----------
Total Liabilities and Shareholders'
Equity (Deficit) $ 729,075
===========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-36
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For The Year Ended September 30, 1998
Revenues $ 102,954
Operating Costs and Expenses:
Personnel expenses 271,888
Facility costs 73,480
Sales and marketing expense 60,341
General and administrative expenses 244,406
Depreciation and amortization 37,909
---------
Loss from Operations (585,070)
Interest expense (135,359)
Minority Interest in NV-1, LLC Loss 44,564
---------
Net Loss $(675,865)
=========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-37
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY(DEFICIT)
FOR THE YEAR ENDED SEPTEMBER 30, 1998
Total
Share-
Common Stock Holders'
------------ Accumulated Equity
Shares Amount Deficit (Deficit)
------ ------ ------- ---------
Balance at September 30, 1997 -- $ -- $ -- $ --
Stock issued for services 6,250,000 6,250 -- 6,250
Net loss for the year ended
September 30, 1998 -- -- (675,865) (675,865)
--------- ------ --------- ---------
Balance at September 30, 1998 6,250,000 $6,250 $(675,865) $(669,615)
========= ====== ========= =========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-38
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Year Ended September 30, 1998
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers $ 80,255
Cash paid to suppliers and employees (349,163)
Interest paid (78,047)
---------
Net cash used by operating
activities (346,955)
---------
Cash flows from investing activities:
Purchase of fixed assets (622,003)
---------
Net cash used by investing
activities (622,003)
---------
Cash flows from financing activities:
Proceeds from debt 25,000
Proceeds from convertible debentures 782,162
Capital contributions of minority interests 175,000
Advances from parent company 80,373
Repayment of debt (10,000)
---------
Net cash provided by financing
activities 1,052,535
---------
Net increase in cash and cash equivalents 83,577
Cash and cash equivalents at beginning of year --
---------
Cash and cash equivalents at end of year $ 83,577
=========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-39
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For The Year Ended September 30, 1998
Reconciliation of Net Loss to Net Cash
Used by Operating Activities:
Net Loss $(675,865)
---------
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 37,909
Minority interest in NV-1, LLC Loss (44,564)
Stock issued for services 6,250
Changes in Assets and Liabilities:
Accounts receivable, net (22,699)
Prepaid expenses (1,349)
Deposits (10,000)
Financing costs (8,768)
Accounts payable 273,721
Accrued taxes and other 25,950
Accrued interest payable 57,312
Deferred revenue 15,148
---------
328,910
---------
Net cash used by operating activities $(346,955)
=========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-40
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES:
NATURE OF OPERATIONS:
Neo Vision, Inc. is a Corporation which was duly formed and organized under
the laws of the State of Arizona on June 29, 1997. The Company was dormant
until October 1, 1997 when operations commenced. The principal business
purpose of the Company is to provide advertising, programming and
information to remote audiences using computer, video and transmission
technology throughout the United States.
NV-1, LLC, is a limited liability company which was formed in August, 1997.
The Company was dormant until October 1, 1997 when operations commenced.
Neo Vision, Inc. owns an approximate seventy-five percent (75%) interest in
the company. The principal business purpose of the Company is to own and
operate a video screen, using Neo Vision, Inc.'s technology, at Meadows
Mall in Las Vegas, Nevada. Minority Interests represents capital
contributions of NV-1, LLC's minority partners less their proportionate
share of that entities losses.
ACQUISITION:
On June 30, 1998, the Company entered into an exchange agreement with
United States Aircraft Corporation by exchanging all of its common stock
for 2,000,000 shares of Class A common stock of United States Aircraft
Corporation (USAC). Up to an additional 4,577,560 shares will be exchanged
upon USAC's shareholders approving a change in their equity structure, as
well as several other conditions occurring. The acquisition constituted a
tax-free reorganization and will be accounted for as a reverse merger with
Neo Vision, Inc. as the accounting acquirer. The consolidated financial
statements include only the results of the Company for the period
presented, as the transaction can be reversed if the approval of the USAC
shareholders is not received.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Neo Vision,
Inc., and its subsidiary, NV-1, LLC. All significant intercompany accounts
and transactions have been eliminated in the accompanying consolidated
financial statements.
