CADE INDUSTRIES INC
10-K405, 1998-03-31
AIRCRAFT ENGINES & ENGINE PARTS
Previous: BELO A H CORP, DEF 14A, 1998-03-31
Next: MINING SERVICES INTERNATIONAL CORP/, DEF 14A, 1998-03-31



<PAGE>
 
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549

                                   FORM 10-K

          [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 1997

                                       OR

         [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

             For the transition period from           to 
                                            ---------    ---------

                        Commission file number: 0-12808

                             CADE INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

                   Wisconsin                        39-1371038
                   ---------                        ----------
         State or other jurisdiction of          (I.R.S. Employer
         incorporation or organization           Identification No.)

             2365 Woodlake Drive, Suite 120, Okemos, Michigan 48864
             ------------------------------------------------------
               (Address of principal executive offices)(Zip Code)

       Registrant's telephone number, including area code: (517) 347-1333

       Securities registered pursuant to Section 12(b) of the Act:  None
          Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $.001 par value
                         -----------------------------
                                (Title of class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  X  No 
                                              ---    -----
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     As of March 19, 1998, 22,004,083 shares of Common Stock were outstanding,
and the aggregate market value of the registrant's voting and non-voting common
equity (based upon the $3 closing price of the registrant's Common Stock on that
date in the Nasdaq National Market) held by nonaffiliates (excludes shares
reported as beneficially owned by directors and executive officers which
exclusion does not constitute an admission as to affiliate status) was
approximately $48,675,654.

                      DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
                                                                                   Part of Form 10-K Into Which Portions of
     Document                                                                              Document are Incorporated
     --------                                                                      -----------------------------------------
<S>                                                                                <C>
Portions of Annual Report to Shareholders for the fiscal year ended
     December 31, 1997                                                                            Part II
Portions of Proxy Statement for 1998 Annual Meeting of Shareholders                               Part III
</TABLE> 
<PAGE>
 
                                 PART I

Item 1.  Business.
         --------

General

     Cade Industries, Inc. (the "Company" or "Cade") conducts its operations
primarily through four operating subsidiaries, Auto-Air Composites, Inc. ("Auto-
Air"), Cade Composites, Inc. ("CCI"), H.A.C. Corporation ("HAC") and Central
Engineering Company ("CENCO").

     Cade was incorporated in 1981 and initially was engaged in precision
machining of cast parts for the aircraft industry through its former Precision
Machining Division located in Marinette, Wisconsin, which was sold in June 1989.
The Company acquired Auto-Air in 1984 and acquired the business that now is
conducted by CCI in 1988. On November 30, 1994, the Company acquired Pollux
Corporation which, through its wholly-owned HAC subsidiary, manufactures and
overhauls bonded structures and composite parts for military and commercial
aircraft. On October 31, 1997, the Company acquired CENCO and its subsidiaries
which manufacture engine test facilites and associated ground support equipment.
The Company has included the operations of CENCO in its consolidated financial
statements since October 31, 1997.

Products

     Cade engages worldwide in the design, manufacture and repair and overhaul
of high technology composite components and engine test facilities for the
aerospace, air transport, and specialty industries. The Company is a global
leader in the manufacture of jet engine test facilities and related ground
support equipment. Composite materials are physical combinations of two or more
constituents. One of the materials, typically a fiber or particle such as epoxy
glass, graphite, polyamide glass or epoxy kevlar, is placed or dispersed within
the other constituent, called the matrix. The composite material formed by the
combination of constituents must have attributes which are superior to either
one of the constituent materials. Composite materials may be classified as
structural or non-structural dependent upon their application. These materials
are molded and cured at high temperatures under pressure or vacuum. The high
strength and low weight of composite materials makes them especially well suited
for aerospace and other complex applications where weight is a critical factor.

     Cade's primary products include molded and bonded composite jet engine
components consisting of engine inlets, acoustical liners, fairings, auxiliary
power unit enclosures and engine cases ("Gas Turbine Products"); metal
fabricated and bonded composite airframe components consisting of various
control surface products, access doors, wing tips and interior structures
("Airframe Products"); the repair and overhaul of commercial and military
airframe components, commercial gas turbine engine components and flight nacelle
structures ("Repair and Overhaul Services"); and test nacelle, engine test
facilities, data acquisition systems, and related equipment used in the ground
testing and overhaul of commercial jet engines and related ground support
equipment ("Test Equipment"). These products are sold worldwide through the
Company's internal sales force and independent sales representatives to major
engine equipment manufacturers, airlines and overhaul facilities. For 1997, 1996
and 1995, sales of Gas Turbine Products, Airframe Products, Repair and Overhaul
Services and Test Equipment as a percentage of total sales were as follows:

<TABLE>
<CAPTION>

                                      Percentage of Total Net Sales
                                      -----------------------------
                                         Year Ended December 31,
                                      -----------------------------
                                      1997         1996        1995
                                      ----         ----        ----
<S>                                   <C>         <C>          <C>
Gas Turbine Products                  32.1%       29.4%        25.7%

Airframe Products                     21.8%       20.9%        24.8%

Repair and Overhaul Services          22.3%       27.2%        24.2%

Test Equipment                        23.7%       19.2%        20.7%
                                      ----        ----         ----
     Total                            99.9%       96.7%        95.4%
                                      ====        ====         ====
- -------------------------------------------------------------------------------
</TABLE>
     Through Auto-Air and HAC, Cade operates repair stations under Federal
Aviation Administration ("FAA") licenses. The repair stations are authorized to
repair and overhaul certain gas turbine engine products and other

                                       1
<PAGE>
 
components, sheet metal and composite flight control surfaces, skin panels,
bonded honeycomb panels, cargo doors and engine cowls. In addition to FAA
certification, Auto-Air and HAC have also been certified by the European Joint
Airworthiness Authority ("JAA") to repair specific aircraft parts on certain
types of aircraft subject to JAA jurisdiction. Although some nations require
approval from their own aviation authorities before Auto-Air and HAC are
authorized to repair parts on aircraft subject to their jurisdiction, FAA and
JAA certification enable Auto-Air and HAC to repair parts on aircraft subject to
the jurisdiction of most foreign countries. Auto-Air and HAC have also received
repair approval from the Civil Aviation Authority of China. Auto-Air has
recently been certified as meeting ISO 9000 quality standards.

Raw Materials

     The principal raw materials used in Cade's manufacturing processes consist
of epoxy glass, polyamide glass, epoxy kevlar, graphite BMI and aluminum
honeycomb. Although none of these materials currently is in short supply, the
Company continues to experience increased order lead times in certain cases,
which management attributes primarily to the increased overall demand for such
material. These raw materials are purchased from multiple suppliers located in
the United States and, in many cases, under long-term contracts. Alternative
international sources are also available, but currently are not generally used
as sources. Certain customers require that purchases be made from one or more
approved suppliers or that the Company certify the material specifications in
its in-house laboratories. Cade has never experienced a shortage of raw
materials as a result of such supplier or material specifications restrictions.

Patents and Trademarks

     Cade currently holds no material patents or registered trademarks, trade
names or similar intellectual property, although the Company has received
certain patents in the area of high temperature composites applications and
anticipates seeking patent protection in the future as appropriate to preserve
proprietary developments. The Company believes that the nature of its business
presently does not require the development of patentable products or registered
trade names or trademarks to maintain or increase market position.

Marketing and Competition

     The Company's products are marketed primarily through its internal sales
force and independent sales representatives. The majority of Cade's sales are
made through individual purchase orders, as well as long-term agreements, which
are cancelable by customers, subject to cancellation charges to cover certain
manufacturing costs and related expenses. In addition, approximately 14% of
Cade's total net sales, directly and indirectly, during fiscal 1997 was
attributable to government contracts which are subject to termination or
renegotiation at the option of the U.S. Government. Historically, terminations
and renegotiations of government contracts have not materially impacted the
Company's earnings.

     During the fiscal years ended December 31, 1997, 1996 and 1995, sales to
the Pratt & Whitney unit of United Technologies Corporation ("Pratt & Whitney")
accounted for approximately 25%, 25% and 20% of total net sales, respectively,
and sales to Boeing/McDonnell Douglas accounted for approximately 11%, 6%, and
5% of total sales, respectively. For the fiscal years ended December 31, 1997,
1996 and 1995, the Company's export sales as a percentage of total net sales
were 22%, 17% and 23%, respectively.

     Cade competes in its manufacturing operations primarily on the basis of its
design capability, precise quality standards, prompt delivery and price.
Management believes that certain of the Company's competitors have adequate
expertise in the use of composites to meet customers' quality standards and, as
to such competitors, Cade competes primarily on the basis of quality, innovative
design, cost effectiveness, and delivery. Some of the Company's manufacturing
competitors, including customer-affiliated manufacturing units, are larger and
have substantially greater resources than Cade. Efforts by the industry's
original equipment manufacturers ("OEMs") to reduce the number of their
suppliers have led to a consolidation among suppliers. The Company believes that
it will benefit from the consolidation and from increased OEM outsourcing.

     Cade believes its Auto-Air subsidiary is one of only two manufacturers
licensed to design and build test nacelle and related ground support equipment
for large commercial jet engines and that its CENCO subsidiary is the only
manufacturer licensed to build complete turnkey facilities for the testing and
certification of gas turbine engines and one of three manufacturers for data
acquisition systems. In addition, Cade believes it is one of only a limited
number of suppliers for certain composite jet engine and air frame components
whose manufacturing processes have been approved by the relevant engine
manufacturer or other prime

                                       2
<PAGE>
 
contractor. Such approval certifies that the Company has been audited by the
prime contractor and meets or exceeds such contractor's process, quality control
and material specifications.

     Cade competes in its repair and overhaul operations primarily on the basis
of its expertise and ability to provide short turn times within the industry's
stringent quality specifications and customers' pricing requirements. The
Company's competitors for repair and overhaul services include substantially all
commercial airlines and many large and small independent suppliers, many of
which are larger and have substantially greater resources than Cade. The market
for composite engine and airframe component overhaul and repair is fragmented
with many small participants and several large, independent participants, with
the major domestic competitors being the NORDAM Group, Aenocell Structures, 
Inc., Pemco Nacelle Services, Inc. and Aviation Equipment, Inc.

Backlog

     The Company's backlog includes both "firm" orders supported by customer
purchase orders with fixed delivery dates and "blanket" purchase orders against
which customers issue production releases covering relatively short time periods
("LTAs"). At December 31, 1997, the Company's backlog of orders was $79.4
million ($34.8 million at December 31, 1996), which included $17.7 million of
scheduled orders under LTAs. Of the total year-end backlog, the Company expects
to ship products generating $69.5 million of revenue in 1998. The Company's
order backlog is subject to customer rights of cancellation or rescheduling,
although in certain cases the Company would be entitled to receive termination
payments. Overhaul and repair services typically involve short lead times and
thus are not included in backlog numbers.

Employees

     Cade has approximately 600 employees, of which 55 are employed in design
and design-related services; 380 are employed in manufacturing, repair and
quality control; and 165 are employed in administration (management, sales and
clerical). Approximately 21% of these employees are represented by a union.

Year 2000 Compliance

     The Company has undertaken a study to assess the potential impact of year
2000 issues on its business and internal operations. The study is also directed
at estimating amounts to be expended relative to year 2000 issues and their
impact on the Company's operations, liquidity and capital resources. In 1997, no
material amount was expended on year 2000 issues. The Company believes the costs
associated with transitioning its current computer environment to one that is
fully year 2000 compliant is not material to its results of operations or its
liquidity and capital resources, although the total cost of compliance with
these issues is not yet known.

Forward Exchange and Currency Contracts

     The Company enters into foreign currency contracts as a hedge against
foreign currency exposures for certain construction contracts to limit the
Company's exposure to both favorable and unfavorable currency fluctuations. Such
contracts are designated as a hedge of a firm commitment for construction or
component manufacturing contracts denominated in foreign currencies, and any
gains and losses are deferred and included in the measurement of the
construction or component manufacturing contracts profitability. During 1997,
the Company entered into forward currency contracts to hedge certain firm
commitments for the delivery of goods and services for four construction or
component manufacturing contracts denominated in foreign currencies. The purpose
of the Company's foreign currency hedging activity is to protect it from the
risk that the eventual dollar cash flows resulting from the delivery of goods
and services to international customers will be adversely affected by changes in
exchange rates. At December 31, 1997, the Company had forward currency
contracts, all with a maturity of less than one year, to exchange British
pounds, Thailand bahts and Singapore dollars for U.S. dollars in the amounts of
$4,175,000, $6,066,000 and $3,383,000, respectively. There were no significant
unrealized gains or losses related to foreign currency contracts at December 31,
1997.

                                       3
<PAGE>
 
Item 2.  Properties.
         ---------- 

     The Company's owned and leased facilities are designed and constructed for
industrial purposes and are located in industrial districts. Each facility is
well maintained, suitable for the Company's purposes, and effectively utilized.
The table below sets forth certain information about the Company's principal
manufacturing facilities.