PERVASIVENESS OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
IMPAIRMENT OF LONG-LIVED ASSETS:
The Company requires that long-lived assets and certain indentifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net
cash flows expected to be generated by the asset and a review of industry
conditions. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or net realizable value.
REVENUE RECOGNITION:
The Company recognizes revenue from advertisers buying time on the video
walls ratably as the spots are run, and in accordance with the contract
terms.
F-41
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES: (CONTINUED)
CASH EQUIVALENTS:
Cash equivalents are considered to be all highly liquid investments
purchased with an initial maturity of three (3) months or less.
ACCOUNTS RECEIVABLE:
The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance method recognizes bad debt expense as a
percentage of accounts receivable based on a review of the individual
accounts outstanding, and the Company's prior history of uncollectible
accounts receivable. At September 30, 1998, no allowance has been
established for potentially uncollectible accounts receivable, as in the
opinion of management, all amounts are considered fully collectible.
DEBT ISSUE COSTS:
Debt issue costs represent costs incurred in connection with the Company's
convertible debenture offering. Debt issue costs are being amortized
ratably over the life of the debentures. Amortization expense for the year
ended September 30, 1998 was $74,351.
PROPERTY AND EQUIPMENT:
Propertyand equipment are recorded at cost. Depreciation is provided for
using the straight-line method over the estimated useful lives of the
assets. Maintenance and repairs that neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. Betterments or renewals are capitalized when incurred. For the
year ended September 30, 1998, depreciation expense was $37,909.
A summary of the estimated useful lives is as follows:
Furniture and fixtures 5 years
Home office equipment 5 years
Video walls 10 years
DEFERRED FINANCING COSTS:
Deferred financing costs represent costs incurred in connection with the
Company's attempt to secure a bank loan. Financing costs will be charged
ratably over the life of the loan if successfully completed or will be
charged as a period cost if the loan is not secured (See Note 8).
INCOME TAXES:
For the year ended September 30, 1998, no provisions were made for federal
or state income tax expense due to the net operating loss.
Deferred income taxes arise from timing differences resulting from revenues
and expenses reported for financial accounting and tax reporting purposes
in different periods. Deferred income taxes represent the estimated tax
asset or liability from different depreciation methods used for financial
accounting and tax reporting purposes and for timing differences in the
utilization of net operating loss carryforwards and valuation allowances.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of the Company's notes payable and convertible debentures is
based on rates currently available from the bank for debt with similar
terms and maturities. The carrying amounts of accounts receivable, debt
issue costs, and deferred revenue approximate fair value because of the
short-term maturity of these items.
F-42
<PAGE>
NEO VISION, INC.AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. NOTE PAYABLE:
At September 30, 1998, note payable consisted of the following:
$25,000 note payable to a bank, bearing interest
at the bank's Index Rate plus 3%, due on demand;
guaranteed by officers of the Corporation. $15,000
=======
3. CONVERTIBLE DEBENTURES:
At September 30, 1998, convertible debentures consisted of the following:
Series A, bearing interest at 12%, payable in common stock,
convertible at a rate of $1.00 per share, due December,
1998. $472,000
Series B, bearing interest at 10%, payable in common stock,
convertible at a rate of $1.00 per share, due May, 1999. 190,000
Series C, bearing interest at 12%, payable in common stock,
convertible at a rate of $1.25 per share, due May, 1999. 138,750
--------
$800,750
========
The debentures further provide for automatic conversion into common stock
of the Company upon completion of a transaction resulting in the issuance
of unrestricted securities. If all of the debentures convert, Neo Vision,
Inc. would issue 833,325 shares of its common stock as of September 30,
1998, to convert the outstanding principal balance of $800,750 and accrued
interest of $57,312.
As of the date of this report, the Series A convertible debentures have not
been paid. The conversion is pending completion of the acquisition (See
Note 1).