<TABLE>
<CAPTION>
 
 
                         Square    Owned                                Principal
Address                   Feet   or Leased       Description            Activity
- -----------------------  ------  ----------  --------------------  -------------------
<S>                      <C>     <C>         <C>                   <C>
 
5640 Enterprise Drive    54,000  Owned       1 and 2 story         Composite
Lansing, MI                                  brick building        manufacturing
                                             in industrial park
 
537 Camden Drive         53,000  Owned       1 and 2 story         Manufacturing;
Grand Prairie, Texas                         metal building        repair and overhaul
                                             in industrial area
 
4075 Ruffin Road         44,000  Leased (1)  1 story reinforced    Manufacturing
San Diego, CA                                concrete building in
                                             industrial area
 
5720 Enterprise Drive    27,500  Owned       1 story brick         Composite
Lansing, MI                                  building in           manufacturing
                                             industrial park
 
74/76 First Street       45,100  Owned       1 story metal and     Manufacturing
Sunfield, MI                                 block building in
                                             industrial park
 
2920 Anthony Lane         8,000  Owned       1 story brick and     Office and software
St. Anthony, MN                              block building in     development
                                             industrial park
 
2924 Anthony Lane         9,800  Owned       1 story brick and     Office and program
St. Anthony, MN                              block building in     administration
                                             industrial park
 
2930 Anthony Lane        23,300  Owned       1 story brick and     Manufacturing
St. Anthony, MN                              block building in
                                             industrial park
</TABLE>
______________________________
(1)  Lease expires January 31, 1999.


Item 3.  Legal Proceedings.
         ----------------- 

     The Company is not involved in any material pending legal proceedings other
than ordinary routine litigation incidental to its business.


Item 4.  Submission of Matters to a Vote of Security Holders.
         --------------------------------------------------- 

     No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1997.

                                       4
<PAGE>
 
                     EXECUTIVE OFFICERS OF THE REGISTRANT

     Executive officers of Cade are elected by the Board of Directors to serve
until their successors are elected and qualified. Effective September 1, 1997,
John W. Sandford assumed the position as Chairman and Chief Executive Officer
and Terrell L. Ruhlman resigned as Chairman and Chief Executive Officer. The
following table sets forth certain information about Cade's executive officers:

Name (Age)               Business Experience

John W. Sandford (63)    Chairman of the Board and Chief Executive Officer of
                         the Company since September 1997; formerly President
                         and Chief Executive Officer of Rolls-Royce, Inc. from
                         1990 to January 1993; formerly Managing Director of
                         Rolls-Royce PLC Aerospace Group from January 1993 to
                         January 1995; currently director of Rolls-Royce PLC,
                         nominee for director for Avcorp Industries and director
                         of several other privately held entities; Member of the
                         Company's Strategic Planning Committee and until
                         September 1, 1997 a member of the Company's
                         Compensation Committee.

Richard A. Lund (46)     President and Chief Operating Officer of the Company
                         since May 1990; Director of the Company since January
                         1991; Member of the Company's Strategic Planning
                         Committee; Chief Executive Officer of Auto-Air;
                         President of Auto-Air from 1988 through 1994.

Edward B. Stephens (50)  Vice President, Treasurer, Assistant Secretary and
                         Chief Financial Officer of the Company since July 1989;
                         Member of the Company's Strategic Planning Committee.

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
        --------------------------------------------------------------------- 

     Information in response to this item is incorporated herein by reference to
the information under the caption "Selected Financial Highlights - Market
Prices" in the Company's 1997 Annual Report to Shareholders.

     On October 31, 1997, the Company issued 250,000 shares of its Common Stock
pursuant to the exemption from registration under the Securities Act of 1933, as
amended (the "1933 Act") contained in Section 4(2) (the "Exemption") of the 1933
Act. The shares were issued to the nine shareholders of CENCO as part of the
consideration for the Company's acquisition of CENCO. The Company relied upon
the representations of CENCO and CENCO's shareholders made in the Stock Purchase
Agreement as to the availability of the Exemption.

Item 6. Selected Financial Data.
        ----------------------- 

     Information in response to this item is incorporated herein by reference to
the information under the caption "Selected Financial Highlights" in the
Company's 1997 Annual Report to Shareholders.

                                       5
<PAGE>
 
Item 7. Management's Discussion and Analysis of Financial Condition and Results
        -----------------------------------------------------------------------
        of Operation.
        ------------ 

     Information in response to this item is incorporated herein by reference to
the information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1997 Annual
Report to Shareholders.

     The Company may from time to time make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission and its reports to shareholders. Forward-
looking statements are made in good faith by the Company pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. In
connection with these "safe harbor" provisions, the Company identifies important
factors that could cause actual results to differ materially from those
contained in any forward-looking statements made by or on behalf of the Company.
Any such statement is qualified by reference to the following cautionary
statements.

     Forward-looking information regarding the Company is subject to risks and
uncertainties that may significantly impact expected results. The Company's
outlook is based largely on its interpretation of current order levels and
trends and assumptions as to trends in the air transport and aircraft
industries. Certain of the Company's backlog of orders are subject to
cancellation, reduction or extended delivery. The air transport and aircraft
industries have historically been subject to significant cyclical fluctuations
and are influenced by factors such as the general state of the economy, fuel
prices, governmental regulation, competition, and the level of military
spending. In addition, the Company's results are subject to pricing competition,
the willingness of the airlines and aircraft manufacturers to out source work
for their composite components and repairs, foreign currency fluctuations with
respect of international sales, and the Company's success in the development,
manufacture and marketing of composites products for other industries and uses.

     Developments in any of these areas, which are more fully described
elsewhere in "Item 1 -- Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 4 through 7 of the
Company's 1997 Annual Report to Shareholders, each of which is incorporated into
this section by reference, could cause the Company's results to differ
materially from results that have been or may be projected by or on behalf of
the Company.

     The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statements that may be made from time to time by or on behalf of the Company.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
         ---------------------------------------------------------- 

     Not applicable.

Item 8. Financial Statements and Supplementary Data.
        ------------------------------------------- 

     Information in response to this item is incorporated herein by reference to
"Independent Auditor's Report," "Consolidated Balance Sheets," "Consolidated
Statements of Operations," "Consolidated Statements of Changes in Shareholders'
Equity," "Consolidated Statements of Cash Flows" and "Notes to Consolidated
Financial Statements" in the Company's 1997 Annual Report to Shareholders.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        ---------------------------------------------------------------
        Financial Disclosure.
        ---------------------

     Not applicable.

                                   PART III

Item 10. Directors and Executive Officers of the Registrant.
         -------------------------------------------------- 

     Information in response to this item is incorporated herein by reference to
(i) the information under the caption "Election of Directors" in the
Registrant's Proxy Statement for its 1998 Annual Meeting of Shareholders ("Cade
1998 Proxy Statement") and (ii) the information under the caption "Executive
Officers of the Registrant" in Part I hereof.

                                       6
<PAGE>
 
Item 11. Executive Compensation.
         ---------------------- 

     Information in response to this item is incorporated herein by reference to
the information under the caption "Executive Compensation" in the Cade 1998
Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
         -------------------------------------------------------------- 

     Information in response to this item is incorporated herein by reference to
the information under the caption "Principal Security Holders and Security
Holdings of Management" in the Cade 1998 Proxy Statement.

Item 13. Certain Relationships and Related Transactions.
         ---------------------------------------------- 

     Information in response to this item is incorporated herein by reference to
the information under the caption "Election of Directors - Compensation of
Directors" in the Cade 1998 Proxy Statement.

                                 PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
         ---------------------------------------------------------------- 

     (a)  Documents filed:
          --------------- 

          1.   Financial statements.
               -------------------- 

               The financial statements required to be filed by Item 8 hereof
               have been incorporated by reference to the Registrant's 1997
               Annual Report to Shareholders and consist of the following:

                    Independent Auditor's Report.

                    Consolidated Balance Sheets as of December 31, 1997 and
                    1996.

                    Consolidated Statements of Operations for the years ended
                    December 31, 1997, 1996 and 1995.

                    Consolidated Statements of Cash Flows for the years ended
                    December 31, 1997, 1996 and 1995.

                    Consolidated Statements of Changes in Shareholders' Equity
                    for the three year period ended December 31, 1997.

                    Notes to Consolidated Financial Statements.

          2.   Financial statement schedules.
               ----------------------------- 

               The following financial statement schedules are included in Item
               14(d) hereof:

               Independent Auditor's Report on Consolidated Financial Statement
               Schedule

               Schedule II - Valuation and Qualifying Accounts

               All other schedules for which provision is made in the applicable
               accounting regulations of the Securities and Exchange Commission
               are not required under the related instructions or are
               inapplicable, and therefore have been omitted.

          3.   Management Contract and Compensatory Plans and Arrangements.
               ----------------------------------------------------------- 

               All management contracts and compensatory plans and arrangements
               are identified by an asterisk after the exhibit number on the
               attached Exhibit Index.

                                       7
<PAGE>
 
     (b)  Reports on Form 8-K:
          ------------------- 

               The Company filed a Current Report on Form 8-K dated October 31,
          1997 to report in Item 2 the acquisition of CENCO and in Item 7
          related financial statements and exhibits. The Current Report Included
          the following financial statements:

               Financial Statements of Business Acquired

               Consolidated Balance Sheets as of June 30, 1997 and 1996

               Consolidated Statements of Operations for the years ended June
               30, 1997 and 1996

               Consolidated Statements of Retained Earnings for the years ended
               June 30, 1997 and 1996

               Consolidated Statements of Cash Flows for the years ended June
               30, 1997 and 1996

               Notes to Consolidated Financial Statements

               Independent Auditors Report

               Consolidated Balance Sheet of September 30, 1997

               Consolidated Statement of Earnings for the three months ended
               September 30, 1997

               Consolidated Statement of Cash Flow for the three months ended
               September 30, 1997

               Notes to Financial Statements

               On January 13, 1998, the Company filed Amendment No. 1 to the
          Current Report on Form 8-K/A dated October 31, 1997 to add in Item 7
          the following unaudited pro forma condensed consolidated financial
          statements of the Company and subsidiaries, reflecting the acquisition
          of CENCO:

               Introduction to Pro Forma Consolidated Financial Statements of
               Cade Industries, Inc. and Central Engineering Company
               (unaudited).

               Cade Industries, Inc. and Central Engineering Company Pro Forma
               Unaudited Consolidated Balance Sheet as of September 30, 1997 and
               the Pro Forma Unaudited Consolidated Statements of Operations for
               the nine months then ended on September 30, 1997 and year ended
               December 31, 1996.

               Notes to Unaudited Pro Forma Consolidated Financial Statements.

     (c)  Exhibits:
          -------- 

          See the Exhibit Index immediately following the signature page of this
          report, which Index is incorporated herein by this reference.

          In addition, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
          Registrant hereby agrees to furnish to the Commission upon request any
          instrument with respect to long-term debt pursuant to which the total
          amount of long-term debt authorized thereunder does not exceed 10% of
          the Registrant's consolidated total assets.

     (d)  Financial Statement Schedules:
          ----------------------------- 

                                       8
<PAGE>

                             CADE INDUSTRIES, INC.

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------

             COL. A                    COL. B                         COL. C                             COL. D           COL. E
- ---------------------------------------------------------------------------------------------------------------------------------
                                                                     ADDITIONS
                                                       --------------------------------------

                                  Balance at           Charged to Costs      Charged to                                 Balance
                                  Beginning of         and Expenses          Other Accounts--        Deductions--       at End
DESCRIPTION                       Period                                     Describe                Describe           of Period
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                  <C>                   <C>                     <C>                <C>
Year ended December 31, 1997:
 Reserves and allowances
 deducted from asset accounts:
  Valuation allowances:
   Inventory                        $  801,028               $  853,436          $205,000(1)           $365,775(2)     $1,493,689
   Deferred income taxes               610,000                                                          200,000(3)        410,000
   Other                               187,288                   70,325           150,000(1)                              407,613
  Amortization allowances:
   Goodwill                            645,070                  123,326                                                   768,396
   Other                               333,798                   20,394                                                   354,192
                                    ----------               ----------          --------              --------        ----------
                                    $2,577,184               $1,067,481          $355,000              $565,775        $3,433,890
                                    ==========               ==========          ========              ========        ==========

Year ended December 31, 1996:
 Reserves and allowances
 deducted from asset accounts:
  Valuation allowances:
   Inventory                        $  947,888                                                         $146,860(4)     $  801,028
   Deferred income taxes               640,000                                                           30,000(5)        610,000
   Other                               154,766               $   32,522                                                   187,288
  Amortization allowances:
    Goodwill                           536,219                  108,851                                                   645,070
    Other                              300,206                   33,592                                                   333,798
                                    ----------               ----------                                --------        ----------
                                    $2,579,079               $  174,965                                $176,860        $2,577,184
                                    ==========               ==========                                ========        ==========

Year ended December 31, 1995:
 Reserves and allowances
 deducted from asset accounts:
  Valuation allowances:
   Inventory                        $  461,627               $   56,261          $430,000(1)                           $  947,888
   Deferred income taxes               536,000                                    104,000(1)                              640,000
   Other                               135,619                   24,466                                $  5,319(6)        154,766
  Amortization allowances:
    Goodwill                           444,898                   91,321                                                   536,219
    Other                              253,588                   46,618                                                   300,206
                                    ----------               ----------          --------              --------        ----------
                                    $1,831,732               $  218,666          $534,000              $  5,319        $2,579,079
                                    ==========               ==========          ========              ========        ==========
</TABLE>
(1)  Valuation of allowances recorded via purchase accounting for acquisition of
     Central Engineering Company (1997) and Pollux Corporation (1995).
(2)  Write-off of specific inventory items.
(3)  Adjustment of valuation allowance to realizable amount.
(4)  Sale of reserved inventory.
(5)  Adjustments to valuation allowance from Internal Revenue Service review.
(6)  Uncollectible accounts written-off, net of recoveries.

                                       9
<PAGE>
 
                                     SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

CADE INDUSTRIES, INC.


By /s/ John W. Sandford                       Dated March 30, 1998
   ----------------------------------------               --
   John W. Sandford, Chairman of
   the Board, Chief Executive Officer
   and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:



<TABLE>
<CAPTION>
 
Signature                Title                          Date
- ---------                -----                          ----
<S>                     <C>                            <C>
 

/s/ Molly F. Cade                        
- ----------------------   Director                       March 30, 1998 
Molly F. Cade                                                 --       
                                                                       
/s/ Conrad G. Goodkind                                               
- ----------------------   Director and Secretary         March 30, 1998 
Conrad G. Goodkind                                            --        
 
/s/ William T. Gross
- ----------------------   Director                       March 30, 1998
William T. Gross                                              --
 
/s/ Richard A. Lund
- ----------------------   President, Chief Operating     March 30, 1998
Richard A. Lund          Officer and Director                 --

                         Director                       March   , 1998
- ----------------------                                        --
Joseph R. O'Gorman

/s/ Terrell L. Ruhlman
- -----------------------  Director                       March 30, 1998
Terrell L. Ruhlman                                            --

/s/ John W. Sandford
- -----------------------  Chairman of the Board and      March 30, 1998
John W. Sandford         Chief Executive Officer              --
                         (principal executive officer)
/s/ Edward B. Stephens
- -----------------------  Vice President, Treasurer      March 30, 1998
Edward B. Stephens       and Chief Financial Officer          --
                         (principal financial and
                         accounting officer)
</TABLE> 


                                       10
<PAGE>
 
                             CADE INDUSTRIES, INC.

                     Exhibit Index to Report on Form 10-K
                  for the fiscal year ended December 31, 1997
<TABLE>
<CAPTION>
 
 
Exhibit                                                         Incorporated herein                      Filed
  No.           Description                                     by reference to:                         Herewith
- -------         -----------                                     -------------------                      --------
  <S>           <C>                                             <C>                                       <C>
  2.1           Agreement and Plan of Merger by                 Exhibit 2.1 to the Registrant's
                and among Cade Industries, Inc., Pollux         Form S-4 Registration Statement dated
                Acquisition Corporation, Pollux                 October 28, 1994, Registration No. 33-83130
                Corporation and H.A.C. Corporation              ("1994 S-4")
                dated as of May 24, 1994
                ("Agreement and Plan of Merger")

  2.2           Amendment No. 1 to Agreement and                Exhibit 2.2 to Registrant's 1994 S-4
                Plan of Merger

  2.3           Stock Purchase Agreement for the                Exhibit 2 to Registrant's Current Report
                Acquisition of Central Engineering              on Form 8-K dated October 31, 1997
                Company by the Registrant dated as of           ("10/31/97 8-K)
                October 31, 1997

  3.1           Articles of Incorporation, as amended           Exhibit 4.1 to the Registrant's Form S-8
                                                                Registration Statement dated November 10,
                                                                10, 1990, Registration No. 33-37911
                                                                ("1990 S-8")

  3.2           By-Laws, as amended                             Exhibit 3.2 to Registrant's Annual Report
                                                                on Form 10-K for the year ended December
                                                                31, 1992

  4.1           Articles IV, V and VIII of the                  Exhibit 4.1 to Registrant's 1990 S-8
                Registrant's Articles of
                Incorporation, as amended

  4.2           Amended and Restated Revolving Credit           Exhibit 4.2 to Registrant's Annual Report on
                and Term Loan Agreement dated as of             Form 10-K for the year ended December 31,
                January 30, 1995, and First Amendment           1994 ("1994 10-K")
                thereto dated March 3, 1995

  4.3           Amendment No. 2 to Amended and Restated         Exhibit 4.3 to Registrant's Form 10-K
                Revolving Credit and Term Loan Agreement        for the year ended December 31, 1995 
                dated as of June 1, 1995 by and between         ("1995 10-K")
                the Registrant and Comerica Bank

  4.4           Third Amendment to Amended and Restated         Exhibit 4.1 to Registrant's
                Revolving Credit and Term Loan Agreement        Form 10-Q for the quarter ended
                dated as of September 29, 1995 by and           September 30, 1995
                between the Registrant and Comerica Bank


  4.5           Fourth Amendment to Amended and                 Exhibit 4.1 to Registrant's
                Restated Revolving Credit and Term              Form 10-Q for the quarter ended
                Loan Agreement dated September 29, 1995         June 30, 1996
                by and between Cade Industries, Inc.,
                and Comerica Bank

                                      11
</TABLE> 
<PAGE>
<TABLE> 
<CAPTION> 

Exhibit                                                         Incorporated herein                      Filed
  No.           Description                                     by reference to:                         Herewith
- -------         -----------                                     -------------------                      --------
  <S>           <C>                                             <C>                                       <C>

  4.6           Fifth Amendment to Amended and                  Exhibit 4.6 to Registrant's Form 10-K
                Restated Revolving Credit and Term              for the year ended December 31, 1996
                Loan Agreement dated February 19, 1997
                by and between Cade Industries, Inc.,
                and Comerica Bank

  4.7           Loan Agreement dated as of                      Exhibit 4.2 to Registrant's
                September 1, 1990 between                       Form 10-Q for the quarter ended
                the Economic Development                        September 30, 1990
                Corporation of the City of
                Lansing and Auto-Air Composites,
                Inc.

  4.8           Reimbursement Agreement                         Exhibit 4.2 to Registrant's
                dated as of September 1, 1990                   Form 10-Q for the quarter ended
                between Auto-Air Composites, Inc.               September 30, 1990
                and Comerica Bank, as successor to
                Manufacturers National
                Bank of Detroit

  4.9           Amended and Restated Security                   Exhibit 4.5 to Registrant's 1994 10-K
                Agreement dated as of January 30,
                1995, between Comerica Bank and
                the Registrant

 4.10           Amended and Restated Guaranty                   Exhibit 4.6 to Registrant's 1994 10-K
                dated as of January 30, 1995,
                between Comerica Bank and
                Auto-Air Composites, Inc.

 4.11           Amended and Restated Security                   Exhibit 4.7 to Registrant's 1994 10-K
                Agreement dated as of January 30,
                1995, between Comerica Bank and
                Auto-Air Composites, Inc.

 4.12           Amended and Restated Guaranty                   Exhibit 4.8 to Registrant's 1994 10-K
                dated as of January 30,1995,
                between Comerica Bank and
                Cade Composites, Inc.

 4.13           Amended and Restated Security                   Exhibit 4.9 to Registrant's 1994 10-K
                Agreement dated as of January 30, 1995,
                between Comerica Bank and
                Cade Composites, Inc.

 4.14           Guaranty dated as of                            Exhibit 4.10  to Registrant's 1994 10-K
                January 30, 1995, between
                Comerica Bank and Cade Commercial
                Composites, Inc.

 4.15           Guaranty dated as of                            Exhibit 4.11 to Registrant's 1994 10-K
                December 1, 1994, between Comerica
                Bank and Pollux Acquisition
                Corporation

 4.16           Guaranty dated as of                            Exhibit 4.12 to Registrant's 1994 10-K
</TABLE> 
<PAGE>
<TABLE>
<CAPTION>
Exhibit                                         Incorporated herein                       Filed
No.        Description                          by reference to:                          Herewith
- -------    -----------                          -------------------                       ---------
<S>        <C>                                  <C>                                       <C>
           
4.17       Form of 6% Subordinated Notes        Exhibit 2.1 to Registrant's 1994
           issued in the initial aggregate      S-4
           principal amount of $2,861,040

4.18       Fifth Amendment to Amended and       Exhibit 4.1 to Registrant's Form 10-Q
           Restated Revolving Credit and        for the quarterly period ended
           Term Loan Agreement Dated            March 31, 1997
           September 29, 1995 by and
           between Cade Industries, Inc.
           and Comerica Bank

4.19       Second Amended and Restated Credit   Exhibit 4.1 to Registrant's
           Agreement, dated October 31,         10/31/97 8-K
           1997, by and between Cade Industries, 
           Inc. and Bank
           

4.20       Line of Credit Note dated October    Exhibit 4.2 to Registrant's
           31, 1997                             10/31/97 8-K


4.21       Term Note A, dated October 31,       Exhibit 4.3 to Registrant's
           1997                                 10/31/97 8-K


4.22       Term Note B, dated October 31,       Exhibit 4.4 to Registrant's
           1997                                 10/31/97 8-K


4.23       Term Note C, dated October 31,       Exhibit 4.5 to Registrant's
           1997                                 10/31/97 8-K


10.1       I.A.M. National Pension Benefit      Exhibit 19.4 to Registrant's
           Fund, benefit plan B standard        Form 10-Q for the quarter ended
           participation agreement              June 30, 1986

10.2       Sublease dated March 29, 1991 and    Exhibit 10.15 to Registrant's
           First Amendment Sublease             Annual Report on Form 10-K for the
           dated April 24, 1991                 year ended   December  31, 1991
           between Cade Composites,             ("1991 10-K")
           and Scientific-Atlanta, Inc.
           for premises located at
           4075 Ruffin Road, San Diego, CA
           



10.3*      Employee Agreement dated January     Exhibit 10.14 to Registrant's
           29, 1991 with Edward B. Stephens     Form 10-Q for the quarter ended
                                                March 31, 1991

10.4*      Nonstatutory Stock Option            Exhibit 10.7 to Registrant's
           Agreement for the Benefit of         1994 10-K
           Terrell L. Ruhlman

10.5*      Amendment to Employment Agreement    Exhibit 10.7 to Registrant's
           between Richard Gribbins             1995 10-K
           and the Registrant dated May 11, 1995
           
           


10.6*      Employment Agreement between         Exhibit 10.8 to Registrant's
           Richard A. Lund and the              1995 10-K
           Registrant dated May 2, 1995
           

10.7       Collective Bargaining Agreement      Exhibit 10.10 to Registrant's
           effective                            1995 10-K

</TABLE>
<PAGE>


<TABLE>
<CAPTION>
 
Exhibit                                                             Incorporated herein                           Filed
  No.           Description                                         by reference to:                              Herewith
- -------         -----------                                         -------------------                           --------
<C>             <S>                                                 <C>                                           <C> 
                March 15, 1995 between Auto-Air
                Composites, Inc. and Lodge No. 2184,
                International Association of Machinists

10.8*           Cade Industries, Inc. 1990                          Exhibit 10.10 to Registrant's 1989 10-K
                Nonqualified Stock Option Plan
                ("1990 Stock Option Plan")

10.9*           Amendment No. 1 to 1990 Stock Option Plan           Exhibit 10.18 to Registrant's 1991 10-K
                

10.10*          Cade Industries, Inc. 1994 Stock Option             Exhibit 10.13 to Registrant's 1994 10-K
                Plan ("Director Stock Option Plan")

10.11*          Form of Option Agreement under                      Exhibit 10.14 to Registrant's 1994 10-K
                Director Stock Option Plan

10.12*          Lund/Stephens 1996 Incentive Plans                  Exhibit 10.12 to Registrant's Form 10-Q
                                                                    for the quarterly period ended June 30, 
                                                                    1997 ("June 1997 10-Q")

10.13*          Lund/Stephens 1997 Incentive Plans                  Exhibit 10.13 to Registrant's June 1997 10-Q

10.14*          Sandford/Lund/Stephens 1998 Incentive Plans                                                              X

13.1            Incorporated portions of 1997 Annual Report                                                              X
                to Shareholders

21.1            Subsidiaries of the Registrant                                                                           X

23.1            Consent of Deloitte & Touche LLP to                                                                      X
                incorporation by reference

27              Financial Data Schedule                                                                                  X
</TABLE>

* Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14 of Form 10-K.

                                       14

<PAGE>
 
                                                                   EXHIBIT 10.14


                             CADE INDUSTRIES, INC.
                              1998 INCENTIVE PLAN
                                Richard A. Lund
                              Edward B. Stephens
                               John W. Sandford

The 1998 incentive plan will be based upon the following performance factors:


            FACTOR            WEIGHTING FACTOR             INCENTIVE %
            ------            ----------------             -----------

1. Cade Industries Earnings          70                         35%
   After Tax

2. Cash Flow From Operations         30                         15%

The maximum incentive is 50% of total 1998 total base compensation. The
incentive award will be paid both in cash (75%) and Cade Industries stock (25%).
The stock price award level is determined as the price of Cade stock on 12/31/97
($2.375).














- --------------------          --------------------         ---------------------
John W. Sandford              Richard A. Lund              Edward B. Stephens


 

<PAGE>


                                                                    Exhibit 13.1

                                                         1997 CADE Annual Report


Dear Shareholders:
 
On the strength of a sound economy and high demand for aviation products, your
company posted strong gains in revenue and more than doubled its earnings for
the year ended December 31, 1997. We made good progress in the implementation of
our strategic plan, and will continue to aggressively pursue our objective of
product capability diversification within our core markets. The expansion of our
core product capabilities, combined with a successful acquisition plan, is
providing this Company with the critical mass to be effectively managed through
fluctuations in the business cycles of the aerospace industry. Our year 2000
goal of generating annual revenues in excess of $100 million is within our
sight.