The Company further agreed to engage a consultant to assist in the
placement of the debentures. The agreement provides for the payment of a 5%
finders fee, plus the issuance of 756,828 shares of Neo Vision, Inc. common
stock when certain provisions are met, plus warrants for the purchase of
160,150 shares of Neo Vision, Inc. at $3.00 per share. None of the warrants
have been exercised as of September 30, 1998. Issuance of the common stock
has been held in abeyance pending the acquisition.
4. RELATED PARTY TRANSACTIONS:
DUE TO A RELATED ENTITY:
At September 30, 1998, $80,373 is due to USAC. The amount represents the
balance due from a $90,000 management fee charged by USAC, which is
included in general and administrative expenses of the Company for the
quarter ended September 30, 1998. The amount is non-interest bearing, and
considered short-term in nature.
STOCKHOLDERS' EQUITY:
During the year ended September 30, 1998, 6,250,000 shares of the Company's
Common Stock was issued to the six founding stockholders for actual costs
incurred during the organization of the Company.
5. LEASE OBLIGATIONS:
The Company leases office space in Phoenix, Arizona under cancellable
operating lease agreements with a related entity. Rent expense under these
lease agreements for the year ended September 30, 1998 was $17,610.
F-43
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. LEASE OBLIGATIONS: (CONTINUED)
The Company also leases wall space for its video walls at McCarran Airport
and Meadows Mall in Las Vegas, Nevada under non-cancellable operating lease
agreements, expiring in June, 2003 and September, 2002, respectively. The
base rent under the McCarran lease is increased annually by the greater of
five percent (5%) per annum, or base rent plus twenty percent (20%) of the
gross billings for advertising on the video walls. The Meadows Mall
agreement provides for the payment of rent at a rate of fifteen percent
(15%) of the gross consideration received for advertising on the video
walls. Rent expense under these lease agreements for the year ended
September 30, 1998 was $87,818.
In addition, the Company is currently leasing a computer under a
cancellable operating lease agreement. Rent expense under the lease
agreement for the year ended September 30, 1998 was $1,320.
A schedule of future minimum lease payments due under the non-cancellable
operating leases at September 30, 1998, is as follows:
Year
Ending Amount
------ ------
1999 $ 243,250
2000 255,412
2001 268,183
2002 281,592
2003 212,714
----------
$1,261,151
==========
6. INCOME TAXES AND DEFERRED INCOME TAXES:
For the year ended September 30, 1998, components of deferred income taxes,
are as follows:
Long-Term Asset(Liability):
Net operating loss carryforward $ 290,000
Accumulated depreciation (1,000)
---------
289,000
Less: valuation allowance (289,000)
---------
$ --
=========
At September 30, 1998, the Company had federal and state net operating loss
carryforwards available to offset future federal and state taxable income,
in the approximate amount of $680,000 expiring primarily through September
30, 2013 and 2003, respectively.
Management has established a valuation allowance equal to the benefit of
the net operating loss carryforward as utilization of that benefit is
uncertain.
F-44
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. CONSOLIDATED STATEMENT OF CASH FLOWS:
Non-Cash Investing and Financing Activities:
The Company recognized investing and financing activities that affected
assets and liabilities, but did not result in cash receipts or payments:
For the year ended September 30, 1998, these non-cash activities are as
follows:
Stock in the amount of $6,250 was issued for services performed.
The minority interest loss in NV-1, LLC was $44,564.
Convertible debentures were issued net of costs of $92,939.
8. GOING CONCERN:
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation
of the Company as a going concern. However, the Company has sustained
continuing operating losses.
The primary business of the Company is to provide advertising, programming,
and information to remote audiences using video walls. Three of these video
walls began operating primarily in June, 1998, the end of the development
phase, and were not yet profitable in the year ended September 30, 1998.
As shown in the accompanying statement of operations, the Company has
incurred a net loss of $675,865 for the year ended September 30, 1998.
Unaudited information subsequent to September 30, 1998 indicates that
losses are continuing. As of September 30, 1998, the accompanying balance
sheet reflects $669,615 in net stockholders' deficit and negative working
capital of $1,142,041.