In 1997, earnings increased by 122% to $2,353,000 on revenues of $55.8 million,
up 60% from $34.8 million in 1996. Basic earnings per share rose to $0.11,
compared to $0.05 in the prior year, with approximately 21.7 million shares
outstanding. Our growth in revenue and earnings has benefited from the Company's
diversified product capabilities within the original equipment manufacturer and
aftermarket overhaul and repair sectors. This expanded capability fueled our
internal sales growth, which accounted for 81% of our revenue increase. Each of
our four core product segments had increased revenues, with the largest dollar
increases in gas turbine engine products ($7.8 million) and jet engine test
equipment ($6.5 million). The largest percentage increase occurred in our engine
component, overhaul and repair business, which grew at an annualized rate of
82%.

The doubling of the Company's earnings was the result of the increased revenue
and our employees' successful efforts to improve productivity throughout our
manufacturing operations. Their efforts resulted in reduced labor costs measured
by sales per labor dollar, which improved by 9.8%, as well as decreased overhead
cost percentages. These improvements were partially offset by higher material
costs, due primarily to changes from consigned material to purchased material,
and the impact of subcontract purchases by our new subsidiary, Central
Engineering Company (known in the industry as Cenco). Operating margins improved
to 7.6% of sales and net income contribution to 4.2%. We exceeded our forecasts
for both earnings and revenue growth during 1997.

We indicated to you in our 1996 Letter to Shareholders that we would pursue ISO
9000 quality standards certification for our operating units. I am pleased to
report that our largest subsidiary, Auto-Air Composites, received certification
in 1997. Management is working diligently with our other subsidiaries to obtain
ISO 9000 certification. This certification of our company commitment to the
highest levels of quality is key to the expansion of our business worldwide, and
will continue to be a high priority for us. We congratulate all of our employees
at Auto-Air for this achievement, and challenge the other employee groups to
make it happen in 1998. 

One of our most significant achievements in 1997 was the successful acquisition
of Central Engineering Company, located in Minneapolis, Minnesota. Working with
our investment bankers and professional advisors we were able to complete this
transaction, which was financed primarily through the use of new debt, in 1997.
We closed on the purchase on October 31, 1997, and have been working with the
management teams to successfully integrate the new company into the Cade
organization. Mr. John Nicholson has joined us as president of Central
Engineering, and is working closely with the Company's founder and Chairman,
Loren Swanson, to expand the business.

The Cenco acquisition gives Cade Industries a unique capability within the
world's jet engine test facility market. Cade is now capable of offering a
complete turnkey facility for testing and certification of today's commercial
and military gas turbine engines. Through the use of Cenco's proprietary
software and sophisticated modeling methods to predict airflow characteristics,
we are able to design test cell facilities to meet the engine and airline users'
most demanding needs. This is evidenced by our current contract to build two of
the world's largest test facilities, with completion scheduled in 1998 for the
GE 90 Engine Test Facility in Wales, and the Rolls Royce Trent 895 Engine
Facility in Thailand.

Cenco contributed approximately $4.4 million in revenue in the last quarter of
1997, with a positive contribution to our consolidated earnings for the year. We
fully expect that this acquisition will favorably impact our 1998 results.

Our order backlog grew to $79.4 million as of December 31, 1997, not including
overhaul & repair orders which constitute 22% of annual sales. The growth in
backlog reflected the acquisition of Central Engineering, as well as continued
strong demand for the Company's core products.


                                       1
<PAGE>
 
Outlook

As we move into 1998, industry experts are forecasting continued growth within
the aerospace industry for the next few years. Airline profitability continued
to improve in 1997, with increased traffic and higher utilization rates
contributing to these profits. Orders received for new aircraft deliveries
increased sharply in 1997, with the number of airplane deliveries in 1998
expected to exceed 700.

Successful implementation of the Company's strategic planning committee
initiatives has fueled our growth and we have targeted annual revenues in excess
of $100 million by year 2000. Achieving this objective will be dependent upon
expansion of Cade's products and services within our four primary product groups
and strategic acquisitions. There are numerous opportunities in the four product
groups, and we intend to invest resources throughout these groups with an
emphasis on FAA-approved overhaul and repair capabilities. World economic
stability, solid industry fundamentals and an aggressive growth plan should
provide the conditions that result in above-average revenue and earnings growth
for Cade Industries.

In 1997 our Chairman, Mr. Terrell Ruhlman, announced his decision to retire as
Chairman and CEO. He will continue as a Director of Cade Industries and has been
working closely with our new Chairman and CEO, Mr. John Sandford, to
successfully complete this transition. We look forward to Terry's continued
involvement, and reflect back with much appreciation on the impact of this
leader on the success of Cade Industries. Terry, on behalf of all our employees,
we thank you for your dedication.

In summary, we were pleased with the 1997 performance and the progress in
implementing our strategic initiatives. We enter 1998 with strong optimism based
upon a healthy sales backlog and current economic environment, and we remain
dedicated to enhancing shareholder value. This objective will be met by
achieving solid growth internally, and by exploring opportunities that will
leverage our technology base and management expertise in the aerospace industry.
We look forward to seizing the opportunities to grow this business and we thank
all of you for your support.



/s/ John W. Sandford
- -------------------------------
John W. Sandford                   
Chairman of the Board and Chief         
Executive Officer



/s/ Richard A. Lund
- -------------------------------
Richard A. Lund
President and Chief Operating
Officer

                                       2
<PAGE>

                                                         1997 CADE Annual Report

 
Selected Financial Highlights

<TABLE> 
<CAPTION> 

                                                              Year Ended December 31             
                                               1997(1)       1996        1995     1994(2)    1993  
                                                 (In thousands of dollars, except per share data)
<S>                                            <C>         <C>         <C>         <C>      <C> 
Selected Operating Data  
  Sales                                        $55,804     $34,867     $30,445     $20,461  $16,184
Income (loss) before cumulative 
  effect of change in method of
  accounting for income taxes                    2,353       1,058        (382)     159        (869) (3)
Income (loss) per share before 
  cumulative effect of accounting change          0.11        0.05       (0.02)    0.01       (0.05)
Net income (loss)                                2,353       1,058        (382)     159        (689)
Net income (loss) per share (4):                    
     Basic                                        0.11        0.05       (0.02)    0.01       (0.04)
     Diluted                                      0.11        0.05       (0.02)    0.01       (0.04)
Selected Balance Sheet Data
  Current assets                                31,201      17,147      13,653   14,534      13,183
  Total assets                                  54,570      35,304      32,685   32,937      24,890
  Current liabilities                           19,766       9,148       6,592    7,969       5,245 
  Working capital                               11,435       7,999       7,061    6,565       7,938
  Long-term obligations                         11,471       5,473       6,433    4,930       3,046
  Shareholders' equity                          23,333      20,683      19,660   20,038      16,599
</TABLE> 

(1)  Reflects operations of Central Engineering Company from date of acquisition
     (October 31, 1997).

(2)  Reflects operations of Pollux Corporation from date of acquisition
     (December 1, 1994).

(3)  Effective January 1, 1993, the Company adopted FASB Statement No. 109,
     "Accounting for Income Taxes."

(4)  Earnings per share amounts prior to 1997 have been restated as required to
     comply with Statement of Financial Accounting Standards No. 128, "Earnings
     Per Share."

Market Prices

The Company's Common Stock is traded on the over-the-counter market (NASDAQ).
The approximate number of recordholders of the Company's Common Stock at
February 20, 1998 was 1,592. The Company presently intends to retain all
available funds for the development of its business and for use as working
capital and does not expect to pay dividends in the foreseeable future. There
were no cash dividends paid in the period 1993 through 1997. 

Firstar Trust Company is the stock transfer agent for the Company's Common
Stock.

The following table displays the share prices for the Company's Common Stock in
1997 and 1996.

<TABLE> 
<CAPTION> 
                              HIGH          LOW          HIGH          LOW
<S>                       <C>          <C>           <C>          <C> 
First Quarter             $1 16/32     $1  7/32      $  25/32     $  18/32
Second Quarter             1 20/32      1  9/32       1 28/32        23/32
Third Quarter              3 15/32      1 15/32       1 21/32      1       
Fourth Quarter             3 16/32      2  8/32       1 17/32      1  5/32
</TABLE> 

                                       3
<PAGE>
 
Management's Discussion and Analysis of Financial Condition and Results of
Operations

Results of Operations

The following table sets forth, for the periods indicated, certain items from
Cade Industries, Inc.'s ("Company") Consolidated Statements of Operations
expressed as a percentage of net sales, and the percentage changes in the dollar
amounts of such items from the prior period. Effective October 31, 1997, the
Company acquired Central Engineering Company ("Cenco"). The operating results of
Cenco are included with those of the Company from the date of acquisition.

<TABLE> 
<CAPTION> 

                                                                   Percent Increase
                                   Percentage of Net Sales        in Dollar Amounts
  
                                    1997    1996      1995   1997 vs. 1996   1996 vs. 1995
<S>                                <C>     <C>       <C>     <C>             <C>  
Net Sales                          100.0%  100.0%    100.0%      60.0%           14.5%
Costs and Expenses:                                        
  Cost of Sales                     77.9%   76.6%     82.4%      62.8%            6.5%
  Selling, General and                                     
  Administrative Expense            14.5%   17.5%     17.8%      32.9%           12.3%
  Net Interest Expense               1.5%    2.1%      2.4%      14.2%            1.5%
                                    -----------------------
     Total Costs and Expenses       93.9%   96.2%    102.6%      57.2%            7.4%
                                    -----------------------
Income (Loss) Before Income Taxes    6.1%    3.8%     (2.6%)       *               *  
Income Tax Expense (Credit)          1.9%    0.8%     (1.3%)       *               *
                                    -----------------------
Net Income (Loss)                    4.2%    3.0%     (1.3%)       *               *
                                    =======================
</TABLE> 
*  Not meaningful to presentation

Cade is engaged worldwide in the design, manufacture, and repair and overhaul of
high technology composite components and engine test facilities for the
aerospace, air transport and specialty industries. Cade's core products include
molded and bonded composite jet engine components consisting of engine inlets,
acoustical liners, fairings, auxiliary power unit enclosures and engine cases
("Gas Turbine Products"); metal fabricated and bonded composite airframe
components consisting of various control surface products, access doors, wing
tips and interior structures ("Airframe Products"); the repair and overhaul of
commercial and military airframe components and of commercial gas turbine engine
components as well as flight nacelle structures ("Repair and Overhaul
Services"); and test nacelle facilities and related equipment used in the ground
testing and overhaul of major commercial jet engines and related ground support
equipment ("Test Facilities and Equipment"). These products are sold worldwide
through the Company's internal sales force and independent sales representatives
to major engine and airframe equipment manufacturers, airlines and overhaul
facilities.

For 1997, 1996 and 1995, sales of Gas Turbine Products, Airframe Products,
Repair and Overhaul Services, and Test Facilities and Equipment as a percentage
of total sales were as follows:

<TABLE> 
<CAPTION> 

                                                 Percentage of Total Net Sales

<S>                                              <C>       <C>       <C>  
                                                 1997      1996      1995
Gas Turbine Products                             32.1%     29.4%     25.7%
Airframe Products                                21.8%     20.9%     24.8%
Repair and Overhaul Services                     22.3%     27.2%     24.2%
Test Facilities and Equipment                    23.7%     19.2%     20.7%
                                                 -------------------------
                                                 99.9%     96.7%     95.4%
                                                 =========================
</TABLE> 
Outlook and Backlog

At December 31, 1997, the Company's backlog of orders was $79.4 million ($34.8
million at December 31, 1996), which included $30.9 million of order backlog at
Cenco. The 1997 year-end backlog included only the first two years of scheduled
orders ($17.7 million) under long-term agreements; $69.5 million is scheduled
for shipment in 1998. The

                                       4
<PAGE>
 
                                                         1997 CADE Annual Report


Company's backlog includes both firm orders supported by customer purchase
orders with fixed delivery dates, and blanket purchase orders against which
customers issue production releases covering relatively short time periods. The
increase (excluding Cenco) in order backlog at 1997 year-end, compared to 1996,
primarily reflects the strength of the economy in general and a healthy aviation
industry more specifically, as evidenced by both increased airline profits and
new aircraft orders. Overhaul and repair orders, representing 22.3% of total
1997 sales, are excluded from the Company's order backlog due to their very
short lead times.

Each of the Company's subsidiaries has experienced growth in its backlog from
the prior year-end, primarily reflecting increases in orders within each of the
Company's four major product groups. The Company's order backlog is subject to
customer rights of cancellation or rescheduling, although in certain cases the
Company would be entitled to receive termination payments. 

On the basis of the current order backlog, existing long-term agreements and
current economic conditions, the Company expects continued strong sales growth
in 1998.

1997 Compared To 1996

Net sales for 1997 increased by $20,937,000 or 60.0% from 1996, of which
$4,420,000 or 12.7% was attributed to the October 31, 1997, acquisition of
Cenco. The remaining $16,517,000 of the sales increase, representing 47.3% of
1996 net sales, reflects higher sales in all of the Company's core product
groups, with the largest increases coming from gas turbine engine and airframe
components. 