The above conditions indicate that the Company may be unable to continue in
existence. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts, or the
amounts and classification of liabilities that might be necessary should
the Company be unable to continue in existence.
Management has received agreements from most of the debenture holders to
convert their convertible debentures and related accrued interest into
shares of USAC upon completion of the acquisition. The conversion of the
debentures results in a pro forma net equity of approximately $175,000.
Further, the Company has received a letter of intent for a $250,000 sale
and leaseback of the installed equipment at one of its locations, which
management expects to be funded before mid-February, 1999, pending the
completion of the lender's due diligence procedures. In addition, the
monthly sales of advertising have been increasing since the end of the
development phase, resulting in management's expectation of attaining
positive cash flow from operations commencing in 1999.
F-45
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APPENDIX I
FIRST RESTATED CERTIFICATE OF INCORPORATION
OF
UNITED STATES AIRCRAFT CORPORATION
1. The name of the corporation is UNITED STATES AIRCRAFT CORPORATION
(which is hereinafter referred to as the "Corporation").
2. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on October 6, 1978.
3. This First Restated Certificate of Incorporation has been duly
proposed by resolutions adopted and declared advisable by the Board of Directors
of the Corporation, duly adopted by the stockholders of the Corporation at a
meeting duly called, duly executed, and acknowledged by the officers of the
Corporation, and duly adopted in accordance with the provisions of Sections 103,
242, and 245 of the General Corporation Law of the State of Delaware, and
restates, integrates, and further amends the provisions of the Certificate of
Incorporation of the Corporation and, upon filing with the Secretary of State in
accordance with Section 103, shall thenceforth supersede the original
Certificate of Incorporation and all amendments thereto prior to the date of
such filing, and shall, as it may thereafter be amended in accordance with its
terms and applicable law, be the Certificate of Incorporation of the
Corporation.
4. The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation shall be Neo Vision Corporation.
ARTICLE II
ADDRESS
The registered office of the Corporation in the State of Delaware is
1013 Centre Road, City of Wilmington, County of New Castle. The name of the
Corporation's registered agent at such address is The Prentice-Hall Legal and
Financial Services.
<PAGE>
ARTICLE III
PURPOSE
The purpose for which this Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
STOCK
The total number of shares of stock that the Corporation shall have the
authority to issue is one hundred seventy five million (175,000,000) consisting
of one hundred million (100,000,000) shares of a single class of Common Stock
(the "Common Stock" or the "New Common Stock"), par value of each share of
Common Stock shall be one-tenth of one cent ($.001) and seventy-five million
(75,000,000) shares of Preferred Stock, par value of each share of Preferred
Stock shall be one-tenth of one cent ($.001).
Effective at the time of the filing with the Secretary of State of the
State of Delaware of the First Restated Certificate of Incorporation of the
Corporation, which INTER ALIA, adds this paragraph to Article IV thereof, each
share of the Corporation's Class A Common Stock, par value $.50 per share,
issued and outstanding or held in treasury immediately prior to such time shall,
without any action on the part of the respective holders thereof, be
reclassified into one-fifth (1/5) of a share of New Common Stock, par value
$.001 per share, and each stock certificate that, immediately prior to the time
of such filing, represented shares of the Corporation's Class A Common Stock,
par value $.50 per share, shall, from and after such time and without the
necessity of presenting the same for exchange, represent the number of shares of
New Common Stock into which the shares of Class A Common Stock represented by
such stock certificate were reclassified pursuant hereto. Notwithstanding the
foregoing sentence, no person shall hold a fractional share of New Common Stock
of the Corporation as a result of the foregoing reclassification of Class A
Common Stock, but instead of any fraction of a share which would otherwise
result from such reclassification, the Corporation shall, upon the surrender for
cancellation by any former holder of Class A Common Stock of any certificate
formerly representing shares of the Corporation's Class A Common Stock pay in
cash in respect of such fraction in an amount equal to the product of (x) such
fraction and (y) $fair value of one share of Class A Common Stock.
Effective at the time of the filing with the Secretary of State of the
State of Delaware of the First Restated Certificate of Incorporation of the
Corporation which, INTER ALIA, adds this paragraph to Article IV thereof, each
share of the Corporation's Class B Common Stock, par value $.001 per share,
issued and outstanding or held in treasury immediately prior to such time shall,
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without any action on the part of the respective holders thereof, be
reclassified into two-thirteenth (2/13) of a share of New Common Stock, par
value $.001 per share, and each stock certificate that, immediately prior to the
time of such filing, represented shares of the Corporation's Class B Common
Stock, par value $.001 per share, shall, from and after such time and without
the necessity of presenting the same for exchange, represent the number of
shares of New Common Stock into which the shares of Class B Common Stock
represented by such stock certificate were reclassified pursuant hereto.
Notwithstanding the foregoing sentence, no person shall hold a fractional share
of New Common Stock of the Corporation as a result of the foregoing
reclassification of Class B Common Stock, but, instead of any fraction of a
share which would otherwise result from reclassification, the Corporation shall,
upon the surrender for cancellation by any former holder of Class B Common Stock
of any certificate formerly representing shares of the Corporation's Class B
Common Stock pay cash in respect of such fraction in an amount equal to the
product of (x) such fraction and (y) $fair value of one share of Class B Common
Stock.
Section 1.
COMMON STOCK. The Board of Directors of the Corporation may, from time
to time, distribute on a pro rata basis to its Common Stock stockholders, out of
assets or funds of the Corporation legally available therefor, a portion of its
assets, in cash or property.
The Board of Directors of the Corporation may, from time to time, cause
the Corporation to purchase shares of its own Common Stock out of assets or
funds of the Corporation legally available therefor.
The Corporation may issue rights and options to purchase shares of
Common Stock of the Corporation to Directors, Officers or employees of the
Corporation or any affiliate thereof, and no stockholder approval or
ratification of any such issuance of rights and options shall be required.
Section 2.
PREFERRED STOCK. The Corporation shall have authority to issue its
Preferred Stock in one or more series. The Board of Directors is vested with
authority to establish and designate series and to fix the number of shares to
be included in each such series and the rights, powers, preferences and
limitations, qualification, or restriction of each such series, subject to the
provisions set forth below. If the stated dividends and amounts payable on
liquidation are not paid in full, the shares of all series of the same class
shall share ratably in the payment of dividends including accumulations, if any,
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in accordance with the sums which would be payable on such shares if all
dividends were declared and paid in full, and in any distribution of assets
other than by way of dividends in accordance with the sums which would be
payable in such distribution if all sums payable were discharged in full. The
authority of the Board of Directors with respect to each series of Preferred
Stock shall include, but not be limited to, determination of the following:
a. The number of shares constituting that series and the
distinctive designation of that series;
b. Whether dividends, if any, shall be cumulative or non
cumulative and, if so, from which date or dates, and the rights with respect to
dividends of the series;
c. Whether that series shall participate in unlimited dividend
rights, and, if so, the extent of such participation;
d. Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting rights,
including whether it shall vote as a separate series, or with other series of
Preferred Stock, or as one class with the holders of Common Stock, with or
without other series of Preferred Stock, and whether differently as to different
matters, or any combination of the foregoing;
e. Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
f. Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
g. The amounts payable on the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
h. Restrictions on the issuance of shares of the same series or
of any other class or series; and
i. Any other rights, preferences and limitations of that series.
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Dividends on outstanding Preferred Stock of each series shall be
declared and paid, or set apart for payment, before any dividends shall be
declared and paid, or set apart for payment, on the Common Stock with respect to
the same dividend period.
Upon any dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Preferred Stock shall be
entitled to receive out of the assets of the Corporation, before any
distribution shall be made to the holders of the Common Stock, the amounts
determined to be payable on the Preferred Stock of each series in the event of
voluntary or involuntary liquidation.
No holder of Preferred Stock shall be entitled to any preemptive
rights.