Cost of sales increased 62.8% or $16,776,000 (48.5% or $12,953,000 without
regard to Cenco) in 1997 from 1996, primarily as a result of the 60.0% increase
in net sales. Cost of sales as a percent of net sales increased to 77.9% (77.2%
without regard to Cenco) from 76.6% in 1996. This increase in cost of sales
percent from 1996 results, in part, from the inclusion for part of the year of
Cenco's operations, whose current material cost percentages are higher than the
Company's historical cost percentages. In addition, material costs increased at
certain of the Company's other operating subsidiaries due to the change from
customer-provided to vendor-procured materials on certain gas turbine engine
components, increased levels of tooling purchased for sale to customers and
increased sales of military spares components which have higher material
contents. Tooling amortization costs as a percent of sales also increased due to
the increased sales of test nacelles and overhaul and repair products in 1997.
Decreases in both labor and overhead costs as a percent of sales partially
offset the material and tooling amortization cost increases. The labor percent
decreases resulted primarily from improved productivity, lower average labor
costs due to new hires in the labor force and increased sales of products with
lower labor content, mainly gas turbine engine components. Overhead costs as a
percent of sales decreased primarily as a result of cost containment efforts and
the spreading of fixed manufacturing costs over a larger sales base.

Selling, general and administrative expenses ("administrative expenses") were
14.5% (15.0% without regard to Cenco) and 17.5% in 1997 and 1996, respectively.
Actual amounts expended in 1997 increased $2,002,000 ($1,599,000 excluding
Cenco) from 1996. The decreased percentage of administrative expenses during
1997 compared to 1996 primarily results from the 60.0% increase in sales and the
corresponding spreading of these costs over a larger sales base. Factors
contributing to the higher dollar level of administrative expenditures in 1997
were increased marketing costs, commission expenses, professional and consulting
fees, administrative staff and related costs, travel related costs incurred to
support the higher current and expected sales levels, and higher business
franchise taxes resulting from the increased sales volume. Sales commissions are
directly related to the sales mix of products and/or customers involved. The
higher sales commissions in 1997 resulted primarily from the continued growth in
test nacelle and repair and overhaul sales subject to commission payments.

Net interest expense as a percent of sales decreased to 1.5% in 1997 from 2.1%
in 1996, while the actual amount increased by $104,000 to $833,000. The increase
in the net amount of interest expense was due to increased usage of the line of
credit to support the higher 1997 business activity, and to the additional debt
associated with the acquisition of Cenco. The effect of the increased line of
credit usage was partially offset by lower overall short-term interest rates as
a result of borrowing at Eurodollar-based interest rates.

Income tax expense was $1,037,000 or 1.9% of sales in 1997, compared to $277,000
or 0.8% of sales in 1996. The effective tax rate was lower than the statutory
tax rate, due mainly to the lower tax rate applicable to the Company's foreign
sales corporation.

The Company had net income of $2,353,000 in 1997, compared to $1,058,000 in
1996, as a result of the factors discussed above.

1996 Compared To 1995

Net sales for 1996 increased by $4,422,000 or 14.5% from 1995. This increase in
sales was due primarily to higher sales of both overhaul and repair services and
gas turbine engine components. Partially offsetting these increases were lower
sales of military components due to the completion of a government contract in
1995 and delays in military first article approvals in 1996.

Cost of sales increased 6.5% or $1,629,000 in 1996 from 1995, primarily as a
result of the 14.5% increase in net sales. In addition, the 1995 cost of sales
amount included $960,000 related to the write-off in the second quarter of
certain costs at the Company's Cade Composites, Inc. subsidiary associated with
work-in-process, non-recurring engineering charges, contract termination costs,
tooling

                                       5
<PAGE>
 
investments and prototype development costs. Excluding this write-off at Cade
Composites from 1995 amounts, cost of sales for 1996 increased $2,589,000 or
10.7%.

Cost of sales as a percentage of sales was 76.6% and 82.4% for 1996 and 1995,
respectively. Excluding the effect of the write-off at Cade Composites, cost of
sales as a percentage of sales was 79.2% in 1995. Material cost of sales as a
percent of net sales in 1996 decreased due primarily to lower military sales at
H.A.C. and much higher sales of commercial overhaul and repair services in 1996.
Military sales in 1995 carried a higher material content than that of the
Company's historical product mix, while overhaul and repair services reflect
lower than normal material contents. These decreases in the material cost
percentage, due to product mix changes, were partially offset by an increase in
material content for certain gas turbine engine components as a result of
changing from customer supplied material to purchased material in the last
quarter of 1996. Overhead cost of sales as a percent of sales decreased as a
result of cost containment efforts, improved operational efficiency and the
spreading of fixed manufacturing costs over a larger sales base.

Administrative expenses as a percent of net sales decreased slightly in 1996 to
17.5% from 17.8% in 1995, while actual amounts expended increased by $668,000 in
1996 to $6,097,000. The decreased percentage resulted primarily from the 14.5%
increase in 1996 sales and the corresponding spreading of administrative
expenses over a larger sales base. Factors contributing to the higher
administrative expenses in 1996 were increased marketing costs, commission
expense, professional and consulting fees, administrative staff and related
costs, and travel related costs. The increased sales commissions in 1996
resulted primarily from greater overhaul and repair sales subject to commission
payments.

Net interest expense as a percent of sales decreased to 2.1% in 1996 from 2.4%
in 1995, while the actual net amount expended remained relatively unchanged.
Line of credit usage increased in 1996 compared to 1995. However, the effect of
increased borrowing was largely offset by lower overall interest rates as a
result of borrowing at Eurodollar-based interest rates.

Income tax expense was $277,000 or 0.8% of sales in 1996, compared to a negative
expense of ($397,000) or (1.3%) of sales in 1995. The effective tax rate was
lower than the statutory tax rate due to the lower tax rate applicable to the
Company's foreign sales corporation and to certain adjustments to income tax
liabilities.

The Company had net income of $1,058,000 in 1996, compared to a net loss of
($382,000) in 1995 due to the factors discussed above.

Liquidity and Capital Resources 

The Company has met its working capital and longer term capital needs through
operating cash flow, short and long-term bank debt, and leasing arrangements on
certain items of capital equipment. The Company financed its acquisition of
Cenco with long-term bank debt and the issuance of its common stock.

Capital has principally been used to fund the Company's acquisition of Cenco and
inventory, accounts receivable, and equipment and tooling expenditures.
Management expects to continue its present level of investment in inventory to
support the higher sales volume expected in 1998 and to continue to invest, at
modestly increased levels, in production technology, tooling and equipment for
improved manufacturing efficiency and quality enhancement. The Company is
continuing to pursue acquisition opportunities to expand and/or diversify its
markets.

The Company financed the acquisition of Cenco with increased bank debt. Under
the Company's amended and restated loan agreement with a bank, the Company has a
$9,000,000 unsecured line of credit, a $4,000,000 mortgage note and $6,821,000
in two term notes. Pre-existing term debt of $2,571,000 and line of credit debt
of $527,000 was retired with the proceeds from these new fixed-term obligations.
At December 31, 1997, $4,844,000 of the line of credit was available and the
Company also had outstanding approximately $12,265,000 of secured, long-term
debt and $1,431,000 of subordinated notes.

The Company has undertaken a study to assess the potential impact of year 2000
issues on its business and internal operations. The study is also directed at
estimating amounts to be expended relative to year 2000 issues and their impact
on the Company's operations, liquidity and capital resources. In 1997, no
material amount was expended on year 2000 issues. The Company believes the costs
associated with transitioning its current computer environment to one that is
fully year 2000 compliant is not material to its results of operations or its
liquidity and capital resources, although the total cost of compliance with
these issues is not yet known. 

Management believes that expected increased revenues and an ongoing emphasis on
working capital management will continue to provide strong cash flow from
operations. As a result, the Company's cash flow from operations and its current
credit facilities are believed to be adequate to finance its current operations 
and capital expenditure requirements at present and forecasted levels.

                                       6
<PAGE>

                                                         1997 CADE Annual Report


Effects of Inflation

The Company has entered into multi-year sales agreements with fixed prices in 
its core business of gas turbine engine components and test nacelle products and
services. These contracts contain provisions for renegotiation should inflation 
of material costs exceed certain defined levels. Partially offsetting material 
and labor cost increases experienced by the Company were long-term material 
purchase agreements with suppliers and productivity improvements. In addition, 
Cade continuously reviews cost increases and attempts to reflect these projected
cost adjustments in proposals for new orders. As a result, management believes
that general inflation did not have a material impact on the Company's
operations or financial condition during the periods discussed.

New Accounting Pronouncements

The Financial Accounting Standards Board has issued Statements of Financial
Accounting Standards No. 130 "Comprehensive Income," and No. 131 "Disclosures
about Segments of an Enterprise and Related Information." These statements are
effective for fiscal years beginning after December 15, 1997. The Company
expects the adoption of these accounting standards will not materially impact
its results of operations or financial position.


                         ----------------------------
                         Independent Auditor's Report


Shareholders and Board of Directors
Cade Industries, Inc. and Subsidiaries
Lansing, Michigan

We have audited the accompanying consolidated balance sheets of Cade Industries,
Inc. and Subsidiaries (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. 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 audits.

We conducted our audits 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 financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.


/s/ Deloitte & Touche LLP

Lansing, Michigan
February 10, 1998

                                       7
<PAGE>
 
Cade Industries, Inc. and Subsidiaries
Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                        December 31
                                                           -------------------------------------    
                                                                1997                    1996
                                                                ----                    ----        
<S>                                                        <C>                       <C>
Assets
Current assets
  Cash and cash equivalents                                $  1,093,176              $    21,606
  Trade accounts receivable                                  12,687,969                6,585,905
  Costs and estimated earnings in excess of billings
   on uncompleted contracts                                   2,053,922
  Inventories                                                13,798,967                9,913,770
  Deferred income taxes                                       1,154,000                  445,000
  Prepaid expenses and other assets                             413,132                  180,279
                                                           -------------------------------------
                       Total current assets                  31,201,166               17,146,560
Property, plant and equipment                                17,662,161               15,006,081
Intangible and other assets
  Goodwill                                                    5,552,849                3,014,369
  Other assets                                                  153,715                  137,430
                                                           -------------------------------------
                                                              5,706,564                3,151,799
                                                           -------------------------------------
                                                            $54,569,891              $35,304,440
                                                           =====================================
Liabilities and Shareholders' Equity
Current liabilities
  Note payable to bank                                     $  1,460,000             $  3,010,000
  Current portion of long-term debt                           3,012,998                1,558,220
  Trade accounts payable                                      5,190,782                2,888,283
  Employee compensation and amounts withheld                  2,471,638                1,013,108
  Billings in excess of costs and estimated earnings
    on uncompleted contracts                                  5,626,388
  Accrued expenses                                            1,609,611                  552,097
  Accrued income taxes                                          395,088                  126,216
                                                           -------------------------------------
                       Total current liabilities             19,766,505                9,147,924
Long-term debt                                               10,682,554                4,839,181
Deferred income taxes                                           788,000                  634,000
Shareholders' equity
  Preferred stock, 10% cumulative, non-voting,
    stated value $300 per share; authorized
    500 shares, none issued
  Common stock, par value $.001 per share;
    authorized 100,000,000 shares, issued
    22,238,859 shares (21,972,859 shares in 1996)               22,239                    21,973
  Additional paid-in capital                                 9,360,968                 8,885,977
  Retained earnings                                         14,475,571                12,122,296
                                                           -------------------------------------
                                                            23,858,778                21,030,246
  Less cost of common stock in treasury
    (350,055 and 280,568 shares in 1997 and
    1996, respectively)                                        525,946                   346,911
                                                           -------------------------------------
                                                            23,332,832                20,683,335
                                                           -------------------------------------
                                                           $54,569,891               $35,304,440
                                                           =====================================
</TABLE> 
                            See accompanying notes.
                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                         1997 CADE Annual Report
Cade Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
            

                                                                Year Ended December 31
                                                       1997             1996             1995
<S>                                                 <C>              <C>              <C> 
Sales                                               $55,803,761      $34,867,072      $30,445,006
Cost of sales                                        43,480,918       26,704,927       25,075,996
                                                    ---------------------------------------------
                                                     12,322,843        8,162,145        5,369,010
Selling, general and administrative expenses          8,099,595        6,097,363        5,429,585
                                                    ---------------------------------------------
  Income (loss) from operations                       4,223,248        2,064,782          (60,575)

Interest expense - net                                 (832,973)        (729,290)        (718,468)
                                                    ---------------------------------------------
  Income (loss) before income taxes                   3,390,275        1,335,492         (779,043)
Income tax expense (credit)                           1,037,000          277,000         (397,000)
                                                    ---------------------------------------------
  Net income (loss)                                 $ 2,353,275      $ 1,058,492      $  (382,043)
                                                    =============================================

  Net income (loss) per common share:

    Basic                                           $      0.11      $      0.05      $     (0.02)
    Diluted                                         $      0.11      $      0.05      $     (0.02)
</TABLE>

See accompanying notes

                                       9
<PAGE>

Cade Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                         Year Ended December 31