The Corporation may issue rights and options to purchase shares of
Preferred Stock of the Corporation to Directors, Officers or employees of the
Corporation or any affiliate thereof, and no stockholder approval or
ratification of any such issuance of rights and options shall be required.
ARTICLE V
BOARD OF DIRECTORS
The number of persons to serve on the Board of Directors shall be fixed
or in the manner provided by the Bylaws.
ARTICLE VI
LIMITATION OF LIABILITY AND INDEMNIFICATION
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware.
The Corporation shall, to the fullest extent permitted by the General
Corporation Law of the State of Delaware (the "GCL"), as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify from and against any and all of the expenses, liabilities or other
matters referred to in or covered by the GCL, and the indemnification provided
for herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
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ARTICLE VII
ELECTION OF DIRECTORS
All elections of Directors will be by ballot vote where a ballot vote
is demanded by any person entitled to vote prior to the time the voting begins;
otherwise, a voice vote will suffice.
ARTICLE VIII
AMENDMENT OF BYLAWS
The Bylaws may be altered, amended, repealed or temporarily or
permanently suspended, in whole or in part, or new bylaws adopted by the action
of the Board of Directors or the stockholders, in accordance with the provisions
set forth below:
Section 1.
BY ACTION OF THE BOARD OF DIRECTORS. The Bylaws may be altered,
amended, repealed or temporarily or permanently suspended, in whole or in part,
or new bylaws adopted by the action of the Board of Directors only upon the
affirmative vote of a majority of the entire Board of Directors. Such vote may
be taken at any annual, regular or special meeting of the Board of Directors if
notice of such alteration, amendment, repeal or adoption of the new bylaws shall
be contained in the notice of such annual, regular or special meeting.
Section 2.
BY ACTION OF THE STOCKHOLDERS. The Bylaws may be altered, amended or
repealed or new bylaws may be adopted by the stockholders only upon the
affirmative vote as to all the stock held by the holders of not less than
sixty-six and two-thirds percent (66 2/3%) of the combined voting power of the
issued and outstanding shares of Voting Stock (as defined in Article IX), voting
together as a single class. Such vote may be taken at any annual or special
meeting of the stockholders if notice of such alteration, amendment, repeal, or
adoption of the new bylaws shall be contained in the notice of such annual or
special meeting.
ARTICLE IX
BOARD CONSIDERATIONS UPON SIGNIFICANT EVENTS
The Board, when evaluating any (A) tender offer or invitation for
tenders, or proposal to make a tender offer or request or invitation for
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tenders, by another party, for any equity security of the Corporation, or (B)
proposal or offer by another party to (1) merge or consolidate the Corporation
or any subsidiary with another corporation or other entity, (2) purchase or
otherwise acquire all or substantially all of the properties or assets of the
Corporation or any subsidiary, or sell or otherwise dispose of to the
Corporation or any subsidiary all or a substantial portion of the properties or
assets of such other party, or (3) liquidate, dissolve, reclassify the
securities of, declare an extraordinary dividend of, recapitalize or reorganize
the Corporation, shall take into account all factors that the Board deems
relevant, including, without limitation, to the extent so deemed relevant, the
potential impact on employees, customers, suppliers, partners, joint venturers
and other constituents of the Corporation and the communities in which the
Corporation operates.
In addition to any affirmative vote required by applicable law and in
addition to any vote of the holders of any series of Preferred Stock provided
for or fixed pursuant to the provisions of Article IV of this First Restated
Certificate of Incorporation, any alteration, amendment or repeal relating to
this Article IX must be approved by the affirmative vote of the holders of at
least sixty six and two-thirds percent (66 2/3%) of the combined voting power of
the issued and outstanding shares of Voting Stock, voting together as a single
class. Voting Stock is defined as all issued and outstanding shares of capital
stock of the Corporation that pursuant to or in accordance with this First
Restated Certificate of Incorporation are entitled to vote generally in the
election of directors of the Corporation, and each reference herein, where
appropriate, to a percentage or portion of shares of Voting Stock shall refer to
such percentage or portion of the voting power of such shares entitled to vote.