                                                              1997             1996             1995
<S>                                                        <C>              <C>              <C>
Operating activities
  Net income (loss)                                        $ 2,353,275      $ 1,058,492      $  (382,043)
  Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:
      Depreciation and amortization                          2,898,254        2,626,109        2,356,142
        Provision for deferred income taxes (benefit)         (115,000)          91,000          (62,000)
      Loss on sale of equipment                                 10,529           13,520

      Changes in operating assets and liabilities, net
        of assets and liabilities acquired from Cenco:
          Trade accounts receivable                         (2,020,716)      (1,915,207)         147,260
          Billings in excess of costs and estimated
          earnings on uncompleted contracts - net              993,793
          Inventories                                       (3,440,390)      (1,995,635)         973,154
          Prepaid expenses and other current assets           (168,461)         317,826         (327,730)
Trade accounts payable                                         784,240        1,202,970         (867,366)
          Other current liabilities                          2,100,701         (149,865)         462,881
                                                           ---------------------------------------------
Net cash provided by operating activities                    3,396,225        1,249,210        2,300,298

Investing activities
  Additions to property, plant and equipment                (2,683,143)      (1,764,166)      (2,424,229)
  Acquisition of Cenco                                      (5,197,106)
  Acquisition of Pollux                                                                          (73,497)
  Other - net                                                  (37,780)          (2,261)         (53,091)
                                                           ---------------------------------------------
Net cash used in investing activities                       (7,918,029)      (1,766,427)      (2,550,817)

Financing activities
  Proceeds from long-term debt                              11,470,134          507,316        3,600,000
  Payments and refinancing of long-term debt                (4,171,983)      (1,831,021)      (1,433,533)
  Increase (decrease) in note payable to bank               (1,550,000)       1,710,000       (1,800,000)
  Purchases of common stock for treasury                      (203,957)         (92,469)
  Exercise of stock options and other                           49,180           57,512
                                                           ---------------------------------------------
Net cash provided by financing activities                    5,593,374          351,338          366,467
                                                           ---------------------------------------------
Increase (decrease) in cash and cash equivalents             1,071,570         (165,879)         115,948
Cash and cash equivalents at beginning of year                  21,606          187,485           71,537
                                                           ---------------------------------------------
Cash and cash equivalents at end of year                   $ 1,093,176      $    21,606      $   187,485
                                                           =============================================
Cash paid (received) during the year for:
  Interest                                                 $   730,647      $   772,257      $   657,805
  Income taxes, net of refunds received                        900,072          (39,415)          89,984
Supplemental Schedule of noncash investing
  and financing activities:
  Capital leases                                               248,706          507,316
  Fair market value of common stock issued for
    acquisition                                                451,000                             3,683
</TABLE>
See accompanying notes.

                                       10
<PAGE>
 
Cade Industries, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity

<TABLE>
<CAPTION>

                                                       Common Stock
                                                  ----------------------
                                                                              Additional
                                                    Number     Par Value       Paid-In        Retained       Treasury
                                                  of Shares      Amount        Capital        Earnings        Stock
                                                  --------------------------------------------------------------------
<S>                                               <C>            <C>         <C>            <C>             <C>
Balance at January 1, 1995                        21,881,499     $21,881     $8,824,874     $11,445,847     $(254,442)

  Shares issued in connection with acquisition         4,910           5          3,678
  Net loss for the year                                                                       (382,043)
                                                  --------------------------------------------------------------------
Balance at December 31, 1995                      21,886,409      21,886      8,828,552      11,063,804      (254,442)

  Stock options exercised                             86,450          87         57,425
  Purchase of 80,500 shares of common stock                                                                  (92,469)
  Net income for the year                                                                     1,058,492
                                                  --------------------------------------------------------------------
Balance at December 31, 1996                      21,972,859      21,973      8,885,977      12,122,296      (346,911)
  
  Stock options exercised                             16,000          16         20,844
  Purchase of 114,800 shares of common stock                                                                 (203,957)
  Employee stock awards                                                           3,397                        24,922
  Shares issued in connection with acquisition       250,000         250        450,750
  Net income for the year                                                                     2,353,275
                                                  --------------------------------------------------------------------
Balance at December 31, 1997                      22,238,859     $22,239     $9,360,968     $14,475,571     $(525,946)
                                                  ====================================================================
</TABLE>
See accompanying notes.

                                       11
<PAGE>
 
Notes to Consolidated Financial Statements

Note 1. Corporate Structure and Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Cade Industries,
Inc. and its wholly-owned subsidiaries (Company or Cade); Auto-Air Composites,
Inc. (Auto-Air); Cade Composites, Inc. (CCI); Cade International, Inc. (CI);
Central Engineering Company (Cenco); Cade Europe, Inc. (CE) and Pollux
Acquisition Corporation (Pollux) and its wholly-owned subsidiary, H.A.C.
Corporation (H.A.C.).  Intercompany accounts and transactions have been
eliminated in consolidation.

Cade is engaged worldwide in the design, manufacture, and repair and overhaul of
high technology composite components and engine test facilities for the
aerospace, air transport and specialty industries.  The Company's core products
consist of original equipment components for gas turbine engines, airframe, and
auxiliary power units.  Its specialty niche products include ground-based test
nacelle systems and facilities and repair and overhaul of commercial gas turbine
engine components and both commercial and military airframe components.  Through
Auto-Air and H.A.C., Cade operates repair stations under Federal Aviation
Administration ("FAA") licenses.  In addition to FAA certification, Auto-Air and
H.A.C. are certified by the European Joint Airworthiness Authority and the Civil
Aviation Authority of China.  

The Company and its subsidiaries offer both manufacturing and design services to
the industries they serve. The design and manufacturing are interrelated and the
various significant operating locations have essentially the same capability. In
the opinion of management, the Company operates in a single business segment.

Significant accounting policies are discussed below, and where applicable, in
the Notes that follow.

Cash and Cash Equivalents
Cash and cash equivalents includes short-term investments having maturity dates
of 90 days or less when purchased.

Trade Accounts Receivable/Revenue Recognition

Trade accounts receivable represent amounts due from domestic and international
equipment manufacturers and air carriers serving the aerospace and air
transportation industries, as well as from the U.S. Government under certain
long-term contracts.  The Company generally does not require collateral from its
customers.  Credit losses have been minimal.

Sales and income are generally recognized at the time products are shipped.
Progress billings in advance of deliveries on certain contracts are treated as
deferred revenues and are offset against inventoried contract costs in the
Company's financial statements.  Reserves for contract losses are accrued when
estimated costs to complete exceed expected future revenues.

The percentage of completion method of accounting is used for certain contracts
covering the construction and manufacture of engine test facilities and related
ground test equipment.  Profits on contracts are recorded on the basis of the
percentage of completion of individual contracts, commencing when progress
reaches a point where experience is sufficient to estimate final results with
reasonable accuracy.  That portion of the total contract price is accrued which
is allocable, on the basis of the Company's estimates of percentage of
completion, to contract expenditures and work performed.  Indirect costs are
allocated to contract costs and inventories.  As these contracts may extend over
one or more years, revisions in cost and profit estimates during the course of
the work are reflected in the accounting period in which the facts which require
the revision become known.  Additionally, the entire amount of the estimated
loss is accrued at the time when it is determined that a loss on a contract is
likely to occur.  The asset, "costs and estimated earnings in excess of billings
on uncompleted contracts," represents revenue recognized in excess of amounts
billed.  The liability, "billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenue recognized.

Net sales to Pratt & Whitney, Boeing/McDonnell Douglas and the U.S. Government,
with which the Company has long standing customer relations amounted to 25%,
11%, and 7% of the 1997 consolidated net sales, respectively (25%, 6%, and 5% in
1996, 20%, 5%, and 13% in 1995). Export sales by the Company's domestic
subsidiaries were $12,002,000, $6,024,000, and $7,028,000 for the years 1997,
1996, and 1995 respectively and accounts receivable relating to foreign revenues
as of December 31, 1997 and 1996 are $7,630,000 and $506,000, respectively.

                                       12
<PAGE>
 
Goodwill 

Goodwill is being amortized over 30 to 40 years using the straight-line method.
Accumulated amortization was $768,000 and $645,000 at December 31, 1997 and
1996, respectively. It is the Company's policy to carry goodwill only if the
projected undiscounted cash flows of acquired businesses over the remaining
amortization periods exceed such recorded amounts of goodwill.

Income Taxes

Income taxes have been provided using the liability method. Deferred income tax
liabilities and assets are recorded at the end of each period based on the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases using the tax rate expected to be in effect when the taxes
are actually paid or recovered.

Research and development credits are recorded using the flow-through method of
accounting whereby, in the year available for utilization, the credits are
applied as a reduction of income tax expense.

Significant 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 amounts could differ from these estimates.

Net Income (Loss) Per Share

In 1997, Cade adopted Financial Accounting Standards Board SFAS No. 128,
"Earnings Per Share."  SFAS No. 128 requires the calculation of basic and
diluted earnings per share.  Basic earnings per share excludes any dilutive
effects of stock options.  Earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to SFAS No. 128
requirements.  

Fair Value of Financial Instruments

Management has determined that the carrying values of cash and cash equivalents,
trade accounts receivable and accounts payable approximate fair value due to the
short-term maturities of these instruments.

Management has also determined that the carrying value of its current and long-
term debt and note payable to bank approximate market value as they largely bear
interest at rates that vary with the bank's prime lending rate.  It is not
practical to estimate the fair value of the subordinated notes due to these
notes being non-marketable and subordinated to all other debt.

Long-Lived Assets And Long-Lived Assets To Be Disposed Of

Effective January 1, 1996, Cade adopted Financial Accounting Standards Board
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."  This Statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and long-
lived assets and certain identifiable intangibles to be disposed of.  The
adoption of this new accounting standard did not have a material effect on
Cade's consolidated operating results or financial position.

Forward Exchange Contracts

The Company has entered into foreign currency contracts as a hedge against
foreign currency exposures for certain construction contracts.  These foreign
currency contracts limit the Company's exposure to both favorable and
unfavorable currency fluctuations.  Such contracts are designated as a hedge of
a firm commitment for construction contracts denominated in foreign currencies,
and any gains and losses are deferred and included in the measurement of the
construction contracts profitability.

                                      13
<PAGE>
 
Note 2. Acquisition

In October 1997, the Company acquired 100% of the outstanding shares of Central
Engineering Company and its related real estate for $8,174,000. The purchase
price consisted of 250,000 shares of Cade's Common Stock and approximately
$7,723,000 in cash. The cash portion of the purchase price was financed through
additional bank borrowings, pursuant to which the Company's existing credit
facility was increased from approximately $10.3 million to $19.8 million. In
addition, cash required at acquisition was reduced as a result of on-hand cash
balances at Cenco of $2,893,000. The purchase agreement contained a provision
requiring the escrow of $400,000 until July 1998 to satisfy certain indemnity
obligations of the former Cenco shareholders to the Company. Accordingly, the
total purchase price amount may be adjusted to reflect draws against the escrow
or recognition of additional acquisition costs. Cenco designs and manufactures
engine test cell facilities and related ground test equipment.

The acquisition of Cenco has been accounted for using the purchase method of
accounting. The excess purchase price, including direct costs of acquisition,
over the fair value of the net assets acquired, totaling approximately
$2,862,000 was recorded as goodwill. The fair values of the assets acquired and
the liabilities assumed were as follows: current assets of $9,354,000; property,
plant and equipment of $2,736,000; total assets of $14,952,000, and current
liabilities of $6,410,000. The results of Cenco's operations have been included
in the Company's financial statements from the date of its acquisition.

The following unaudited pro-forma information sets forth the results of the
Company's operations as though the purchase of Cenco had been made at the
beginning of 1996.

                                       1997                   1996
                                       ----                   ----
     Revenues                     $ 73,377,000           $ 52,117,000
     Net income                      2,340,763                734,000
     Basic income per share               0.11                   0.03
     Diluted income per share             0.10                   0.03

The above pro-forma unaudited results of operations are not necessarily
indicative of the combined operating results as they may be in the future or as
they might have been for the periods indicated had the acquisition of Cenco been
consummated at the beginning of 1996.

Note 3. Costs and Estimated Earnings on Uncompleted Contracts
                                   
Uncompleted contracts at December 31, 1997 consists of:
     Costs incurred on uncompleted contracts                 $58,740,285
     Estimated earnings                                        5,684,123
                                                             -----------
                                                              64,424,408
     Less billings to date                                    67,996,874
                                                             
Included in the accompanying consolidated balance
    sheets under the following captions:
     Costs and estimated earnings in excess of billings on
      uncompleted contracts                                  $ 2,053,922
     Billings in excess of costs and estimated earnings on
      uncompleted contracts                                    5,626,388
                                                             -----------
                                                             $(3,572,466)
                                                             ===========

Note 4. Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventoried costs relating to long-term contracts are stated at actual
production cost. Inventories consist of :

                                                December 31
                                      ---------------------------
                                           1997            1996
                                      -----------      ----------
     Finished goods                   $   882,378      $  372,896
     Work-in-progress                   6,344,798       5,494,016
     Raw materials and supplies         6,571,791       4,046,858
                                      -----------      ----------
                                      $13,798,967      $9,913,770
                                      ===========      ==========

                                       14
<PAGE>

                                                         1997 CADE Annual Report
 
Note 5. Foreign Currency Contracts

During 1997, the Company entered into forward currency contracts to hedge
certain firm commitments for the delivery of goods and services for four
construction contracts denominated in foreign currencies. The purpose of the
Company's foreign currency hedging activity is to protect it from the risk that
the eventual dollar cash flows resulting from the delivery of goods and services
to international customers will be adversely affected by changes in exchange
rates. At December 31, 1997, the Company had forward currency contracts, all
with a maturity of less than one year, to exchange British pounds, Thailand
bahts and Singapore dollars for U.S. dollars in the amounts of $4,175,000,
$6,066,000 and $3,383,000, respectively. There were no significant unrealized
gains or losses related to foreign currency contracts at December 31, 1997.