The issued and outstanding shares of Voting Stock shall not include any shares
of Voting Stock that may be issuable pursuant to any agreement, or upon the
exercise or conversion of any rights, warrants or options, or otherwise.
ARTICLE X
In addition to any affirmative vote required by applicable law and in
addition to any vote of the holders of any series of Preferred Stock provided
for or fixed pursuant to the provisions of Article IV of this First Restated
Certificate of Incorporation, any alteration, amendment or repeal of this
Article X must be approved by the affirmative vote of the holders of at least
sixty six and two-thirds percent (66 2/3%) of the combined voting power of the
issued and outstanding shares of Voting Stock (as defined in Article IX), voting
together as a single class.
ARTICLE XI
STOCKHOLDER CONSENT
No action that is required or permitted to be taken by the stockholders
of the Corporation at any annual or special meeting of stockholders may be
effected by written consent of stockholders in lieu of a meeting of
stockholders, unless the action to be effected by written consent of
stockholders and the taking of such action by such written consent have
expressly been approved in advance by the Board.
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In addition to any affirmative vote required by applicable law and in
addition to any vote of the holders of any series of Preferred Stock provided
for or fixed pursuant to the provisions of Article IV of this First Restated
Certificate of Incorporation, any alteration, amendment or repeal of this
Article XI must be approved by the affirmative vote of the holders of at least
sixty six and two-thirds percent (66 2/3%) of the combined voting power of the
issued and outstanding shares of Voting Stock (as defined in Article IX), voting
together as a single class.
IN WITNESS WHEREOF, this First Restated Certificate of Incorporation
has been signed this ____ day of June, 1999.
UNITED STATES AIRCRAFT CORPORATION
By:
------------------------------
Harry V. Eastlick, President
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UNITED STATES AIRCRAFT CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS
JUNE 29, 1999
The undersigned stockholder of UNITED STATES AIRCRAFT CORPORATION, a
Delaware corporation (the "Corporation") hereby acknowledges receipt of the
Notice of Special Meeting of Stockholders and Proxy Statement, each dated June
15, 1999 and hereby appoints Harry V. Eastlick as proxy and attorney-in-fact,
with full power of substitution on behalf of and in the name of the undersigned,
to represent the undersigned at a Special Meeting of Stockholders of the
Corporation, to be held on June 29, 1999, at 10:00 a.m., Arizona time, at the
offices of the Corporation, and at any adjournment or adjournments thereof, and
to vote all shares of Class A Common Stock and Class B Common Stock that the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below. All defined terms have the meaning set forth in the
Proxy Statement.
1. Approval and adoption of the amendment and restatement of the
Corporation's Certificate of Incorporation to:
a. Authorize the issuance of up to 100,000,000 shares of New Common
Stock, $.001 par value per share.
b. Reclassify the Corporation's Class A Common Stock and Class B
Common Stock into shares of New Common Stock on the basis of five
(5) shares of Class A Common Stock into one (1) share of New
Common Stock and six and one-half (6 1/2) shares of Class B
Common Stock into one (1) share of New Common Stock.
c. Authorize the issuance of up to 75,000,000 shares of Preferred
Stock.
d. Change the name of the Corporation to Neo Vision Corporation.
e. Approve certain technical amendments set forth in the Company's
First Restated Certificate of Incorporation attached as Appendix
I to the Proxy Statement/Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR RATISFICATION AND APPROVAL OF THE EXCHANGE
AGREEMENT; FOR APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION; AND AS SAID PROXY IS DEEMED ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
The said attorney-in-fact or substitute as shall be present and shall
act at said meeting or any adjournment or adjournments thereof and shall have
and may exercise all of the powers of said attorney-in-fact hereunder.
Dated: , 1999
---------------------
---------------------------------
Signature
---------------------------------
Signature
(This Proxy should be dated, signed by the
stockholder(s) exactly as his or her name appears
hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity
should so indicate. If shares are held by joint
tenants or as community property, both
stockholders should sign.)