Note 6. Note Payable and Long-Term Debt

Note payable to bank of $1,460,000 at December 31, 1997, represents borrowing
under the Company's $9,000,000 unsecured line of credit, which bears interest at
the bank's announced prime interest rate less .50% (8.0% at December 31, 1997)
and is subject to annual renewal each year starting in April 1999. Also, at the
Company's option, increments of not less than $500,000 of the outstanding line
of credit may be placed at a Eurodollar-based rate plus 2.1% (none at December
31, 1997) for fixed periods not to exceed 90 days. Up to $3,500,000 ($2,696,000
at December 31, 1997) of the line of credit may be committed to support letters
of credit and foreign exchange contracts, but at no time may the total of such
commitments and advances under the line of credit exceed $9,000,000. The line of
credit will become secured by substantially all of the Company's and
subsidiaries' tangible assets in the event the ratio of debt to tangible net
worth exceeds two-to-one.

In October 1997, the Company and the bank executed an amended and restated loan
agreement to increase its line of credit facility, facilitate the acquisition of
Cenco and refinance a portion of its then existing term debt. This amended and
restated agreement provides for interest rate reduction on all floating-rate
debt if certain future financial conditions are met.

The weighted-average interest rate on short-term borrowings for the years ended
December 31, 1997 and 1996 was 7.8% and was 8.7% for 1995.

Long-term debt consists of:                              

<TABLE>
<CAPTION>
                                                                         December 31
                                                                      1997          1996
                                                                  -----------    ----------- 
     <S>                                                          <C>            <C>                
     Term Note A payable to bank in quarterly
        installments of $178,571, commencing January 1998         $ 3,571,429
     Term Note B payable to bank in quarterly principal and
        interest installments of $118,624, commencing January
        1998, with unpaid balance due November 2002                 4,000,000
     Term Note C payable to bank in quarterly
        installments of $270,833, commencing January 1998           3,250,000
     Subordinated notes payable in four equal annual
        payments beginning November 1996, interest
        at 6.0% payable semi-annually                               1,430,520    $ 2,145,780
     Note payable to bank in monthly installments to
        July 2005                                                     542,209        567,263
     Mortgage note payable to bank in monthly
        installments commencing April 1997 to February
        2001, with unpaid balance due March 2002                      370,000
     Term note payable to bank in quarterly installments
        of $128,571                                                                3,085,714
     Limited obligation revenue bonds                                                146,250
     Capital lease obligations, interest rates ranging from
        7.75% to 12.71%, due through March 2002                       531,394        452,394
                                                                  -------------------------- 
                                                                   13,695,552      6,397,401
          Current maturities                                        3,012,998      1,558,220
                                                                  -------------------------- 
                                                                  $10,682,552    $ 4,839,181
                                                                  ===========    ===========
                                                                                                                     
</TABLE>
                                       15
<PAGE>
 
 .    Term Note A is secured by substantially all of the Company's and
subsidiaries' tangible assets and bears interest at 8.19%. Proceeds of Term Note
A were used to refinance existing term debt ($2,571,429) and partially finance
the acquisition of Cenco. This term debt is guaranteed by each subsidiary. Under
the amended and restated loan agreement, which covers Term Notes A, B and C, and
the line of credit facility, the Company is subject to restrictive covenants,
conditions and default provisions which, among others, require the maintenance
of certain levels of tangible net worth ($17.0 million at December 31, 1997),
maintenance of financial ratios relating to working capital and debt levels and
restrictions relating to disposition of its assets, future acquisitions,
incurrence of additional indebtedness and material changes in its capital
structure.

 .    To support the acquisition of Cenco, the Company executed Term Notes B and
C. This term debt is secured by substantially all of the Company's and
subsidiaries' tangible assets and is guaranteed by each subsidiary. Term Note B,
which bears interest at the bank's announced prime interest rate less .5% (8.0%
at December 31, 1997), matures November 2002, at which time the remaining
balance is payable. Term Note C bears interest at 8.09% until November 1999, at
which time the interest rate will float until maturity (November 2000) at the
bank's announced prime interest rate less .5%.

 .    As part of the acquisition of Pollux, the Company issued $2,861,040 of 6.0%
subordinated notes in exchange for a like amount of Pollux 8.0% convertible
subordinated debentures. Such notes are subordinated to all indebtedness for
borrowed money and property and equipment purchases including capital leases.

 .    The note payable to bank is secured by certain H.A.C. real estate and
equipment items, bearing interest at 2.75% plus the prime lending rate, as
defined (11.25% at December 31, 1997).

 .    The mortgage note payable to bank is secured by certain Auto-Air real
estate, bears interest at 8.45%, and is guaranteed by the Company.

 .    The limited obligation revenue bonds were issued by a municipal economic
development corporation under an agreement with the Company's Auto-Air
subsidiary. Annual principal and semi-annual interest payments to bond holders
were drawn by the appointed trustee from an irrevocable direct pay letter of
credit issued by a bank which was guaranteed by the Company and was secured by
substantially all of the tangible assets of Auto-Air and the Company. The bonds
were repaid in 1997.

Aggregate annual maturities of long-term debt, including capital leases, for
periods subsequent to December 31, 1997, are approximately as follows: 1998--
$3,013,000; 1999--$2,950,000; 2000--$2,140,000; 2001--$998,000; 2002--
$1,185,000; and thereafter--$3,409,000.

Note 7. Property, Plant and Equipment

Property, plant and equipment are stated at cost and consist of:
<TABLE> 
<CAPTION> 
                                                                     December 31
                                                                                           Estimated
                                                               1997           1996        Useful Life
     <S>                                                      <C>          <C>            <C>   
     Land and improvements                                  $   737,365    $   500,864
     Buildings                                                6,934,411      4,356,455    25-30 years
     Machinery and equipment                                 11,430,507      9,910,080     3-12 years
     Tooling                                                 12,447,568     11,395,706     See below
                                                            -----------    -----------
                                                             31,549,851     26,163,105
     Accumulated depreciation and amortization               13,887,690     11,157,024
                                                            -----------    -----------
                                                            $17,662,161    $15,006,081
                                                            ===========    ===========
</TABLE> 
Tooling primarily represents production and engineering costs incurred in the
manufacture of tooling for use in new component part and test cell equipment
production, as well as repair and overhaul efforts. These costs are amortized
over projected delivery schedules (new component part and test cell equipment)
or estimated time periods (repair and overhaul).


                                       16
<PAGE>
 
Note 8. Stock Options

Options activity during the years ended December 31, 1997, 1996 and 1995 is as
follows:
<TABLE> 
<CAPTION> 
                                                                                   Weighted
                                                                                    Average
                                                      Number of      Exercise      Exercise
                                         Number        Shares          Price         Price
                                        of Shares    Exercisable     Per Share     Per Share
                                       ------------------------------------------------------
<S>                                     <C>          <C>           <C>             <C> 
Outstanding at December 31, 1994         749,000       530,400     $.67 - $2.19      $1.10
  Options granted:
    Under 1990 Plan                       96,450                    .66 -   .72        .71
    Directors                            100,000                    .69 -   .72        .70
  Options canceled                       (75,000)                   .67 -  2.19       1.37
                                       ---------
Outstanding at December 31, 1995         870,450       683,050      .66 -  2.19        .98
  Options granted under 1990 Plan         75,000                    .63 -  1.13        .96
  Options exercised                      (86,450)                   .63 -   .69        .67
                                       ---------
Outstanding at December 31, 1996         859,000       720,000      .67 -  2.19       1.01
  Options granted:
    Under 1990 Plan                       80,000                      1.38            1.38
    Directors                            100,000                      1.38            1.38
  Options exercised                      (16,000)                   .67 -  2.19       1.30
  Options canceled                        (6,000)                   .83 -  2.19       1.57
                                       ---------
Outstanding at December 31, 1997       1,017,000       866,000     $.67 - $2.19      $1.07
                                       =========
</TABLE> 

The 1990 Nonqualified Stock Option Plan provides for the granting of up to
845,000 options for shares of the Company's Common Stock. The option price is
the fair market value of a share of common stock on the date of the grant.
Options expire ten years from date of grant. At six months from grant date, 20%
of the options may be exercised, and at one year from grant date and for each of
the next three years thereafter, an additional 20% may be exercised. Options may
be granted under the 1990 Plan through December 31, 2000.

Members of the Board of Directors hold options to purchase 700,000 (350,000 held
under the Directors Plan) shares of the Company's Common Stock. The options were
granted at fair market value of a share of common stock on the date of grant and
are exercisable at various dates through February 2007.

The outstanding stock options at December 31, 1997, have a weighted average
contractual life of 6.6 years, and a weighted average exercise price of $1.07
per share.

The Company accounts for its stock option plans in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock option grants. Had compensation cost been determined
consistent with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," the effect on the Company's pro-forma net income
and income per share for 1997, 1996 and 1995 would not have been material.

The weighted average fair value of the stock options granted during 1997 and
1996 was $0.89. The fair value of each stock option grant is estimated on the
date of grant using the Black-Scholes option pricing model, with the following
weighted average assumptions used for grants in 1997 and 1996, respectively: no
dividend yield in either year; risk free interest rate of 5.75% and 6.50%;
expected life of 8.5 years and 8.3 years; and expected volatility of 50% and
76%.

                                       17
<PAGE>
 
Note 9. Income Taxes

Significant components of the Company's deferred tax assets (liabilities) as of
December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>

                                                       1997           1996
                                                    -----------    -----------
     <S>                                            <C>            <C>
     Current
       Uniform inventory capitalization             $   117,000    $    82,000
       Uniform tooling capitalization                    73,000         43,000
       Expense and loss accruals                        764,000        320,000
       Net operating loss carryforwards                 200,000
                                                    -----------    -----------
          Total current deferred tax assets         $ 1,154,000    $   445,000
                                                    ===========    ===========
     Long-term
       Net operating loss carryforwards             $   557,000    $   960,000
       Tax credit carryforwards                         101,000        101,000
                                                    -----------    -----------
          Total long-term deferred tax assets           658,000      1,061,000
     Valuation allowance                               (410,000)      (610,000)
                                                    -----------    -----------
               Net long-term deferred tax assets        248,000        451,000
     Tax over book depreciation                      (1,088,000)    (1,119,000)
       Other - net                                       52,000         34,000
                                                    -----------    -----------
          Total long-term deferred tax liabilities   (1,036,000)    (1,085,000)
                                                    ===========    ===========
          Net long-term deferred tax liabilities    $  (788,000)   $  (634,000)   
                                                    ===========    ===========
</TABLE>

With the acquisition of Pollux in 1994, the Company received deferred tax
benefits as of the date of acquisition of $750,000, including the tax impact of
net operating loss and other tax credit carryforwards with expiration dates from
2001 to 2008. Realization of these assets is contingent on future taxable
earnings of Pollux. In accordance with the provisions of Statement 109,
valuation allowances were recorded to reserve for these and other items which
may not be realized.

The provision (credit) for income taxes consisted of the following:

<TABLE>
<CAPTION>
                                     1997          1996           1995
                                  ----------    ----------     ----------
     <S>                          <C>           <C>            <C>
     Current (credit):
       Federal                    $1,123,000    $  207,000     $ (343,000)
       State and local                29,000       (21,000)         8,000
                                  ----------    ----------     ----------
          Total current (credit)   1,152,000       186,000       (335,000)
     Deferred (credit):
       Federal                      (115,000)       91,000        (62,000)
                                  ----------    ----------     ----------
                                  $1,037,000    $  277,000     $ (397,000)
                                  ==========    ==========     ==========
</TABLE>

The reconciliation of income tax computed at the U.S. federal statutory tax rate
to income tax expense (credit) is:

<TABLE>
<CAPTION>

                                                                   1997           1996           1995
                                                                ----------      ---------     ----------     
     <S>                                                        <C>             <C>           <C>
     Tax at U.S. federal statutory rate                         $1,152,700      $ 454,100     $ (264,900)
     State and local income taxes (net of federal tax benefit)      19,100        (13,900)         5,300
     Non-deductible amortization                                    41,900         37,500         31,500
     Lower effective income tax of foreign sales corporation      (170,700)       (55,400)       (87,600)
     Adjustment of estimated liabilities                           (24,000)      (150,000)       (94,800)
     Other                                                          18,000          4,700         13,500
                                                                ----------      ---------     ----------
                                                                 1,037,000        277,000       (397,000)
</TABLE>

                                       18
<PAGE>
 
                                                         1997 CADE Annual Report


Note 10. Pension Plan

Retirement benefits are provided by the Company to most salaried and non-
bargaining unit, hourly employees under contributory defined contribution plans
which provide for discretionary contributions. Expense related to these plans
was $277,000 in 1997, $198,000 in 1996, and $151,000 in 1995.

Bargaining unit employees of one subsidiary participate in a union-sponsored
multi-employer defined benefit plan. Company cost and contributions were
$176,000, $145,000 and $139,000 in 1997, 1996 and 1995, respectively. The
Company's proportional share of the net assets, accumulated benefits and
unfunded vested benefits of this plan is not available. In addition, the Company
offers bargaining unit employees electing early retirement continued health
benefits for a limited period, not to exceed three years, with such benefits
capped at current rates. Management has determined that the financial impact of
this benefit on the Company as determined under Financial Accounting Standards
Board Statement No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," is not material.


Note 11.  Income Per Share

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                              1997           1996          1995
                                                           -----------    ----------    ----------
<S>                                                        <C>            <C>           <C>  
Numerator:               
    Numerator for basic and diluted earnings per share
      --income (loss) available to common shareholders     $ 2,353,275   $ 1,058,492   $  (382,043)
                                                           ===========   ===========   ===========
Denominator:
    Denominator for basic earnings per share--weighted
      average shares                                        21,720,000    21,693,000    21,684,000 
    Effect of dilutive stock options--potential common
      shares                                                   446,000       187,000             0
                                                           -----------    ----------    ----------
    Denominator for diluted earnings per share--
      adjusted weighted-average shares                      22,166,000    21,880,000    21,684,000
                                                           ===========   ===========   ===========
Basic income (loss) per share                              $      0.11   $      0.05   $     (0.02)
                                                           ===========   ===========   ===========
Diluted income (loss) per share                            $      0.11   $      0.05   $     (0.02)
                                                           ===========   ===========   ===========
</TABLE> 

Note 12. Leases

Future minimum lease payments, by year and in the aggregate for noncancellable
operating leases with initial or remaining terms of one year or more, consisted
of the following at December 31, 1997:

<TABLE>
                 <S>                                 <C> 
                 1998                                $464,000
                 1999                                  81,000
                 2000                                  26,000
                 2001                                  25,000
                 2002                                  14,000
                                                     --------
                     Total minimum lease payments    $610,000
                                                     ========
</TABLE> 

Rent expense for 1997, 1996 and 1995 totaled $537,000, $560,000 and $487,000,
respectively.


                                       19

<PAGE>

<TABLE> 
<CAPTION>

  
Note 13. Quarterly Results (Unaudited)
                                                                               1997
                                                                        Three Months Ended
                                               March 31        June 30     September 30     December 31
                                                                                                               Total
<S>                                         <C>            <C>            <C>             <C>            <C>
Sales                                        $ 12,355,557   $ 12,952,885   $ 13,477,498    $ 17,017,821   $  55,803,761
Cost of sales                                   9,376,113      9,826,307     10,602,610      13,675,888      43,480,918
Net income                                        471,443        537,943        626,585         717,304       2,353,275
Net income per common share*
  Basic                                              0.02           0.02           0.03            0.03            0.11
  Diluted                                            0.02           0.02           0.03            0.03            0.11
Weighted average common 
 shares outstanding       
  Basic                                        21,710,000     21,683,000     21,658,000      21,829,000      21,720,000
  Diluted                                      21,999,000     22,027,000     22,172,000      22,463,000      22,166,000
          
          
                                                                                1996
                                                                         Three Months Ended
                                               March 31        June 30      September 30    December 31
                                                                                                               Total
<S>                                         <C>            <C>            <C>             <C>            <C>
Sales                                        $   7,164,278  $   7,618,176  $   9,160,054   $ 10,924,564   $  34,867,072
Cost of sales                                    5,263,243      5,672,530      7,097,727      8,671,427      26,704,927
Net income                                         186,430        203,897        264,686        403,479       1,058,492
Net income per common share*
  Basic                                               0.01           0.01           0.01           0.02            0.05      
  Diluted                                             0.01           0.01           0.01           0.02            0.05 
Weighted average common 
 shares outstanding       
  Basic                                         21,686,000     21,689,000     21,706,000     21,692,000      21,693,000
  Diluted                                       21,688,000     21,922,000     21,950,000     21,960,000      21,880,000     

</TABLE> 

* The 1996 and first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement of Financial Accounting Statement Standards
No. 128, "Earnings Per Share." 

** The sum of quarterly net income per share amount does not equal the annual
amount reported. Net income per share is computed independently for each quarter
and the full year, and is based on respective weighted average common shares
outstanding.

                                      20

<PAGE>
 
1997 Annual

<PAGE>
 
                                   Table of
                                   Contents
                                     - 1 -
                               Dear Shareholders
                                     - 3 -
                        Selected Financial Highlights 
                                     - 4 -
                                 Management's 
                                Discussion and 
                            Analysis of Financial 
                            Condition and Results 
                                 of Operations
                                     - 7 -
                             Independent Auditor's
                                    Report
                                     - 8 -
                                 Consolidated 
                                Balance Sheets
                                     - 9 -
                                 Consolidated 
                                Statements of 
                                  Operations 
                                    - 10 -
                                 Consolidated
                              Statements of Cash 
                                     Flows
                                    - 11 -
                                 Consolidated 
                                Statements of 
                                  Changes in 
                             Shareholders' Equity
                                    - 12 -
                            Notes to Consolidated 
                             Financial Statements
                                     -21-
                             Corporate Information

Corporate Overview

Cade Industries plays a major worldwide role in the design, manufacture, and
overhaul and repair of high technology composite components and engine test
facilities for the aerospace and air transport industries, both domestic and
international. The Company is also a global leader in the design and manufacture
of jet engine test facilities and related ground testing equipment.

Through acquisition and internal growth, the Company has grown 83.0% in two
years with 1997 sales of $55.8 million. Cade is forecasting continued solid
growth in sales and earnings due to the strengthening aerospace market and its
acquisition strategy.

Its core products include the design and build of gas turbine engine components,
commercial and military airframe components, jet engine test equipment,
facilities 

1993-1997 Historical Sales
(millions of dollars)

[GRAPH APPEARS HERE]

   1993   16.2
   1994   20.5
   1995   30.4
   1996   34.8
   1997   55.8

and related ground testing equipment, and overhaul and repair of
engine and airframe components. Cade is recognized as one of the world's largest
designers and manufacturers of test nacelle systems employed in the ground
testing and overhaul of commercial and military engines in service and in
development.

Cade's overhaul and repair facilities are licensed by the Federal Aviation
Administration, the European Joint Airworthiness Authority and the Civil
Aviation Authority of China.

International sales contributed 21.5% of Cade's sales with products and services
provided to 26 countries.

Commercial aviation products accounted for 86.0% of sales in 1997, with military
aviation products contributing 14.0%.

Cade Industries employs approximately 600 employees with manufacturing

1997 Product Mix

[PIE CHART APPEARS HERE]

<PAGE>
 
CORPORATE INFORMATION

CORPORATE HEADQUARTERS
2365 Woodlake Drive -- Suite 120         
Okemos, MI  48864
Phone:  517-347-1333
Fax:  517-347-6185

GENERAL COUNSEL
Quarles & Brady
411 E. Wisconsin Avenue       
Milwaukee, WI  53202-4497

CORPORATE AUDITORS
Deloitte & Touche, LLP             
Suite 800                
120 N. Washington Square             
Lansing, MI  48933-1681

BOARD OF DIRECTORS

Molly F. Cade  
 Educator
Conrad G. Goodkind  
 Partner
 Quarles & Brady
William T. Gross
 Consultant
Richard A. Lund               
 President and Chief Operating Officer
Terrell L. Ruhlman  
 Consultant
John W. Sandford         
 Chairman of the Board and Chief Executive Officer
Steven M. Tadler              
 Senior Vice President              
 Advent International Corporation    

CORPORATE OFFICERS

John W. Sandford         
 Chairman of the Board and Chief Executive Officer  
Richard A. Lund               
 President and Chief Operating Officer
Edward B. Stephens
 Vice President, Chief Financial Officer,
 Treasurer and Assistant Secretary
Richard A. Joseph
 Vice President
Richard J. Gribbins
 Vice President
Conrad G. Goodkind
 Secretary

SUBSIDIARIES

Auto-Air Composites, Inc.
5640 Enterprise Drive
Lansing, MI 48911
Phone: 517-393-4040
John F. Scanlon, President

Cade Composites, Inc.
4075 Ruffin Road
San Diego, CA 92123
Phone: 619-571-5220
Robert C. Spring, President

Cade International, Inc.
2365 Woodlake Drive
Okemos, MI 48864
Phone: 517-347-1333

H.A.C. Corporation
537 Camden Drive
Grand Prairie, TX 75051
Phone: 972-263-4387
John E. Haran, President

Cade Europe, Inc.
Lomeshaye Business Village
Nelson, Lancashire,
BB9 7DR
England
Phone:  (01282) 617788
Peter J. Clark, Director European Sales
                    
Central Engineering Company
2930 Anthony Lane
Minneapolis, MN  55418
Phone:  612-781-6557
John H. Nicholson, President

Transfer Agent and Registrar
Correspondence and questions concerning shareholder accounts or transfer of
stock should be addressed to:

     Firstar Trust Company
     1555 N. RiverCenter Drive
     Milwaukee, WI 53212
     Phone: (414) 905-5000

Financial & Other Information
Cade's Annual Meeting of Shareholders will be held on Tuesday, May 5, 1998, in
Lansing, Michigan.

Cade Industries issues its news releases through PR Newswire. Faxed copies of
news releases are available at no charge. To get them, call Company News On-Call
at 1-800-758-5804. This electronic system requests a six-digit code (075675),
and allows callers to choose from a menu of Cade Industries' news releases. The
requested release will be faxed within minutes of the inquiry. This service is
available 24 hours a day, 7 days a week. The On-Call information is also posted
on the Internet's World Wide Web at http://www.prnewswire.com., or you may visit
Cade's web site at http://www.cade-industries.com. 

Cade Industries files Forms 10-K and 10-Q with the Securities and Exchange
Commission. Shareholders may obtain copies of these reports, and of Cade's
Annual Report to Shareholders, by writing or calling:

     Sheryl A. Mull
     Cade Industries, Inc.    
     2365 Woodlake Drive Suite 120
     Okemos, MI 48864
     Phone: (517) 347-1333
     Fax:  (517) 347-6185
     E-mail address:  [email protected]

Stock Exchange
Shares of Cade Industries Common Stock are traded on the over-the-counter market
on the NASDAQ National Market System (ticker symbol CADE).

                                       

<PAGE>
 
                                                                    Exhibit 21.1
                                                                  Cade 1997 10-K

                                SUBSIDIARIES OF
                             CADE INDUSTRIES, INC.


<TABLE>
<CAPTION>
 
Name of Subsidiary                                     Jurisdiction of Incorporation
- ------------------                                     ----------------------------- 
<S>                                                    <C>  
Auto-Air Composites, Inc.                                         Michigan
Cade Composites, Inc.                                             California
Cade International, Inc.                                          Barbados
Cade Commercial Composites, Inc.                                  Wisconsin
Central Engineering Company                                       Minnesota
H.A.C. Corporation                                                Delaware
Pollux Acquisition Corporation                                    Wisconsin
Cade Europe, Inc.                                                 Minnesota
 
 
</TABLE>

<PAGE>
 
                                                                    EXHIBIT 23.1


[DELOITTE & TOUCHE LOGO]




INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement Nos. 
33-37911 and 333-03033 of Cade Industries, Inc. on Form S-8 of our report dated 
February 10, 1998, appearing in the Annual Report to Shareholders and 
incorporated by reference in the Annual Report on Form 10-K of Cade Industries, 
Inc. for the year ended December 31, 1997.


/s/ Deloitte & Touche LLP

March 25, 1998
Lansing, Michigan

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from 
the financial statements in Cade Industries, Inc.'s report on Form 10-K for the 
year ended December 31, 1997 and is qualified in its entirety by reference to 
such financial statements. 
</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                         DEC-31-1997
<PERIOD-END>                              DEC-31-1997
<CASH>                                      1,093,176
<SECURITIES>                                        0         
<RECEIVABLES>                              12,687,969
<ALLOWANCES>                                        0
<INVENTORY>                                13,798,967
<CURRENT-ASSETS>                           31,201,166 
<PP&E>                                     31,549,851
<DEPRECIATION>                             13,887,690
<TOTAL-ASSETS>                             54,569,891
<CURRENT-LIABILITIES>                      19,766,505
<BONDS>                                    10,682,554
                               0
                                         0
<COMMON>                                       22,239
<OTHER-SE>                                 23,836,539
<TOTAL-LIABILITY-AND-EQUITY>               54,569,891
<SALES>                                    55,803,761 
<TOTAL-REVENUES>                           55,803,761
<CGS>                                      43,480,918         
<TOTAL-COSTS>                              43,480,918 
<OTHER-EXPENSES>                            8,099,595
<LOSS-PROVISION>                                    0
<INTEREST-EXPENSE>                            832,973
<INCOME-PRETAX>                             3,390,275
<INCOME-TAX>                                1,037,000
<INCOME-CONTINUING>                         2,353,275
<DISCONTINUED>                                      0 
<EXTRAORDINARY>                                     0
<CHANGES>                                           0 
<NET-INCOME>                                2,353,275
<EPS-PRIMARY>                                     .11
<EPS-DILUTED>                                     .11
        

</TABLE>


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission