SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ending September 30, 1997
Commission file number: 0-2677
GAP INSTRUMENT CORP.
(Exact Name of Registrant as Specified in its Charter)
_____New York_____ ____________11-1781357_________
(State of Incorporation) (IRS Employer Identification Number)
100 Horse Block Rd, Yaphank, New York __11980__
(Address of principal executive office) (Zip Code)
_______(516) 924-1700______
(Registrant's telephone number)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common
Stock, par value $.00001 per share - Traded: Over the Counter Market
Aggregate market value of voting stock held by non-affiliates: No Value
Common stock outstanding: 436,746,603
Exhibit index: 20
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, Yes XX No
(2) has been subject to such filing requirements for the past 90
days, Yes XX No
(3) Has disclosed delinquent filers pursuant to Item 405 of
Regulation SB is not contained herein, and will not be
contained, to the best of registrants's knowledge, in definitive proxy
or information statements incorporated by
reference in Part III of this Form 10KSB or any amendment to this for
10KSB. Yes No XX
<PAGE>
CONTENTS Page(s)
Part I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . . . 7
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 7
4. Submission of Matters to a Vote of Security Holders. . . 8
Part II
Item 5. Market for the Registrant's Common Stock
and Related Security Holders' Matters . . . . . . . . . 8
6. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 8
7. Financial Statements and Supplementary Data . . . 9
8. Disagreements on Accounting and Financial Disclosure. . .21
Part III
Item 9. Directors and Executive Officers of the Registrant. . 21
10. Management Remuneration and Transactions. . . . . . . 22
11. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . .22
12. Certain Relationships and Related Transactions . . . .23
Part IV
Item 13. Exhibits, Financial Statement Schedules and Reports on
Form 8-K. . . . . . . . . . . . . . . . . . . . . . . 24
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
<PAGE>
Part 1
ITEM 1. BUSINESS.
(a) GAP Instrument Corp., organized in 1953, is a systems
engineering oriented manufacturing organization, producing
electromechanical/solid state systems to satisfy specific military and
commercial requirements for application on board ships, in aircraft,
and at ground-based installations. These various systems are primarily
servo mechanisms (gear trains run by motors, synchros and resolvers)
and state-of-the-art signal data-conversion equipment employed in load
actuation, information readout display, and operation control.
GAP Instrument Corp. is fully aware that its military
manufacturing business over the next decade will continue to decline.
While utilizing the same disciplines to continue its efforts in the
areas of test equipment and simulation equipment, GAP Instrument Corp
has found appropriate areas of diversification to convert from a
military manufacturing market. GAP Instrument Corp has entered the
Electronic Data Interchange (EDI) market as a Value Added Network (VAN)
connecting Federal contractors to the Department of Defense and Federal
Agencies.
GAP Instrument Corp (GAP) is a leading worldwide provider of
electronic commerce products and services to businesses who
communicate with the Federal Agencies of the United States of
America (FED) and the Department of Defense of the United States
of America (DoD). GAP offers comprehensive, customizable,
standards-based electronic commerce solutions. GAP develops,
markets and supports software products and provides computer
communications network and consulting services which enable
businesses to engage in electronic commerce. These electronic
commerce solutions are provided over the GAP value-added network
(VAN) called GAP-NET which utilizes the Internet, and private
internal computer networks known as Intranets. GAP offers
software products that operate on multiple computer platforms,
secure and reliable computer networks to facilitate the
transmission of business information and transactions, and
value-added products and services to enable businesses of all
sizes to maximize the number and value of their electronic
trading relationships with the FED and DoD.
GAP Instrument Corp's products and services facilitate Electronic
Commerce ("EC") using Electronic Data Interchange ("EDI") by
businesses, government, and financial institutions by providing
the ability to electronically transmit and receive routine
business information and documents in a standard format. GAP-NET
serves as electronic communications links for computer systems by
receiving, storing and forwarding electronically transmitted
business documents and data for re-transmission in a form that
can be received and interpreted by the computer of another
commercial business. The standards for document exchange is set
by the Defense Information Systems Agency (see:
http://edi.oti.disa.mil) and by document type (such as purchase
order, invoice, quote and similar business documents). GAP-NET
provides encryption and other document management and security
methods to allow documents to be exchanged securely and reliably.
GAP facilitates the electronic link to its computer
communications network through its electronic commerce software
packages for use in a Microsoft Windows 95 and Microsoft Windows
NT platforms. GAP Instrument Corp also provides professional
services to assist businesses in the installation and
customization, operation and maintenance of their electronic
trading relationships.
Electronic Commerce and EDI
Electronic commerce involves the automation of business
transactions through the use of telecommunications and computers
to exchange and electronically process commercial information and
transnational documents. Electronic commerce typically involves
the use of a third-party or private value-added computer network
to perform EDI, electronic funds transfer ("EFT"), electronic
forms, and electronic catalog services. EDI is a cornerstone of
electronic commerce and is becoming the source of the majority of
GAP Instrument Corp's revenue. The advantages of EDI include
one-time data entry, reduced clerical workload and the
elimination of paper records, rapid, accurate and secure exchange
of business data, and reduced operating and inventory carrying
costs. EDI facilitates uniform communications with different
trading partners in different industries, including customers,
suppliers, common carriers, and banks or other financial
institutions.
EDI Transaction Flow. In a typical EDI transaction, a trading
partner (the ''sending partner'') first creates with its
computer, either manually or electronically, the business data
used for the completion of a particular set of documents,
described by EDI standards as a transaction set. Transaction sets
include requests for quotes, quotes, purchase orders, invoices,
shipping notices, and other related documents and messages.
Second, a translation software program on the sending partner's
computer converts the document or transaction set into a standard
EDI format. Third, this information is electronically transmitted
through telecommunications links from the sending partner's
computer to a central computer system that serves as a
value-added network shared by many trading partners. Value-added
networks receive documents for subsequent delivery to the
intended trading partner (the ''receiving partner''), and connect
many types of computer hardware and communications devices,
convert multiple transaction sets from one industry standard to
another, and maintain security by reducing the possibility of one
trading partner obtaining unauthorized access to another
computer.
Trading Communities. Groups of companies that regularly trade
with a particular agency generate significant repetitive
business transactions. These existing trading communities are
natural prospects for implementation of EDI. The expansion of EDI
by the FED and DoD has been possible through the establishment of
repetitive transactions using ANSI X12 and Implementation
Conventions established by the Defense Information Systems Agency
(DISA). The adoption of EDI as an accepted means of transmitting
business documents and data has also occurred, in part, because
many trade organizations or groups and many large companies
within a trading community increasingly recommend or require
their member organizations or trading partners to adopt and use
EDI as the primary method of communicating business documents.
The pending Federal Trading Community is by far larger than any
existing trading community.
The Government estimates to have 300,000 new trading partners on
or before March 1998. Beginning with FY99 (October 1, 1998) most
government operations must be utilizing EDI because the Year 2000
(Y2K) mandate requires EDI in Version 3050 or later.
The GAP Solution
The GAP solution to addressing electronic commerce is based on
the following six components which are designed to build trading
partner relationships and generate recurring revenue and which
GAP Instrument Corp believes differentiate it from its
competitors in the market.
System Designed for the Government. GAP utilizes the adVANtage
software which was developed specifically for the FED and DoD EDI
Programs. Not being in the commercial VAN business gave GAP the
advantage of not having to carry old legacy systems and ideas
onto the Government arena. There is an old saying "There is a
right way, a wrong way, and the Army way." Forty Five Years of
government contracting experience led GAP to do it the Army way.
Compliance Certification. The Compliance Certification Facility
tests and certifies VAN providers to the numerous government
Implementation Conventions (IC). For the past four years GAP has
maintained the lead in compliance certifications. Of the twenty
eight listed Government VANs only seven have passed the testing
established November 1995and have been licensed under the VAN
License Agreement Revision 1. Of those seven only four have been
compliance certified in all of the 3050 and later transactions.
GAP is one of those four,
Comprehensive Product Offering. GAP offers a range of electronic
commerce software solutions for trading partners, including a
suite of fully scaleable EDI translation software. Forty five
yeas of government contracting experience as a Prime Contractor
gave GAP the incite to develop a user interface geared to the
government contractor. Using the Microsoft Backoffice as a
mainstay GAP can Interfact to the full range of Mainframe, Mid
Range, and Micro computers.
Trading Relationship Management Services. GAP Instrument Corp
provides a range of trading relationship management services,
including installation assistance, trading partner certification
and rules, and services such as customization, training and
consulting.
Vertical Market Expertise. From its past experience GAP has
developed vertical market expertise in selected areas such as
LOGMARS, CALS, Technical Data Packages, Progress Payments,
Contract Management, Procurement, and other facets of government
contracting. GAP provides a full range of contracting tools
needed to contract with the FED and DoD.
Flexible, Secure Network Architecture. GAP has developed a
combined network architecture utilizing the Internet and
Intranets which permits secure and reliable network and secure
Internet communications to facilitate the transmission of
business information and transactions at a fraction of the cost
of traditional VANs.
Strategy
GAP Instrument Corp's objective is to be a leading worldwide
provider of electronic commerce solutions to businesses of all
sizes who connect to the Federal Government by offering a full
spectrum of products and services to enable customers to transact
business on the Internet, Intranets and through GAP-NET network
with a focus on building trading partner relationships and
generating recurring revenue by increasing the number of
subscribers to GAP-NET. GAP Instrument Corp's strategy to achieve
this objective includes the following key elements.
Focus on Marketing to Government Trading Communities. GAP seeks
to establish new and larger trading communities by
(i) developing marketing and technical competence within specific
agencies by understanding the needs of major trade groups and
the trading customs and practices of their trading partners,
(ii) working closely with trading partners to define software and
computer systems requirements,
(iii) developing trading community solutions to meet the needs of
trading partners in these markets, and
(iv) providing a wide offering of value-added, high-quality
services to facilitate the adoption and implementation of EDI and
other electronic commerce solutions throughout these agencies.
Provide a Comprehensive Range of Integrated Products and
Services. The products and services offered by GAP Instrument
Corp include EDI and electronic commerce software for use on
Microsoft Windows 95and Windows NT platforms, value-added
network transaction processing, software programming and
customization services, customer support and training, and
implementation and consulting services. GAP designs its products
with significant ease-of-use features.
Deliver Superior Customer Support Services. GAP offers extensive
customer service, consulting and support to trading partners to
assist in the operation and use of GAP-NET services and its
software products. The ease-of-use of GAP Instrument Corp's
products, focus on solutions that address specific vertical
market needs, and extensive support services attract new
customers with limited EDI expertise and encourage greater
utilization of GAP Instrument Corp's products and services by
existing customers, thereby increasing recurring revenues through
greater transaction flow.
Capitalize on Electronic Commerce on the Internet. From its
inception GAP-NET has utilized the Internet for data
transmission. This has resulted in GAP offering a flat rate EDI
service, which is much more economical the those based on
character charges.
Establish business relationships with other EDI establishments.
GAP currently provides network services to three other FED-DoD
VANs. GAP has signed marketing agreements for commercial VANs to
sell the GAP Government solution. GAP has signed a working
agreement with Fountainhead Communications Inc. to establish the
Secure Commercial Internet Value Added Network (SCI-VAN).
Sales and Marketing
GAP Instrument Corp's principal marketing strategy focuses on
establishing and expanding the number of trading partners using
the GAP networks and software products. GAP Instrument Corp seeks
to target trading communities composed of electronic trading
partners required to use EDI by the Government. To achieve this
objective, GAP Instrument Corp has developed a three-tiered sales
and marketing program.
First, GAP Instrument Corp identifies potential vendors that are
required to conform to an EDI programin order to keep their
Government business EDI. GAP Instrument Corp representatives meet
with the vendors and discuss the procedure for establishing EDI
relationships with the Government.
Second, GAP Instrument Corp contacts the agency trading partners
through seminars and by telemarketing, informing these parties of
the EDI requirements of the agency and implementation procedures.
GAP Instrument Corp schedules and conducts half-day information
seminars with potential trading partners of a major agency
highlighting the benefits of EDI and electronic commerce,
explaining the agency's EDI initiative, and demonstrating GAP
Instrument Corp's products and services. Representatives of the
agency generally attend these seminars to present their EDI
recommendations and requirements.
Third, GAP markets and sells its products through distributors in
the United States and numerous international markets. Through
business agreements GAP Instrument Corp has established alliances
with application software developers, systems integrators and
value-added resellers of EDI products. GAP Instrument Corp's
objective is to integrate GAP-NET products with those of its
Marketing Partners and to promote distribution of GAP software
and network services along with products and services sold by its
Marketing Partners. Management believes that the addition of
these business agreements will allow GAP Instrument Corp to
expand many of its product and service offerings into additional
trading communities.
Customers and Markets
GAP Instrument Corp provides services to a wide range of
companies and organizations in numerous markets required to use
EDI in order to communicate with the federal Government.
Competition
The electronic commerce and EDI network services and computer
software markets are highly competitive. Numerous companies
supply electronic commerce network services, and several
competitors target specific vertical markets such as the
pharmaceutical, agri-business, retail and transportation
industries. Additional competitors provide software designed to
facilitate electronic commerce and EDI communications. Several of
GAP Instrument Corp's most significant competitors provide
network services and related software products and services.
The market for Internet software and services is emerging and
highly competitive, ranging from small companies with limited
resources to large companies with substantially greater
financial, technical and marketing resources than GAP Instrument
Corp.
Most of the competitors have well established networks and are
embedded with technology of the past. They have not realized the
technological changes required by FED-DoD EDI. There are only
seven who have passed the new more rigorous testing under
Revision 1 of the VLA. Management foresees that the VAN community
serving the FED-DoD will settle out with about ten VANs serving
the system.
(b) GAP Instrument Corp.'s operations are no longer classified
as a single industry segment.
(1) (I) The principal market for GAP Instrument
Corp.'s equipment has been the Department of Defense for military
requirements. GAP Instrument Corp. deals with the Department of Defense
directly in open competitive bidding and as a subcontractor to other
major defense contractors on larger programs. GAP Instrument Corp.
operates a Value Added Network and is certified to carry Federal
Acquisition Network (FACNET) transmissions. GAP Instrument Corp. is
selling VAN service to contractors who do business with the Federal
Government.
(II) Not applicable
(III) The materials utilized in the equipment produced
by GAP Instrument Corp. are obtained from standard sources within the
United States. These standard sources include foundries, sheet metal
shops, machine shops, component manufacturers, etc.
(IV) None of the equipment or processes utilized by GAP
Instrument Corp. are covered by patents, licenses, franchises, etc.
(V) Not applicable.
(VI) Manufacturing operations are scheduled to fulfill
specific product orders under firm contracts primarily from the
Department of Defense. GAP Instrument Corp. does not carry significant
amounts of stock inventory.
(VII) GAP Instrument Corp.'s present overall business is
dependent on, the Department of Defense, which presently purchases,
either directly or indirectly, approximately 80 percent in value of
its products. This is in the process of shifting to providing VAN
service to other Government contractors.
(VIII) The dollar backlog of orders of GAP Instrument
Corp. at September 30, 1997 was $101,500, compared to $196,000 at
September 30,1996. All of the September 30, 1997 backlog is expected to
be shipped in fiscal year ending September 30, 1998.
(IX) Not applicable
(X) Item (c)(1)(I).
(XII) Compliance with environmental regulations has not had
a material effect on capital expenditures.
(2) (I) Not applicable
(II) Department of Defense.
(III) None.
(IV) The total number of personnel employed by GAP
Instrument Corp. as of the end of fiscal year
1997 was 5.
(d) GAP Instrument Corp. does not engage in material
operations in foreign countries, nor is its business dependent on a
domestic geographic location.
Item 2- Properties
(a) On December 31, 1994 GAP Instrument Corp. leased space at
100 Horse Block Rd., Yaphank from an affiliate company. The rent is
currently $10,000 per month on a month to month basis. Rent expense for the
year ended September 30, 1997 was $115,800 for the Yaphank facility.
Item 3 - Legal Proceedings
(a) On September 24, 1993, GAP Instrument Corp. the Debtor
filed partitions for relief under Chapter 11 of the federal bankruptcy
laws in the United States Bankruptcy Court for the Eastern District of
New York. Under Chapter 11, certain claims against the Debtor in
existence prior to the filing of the petitions for relief under the
federal bankruptcy laws are stayed while the Debtor continues business
operations as "Debtor-in-Possession". These claims are reflected in
the December 31, 1994 balance sheet as "Liabilities subject to
Compromise." Additional claims (liabilities subject to compromise) may
arise subsequent to the filing date resulting from rejection of
executory contracts, including leases, and from the determination by
the court (or agreed to by parties in interest) of allowed claims for
contingencies and other disputed amounts.
On October 2, 1995, the Company's Plan of Reorganization was approved
by the United States Bankruptcy Court. Payments under the approved
plan are reflected on the Balance Sheet as of September 30, 1997 as
"Liabilities under a Plan of Reorganization."
Under the terms of the plan of reorganization payments to the
Internal Revenue Service and New York State Department of Labor provide
for full payment of amounts due over five years.
Claims of two prior officers are payable at a reduced amount over
the same five years. All unsecured creditors will be paid fifty
percent of their claim in five equal installments upon the first,
second, third, fourth and fifth anniversaries of approval of the Plan.
In November 1997, a judgement in the amount of $50,947, plus accrued
interest, was enterd in New York State Supreme Court against the Company
for a breach of contract suit by a former officer. The accompanying
financial statements for 1997 reflect a provision for the judgement
plus accrued interest aggregating $88,600. The Company, however,
intends to appeal the decision and pursue its previously filed counter-claim
in the amount of $53,000. There can be no assurance that the Company
will be successful in either action.
(b) Amendment to the Articles of Incorporation approved by New
York State changed authorized shares from 104,000,000 to 604,000,000
shares, per approval by stockholders at an annual meeting of
stockholders May 2, 1995.
Item 4 - Submission of Matters to a Vote of Security Holders
On 2 May 1995 an Annual Meeting of Stockholders was held. A
resolutions was passed to authorize and empower the Board of directors
to amend the Articles of Incorporation to increase the authorized
common stock of GAP Instrument Corporation from its present amount of
One Hundred Four Million (104,000,000) shares to Six Hundred Four Million
(604,000,000) shares of par value of One Ten Thousandth of a cent per
share ($0.000001). The State of New York approved this action April
1996.
PART II
Item 5- Market for the Registrant's Common Stock and Related Security
Holders' Matters
At September 30,1997 , GAP Instrument Corp. had issued and
outstanding 436,797,603 shares of common stock held by 1,087
stockholders of record. Market prices listed in the following
tabulation were obtained from the National Quotation Bureau, Inc., and
represent prices between dealers and do not include retail markup,
markdown, or commission, and may not necessarily represent actual
transactions.
1997 1996
Bid Asked Bid Asked
First Quarter N o Q u o t e N o Q u o t e
Second Quarter N o Q u o t e N o Q u o t e
Third Quarter N o Q u o t e N o Q u o t e
Fourth Quater N o Q u o t e N o Q u o t e
ITEM 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital Resources.
GAP Instrument Corp. has primarily relied on its results from
operations to provide working capital. Due to lack of working capital
on Septemebr 23, 1993, GAP Instrument Corp. the Debtor filed petitions
for relief under Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court of the Eastern District of New York.
In order to continue operations, and pay post petition expenses,
GAP Instrument Corp. issued, on July 29, 1994, 93,000,000 shares of
common stock, and on October 31, 1995, 1,744,070 shares of common
stock, and on June 16, 1996 12,613,290 shares of common stock, and on
June 25,1997 325,507,000 shares of common stock to suppliers and key personnel.
On October 2, 1995 GAP Instrument Corp. emerged from Chapter 11 and
is operating under a plan approved by the United States Bankruptcy
Court for the Eastern District of New York and the creditors.
Management's plans and GAP Instrument Corp.'s ability to continue
in existence as a going concern is substantially dependent upon the
continued financial support of its principle shareholders, its ability
to obtain equity and/or debt financing, and/or the commercial success
of its VAN operations. There can be no assurance, however, that
management's plan will be successful.
RESULTS OF OPERATIONS
Operating income (loss) for the fiscal year 1997, and the nine months
ended September 30,1996,were ($301,074) and ($391,715). Sales volume for
the respective periods were $401,453 and $188,403. Sales volume for the
periods 1997 and 1996 were substantially less than prior years as the
Department of Defense is now only buying parts to replace and repair
as the part is needed. General and administrative costs are reviewed
continually to keep expenses as low as possible.
GAP Instrument Corp. is fully aware that its military business
over the next decade will continue to decline. Thus, GAP Instrument
Corp. entered the telecommunications market as an Electronic Data
Interchange (EDI) Value Added Network (VAN) for the Federal Government
and for Federal contractors.
Federal tax loss carry forwards at September 30, 1997 are
approximately $1,328,000 which will provide for future tax benefits
relief in future years.
The dollar backlog of sales at September 30 ,1997 and 1996,
were $109,500 and $196,000, respectively. All of the FY 1997 backlog
will be shipped in FY 1998.
<PAGE>
Item 7 - Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
Balance Sheets as of September 30, 1997 and 1996 . . . . . 10
Statements of Income (Loss) and Accumulated
Deficit for the Fiscal Year Ended September 30,1997
and the Nine Months Ended Deptember 30 1996 . . . . . 11
Statements of Cash Flows for the Fiscal Year Ended
September 30,1997 and the Nine Months Ended
September 30, 1996 . . . . . . 12
Notes to Financial Statements . . . . . . . . . . . . . . . 13
Independent Auditors Report,September 30,1997 and 1996 . . . . 20
<PAGE>
GAP INSTRUMENT CORP.
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
ASSETS
1997 1996
----- ------
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 50,723 $ 20,984
Accounts receivable (Note 1) 23,707 72,135
--------- ---------
Total Current Assets 74,430 93,119
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation (Notes 1 and 4) 33,532 44,317
OTHER ASSETS - Deposits 3,110 3,110
--------- ---------
TOTAL ASSETS $ 111,072 $ 140,546
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note 8) $ 401,486 $ 176,600
Liabilities resulting from Plan of Reorganization,
current maturities (Notes 2 and 5) 48,991 49,251
Deferred revenue and customer deposits (Note 1) 26,795 33,702
Due to shareholders (Note 8) 114,000 101,000
Accrued litigation judgement (Note 10) 88,600 -
--------- ---------
Total Current Liabilities $679,872 $360,553
OTHER LIABILITIES
Liabilities resulting from Plan of Reorganization,
less current maturities (Notes 2 and 5) 119,413 167,458
--------- ---------
Total Liabilities 799,285 528,011
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' DEFICIT (Note 6)
Common stock $.000001 par value, 604,000,000 shares
authorized,436,797,603 and 111,290,603 shares
shares issued and outstanding in 1997 and 1996,
respectively 437 111
Additional paid-in capital 3,595,305 3,595,305
Accumulated deficit (4,283,955) (3,982,881)
--------- ---------
Total Shareholders' Deficit (688,213) (387,465)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 111,072 $ 140,546
========= =========
See accompanying Notes to financial statements.
<PAGE>
GAP INSTRUMENT CORP.
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED SEPTEMBER 30, 1997, AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Year Ended Nine Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Net sales $ 401,453 $ 188,403
-------- --------
Costs and Expenses
Cost of sales 339,607 162,282
Selling, general and
administrative expenses 362,920 417,836
---------- ---------
Total costs and expenses 702,527 580,118
---------- ---------
Loss from operations (301,074) (391,715)
Reorganization expenses-
professional fees - (6,500)
---------- ---------
Net Loss (301,074) (398,215)
Accumulated deficit-beginning (3,982,881) (3,584,666)
---------- ----------
Accumulated deficit-end $(4,283,955) $(3,982,881)
========== ==========
Earnings Per Share
Net loss per share $ .00 $ .00
========== ==========
See accompanying notes to financial statements.
<PAGE>
GAP INSTRUMENT CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1997,AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Year Ended Nine Months Ended
September 30, September 30,
1997 1996
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (301,074) $ (398,215)
---------- ----------
Adjustments to reconcile net loss
to cash provided by operating activities
Depreciation 10,785 8,674
Forfeiture of deposit - 5,000
Issuance of stock in exchange
for services 326 252,614
Changes in assets and liabilities:
Accounts receivable 48,428 (10,358)
Accounts payable and accrued
expenses 224,886 146,393
Deferred revenue and customer
deposits (6,907) 33,702
Accrued litigation judgement 88,600
------- -------
Total adjustments 366,118 436,025
------- -------
Net cash provided by operating
activities 65,044 37,810
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to acquire fixed assets - (39,993)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Shareholder loans 13,000 45,000
Cash overdraft - (1,553)
Repayment of reorganization debt (48,305) (20,280)
------- -------
Net cash provided (used)by financing
activities (35,305) 23,167
------- -------
NET INCREASE IN CASH 29,739 20,984
CASH - beginning 20,984 -
------- -------
CASH - end $ 50,723 $ 20,984
======= =======
See accompanying notes to financial statements.
<PAGE>
GAP INSTRUMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1997,AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LINE OF BUSINESS
GAP Instrument Corp. (The Company), organized in 1953, is a systems
engineering oriented manufacturing organization, producing electronic products
used for data conversion and display instrumentation on board ships, in
aircrafts, and at ground-based installations.
While utilizing the same disciplines to continue its efforts in the areas
of test and simulation equipment, the Company has commenced operations of a
Value Added Network (VAN) connecting Federal contractors via the Internet to
the Department of Defense and Federal Agencies.
CHANGE IN FISCAL YEAR
During fiscal 1996, the Company changed its fiscal year from December 31
to September 30. The accompanying financial statements include audited
financial statements for the year ended September 30, 1997 and for the
nine months ended September 30, 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates include those related to the valuation of receivables
and litigation. It is at least reasonably possible that the significant
estimates used will change within the next year.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, and trade receivables
and payables for which carrying amounts approximate fair value. It is not
practicable to estimate the fair value of the Company's reorganization
debt or shareholder debt.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers demand
deposits and money market funds to be cash.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost. Major expenditures for property
and those which substantially increase useful lives are capitalized.
<PAGE>
GAP INSTRUMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1997, AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, EQUIPMENT AND DEPRECIATION (CONTINUED)
Maintenance, repairs and minor renewals are expensed as incurred. When assets
are retired or otherwise disposed of, their costs and related accumulated
depreciation are removed from the accounts and resulting gains or losses are
included in income. Depreciation is provided by straight-line and
accelerated methods over the estimated useful lives of the assets.
DEFERRED REVENUE AND CUSTOMER DEPOSITS
The Company sells annual subscriptions to its VAN. Revenue from those
subscriptions are taken into income on a straight-line basis over the one-year
period of the subscriptions. Related costs are expensed as incurred.
Customer deposits represent amounts received on account for future product to
be provided.
MAJOR CUSTOMERS
At September 30, 1997 and September 30, 1996, U.S. Government agencies
accounted for 17% and 76% of the accounts receivable balance, respectively.
For the year ended September 30, 1997 and for the nine months ended
September 30, 1996, these agencies accounted for 79% and 69% of sales
respectively.
PER SHARE DATA
Earnings per share data are based on the average number of common shares
outstanding during the period. The average number of common shares outstanding
for September 30, 1997 and 1996 were 197,843,570 and 103,498,158, respectively.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the
current year presentation.
2. BASIS OF PRESENTATION AND REORGANIZATION
The accompanying financial statements have been prepared on a going
concern basis, which assumes the realization of assets and the satisfaction of
liabilities in the ordinary course of business.
On September 24, 1993, the Company filed petitions for relief under
Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy
Court for the Eastern District of New York. The Company operated under the
Court's protection until October 5, 1995, when the Court confirmed the
Company's Plan of Reorganization. Pursuant to the Plan, the Company was
relieved of all long-term debt agreements. The Company's remaining
liabilities were negotiated. In 1995, the Company recognized an
extraordinary gain of $293,870, representing the difference between
the carrying value of liabilities and the amount required to be repaid
<PAGE>
GAP INSTRUMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1997, AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
2. BASIS OF PRESENTATION AND REORGANIZATION (Continued)
by the Company. The resulting liabilities are reflected in the Balance
Sheet as "Liabilities Resulting from the Plan of Reorganization".
Although the Company has emerged from Chapter 11, as shown in the
accompanying financial statements, the Company has suffered recurring
operating losses. At September 30, 1997, the Company has a working capital
deficiency of $605,442 and a shareholder's deficit of $688,213. Management's
plans and the Company's ability to continue in existence as a going concern is
substantially dependent upon the continued financial support of its principal
shareholders, its ability to obtain equity and/or debt financing, and/or the
commercial success of its VAN operations. There can be no assurance, however,
that management's plans will be successful.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest in 1997 and 1996 was $4,083 and $3,912,respectively.
Non-Cash Transactions: During the fiscal year ended September 30 1997
and 1996, the Company issued common stock in exchange for services in
the amount of $325,506 and $252,614, respectively.
Additionally, during 1996, the Company forfeited a deposit for a
building acquisition in the amount of $5,000.
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
estimated useful September 30, September 30,
lives - years 1997 1996
---------------- ------------- ------------
Office equipment 3 - 5 $59,572 $59,572
Less: Accumulated depreciation 26,040 15,255
------ ------
Net property and equipment $33,532 $44,317
====== ======
The depreciation expense for the year ended September 30, 1997 and for
the nine months ended September 30, 1996 was $10,785 and $8,674, respectively.
<PAGE>
GAP INSTRUMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
5. LIABILITIES RESULTING FROM PLAN OF REORGANIZATION
As discussed in Note 2, the Company's liabilities resulting from its
confirmed plan of reorganization are reflected in the balance sheet as
Liabilities Resulting from Plan of Reorganization. These liabilities consist
of the following:
1997 1996
---------- ----------
Internal Revenue Service - payroll taxes, payable
in monthly installments of $394, including interest
at 9.8964%, through 2000. $ 12,111 $ 15,548
Internal Revenue Service - payroll taxes, payable
in monthly installments of $864, including interest
at 9.8967%, through 2000. 26,565 34,134
New York State Department of Labor - unemployment
taxes, payable in monthly installments of $52,
through 2000 without interest. 2,489 3,112
Prior landlord - rental payments, payable in
annual installments of $12,383 through 2000
without interest. 49,533 61,916
Prior landlord - post-petition rental payments,
$5,000 paid upon confirmation, with the balance
payable in monthly installments of $571 through
April 1998 without interest. 4,570 11,424
Prior officers - salary claims $1,000 paid upon
confirmation, with the balance payable in monthly
installments of $612, through April 1997, and
thereafter payable in annual installments of
$5,661 without interest. 21,195 27,927
Unsecured creditors, payable in annual installments
of $12,530 through 2000 without interest. 51,941 62,648
------- -------
168,404 216,709
Less: Current maturities 48,991 49,251
------- -------
Long-term $119,413 $167,458
======= =======
As of September 30, 1997, annual maturities are as follows:
1998 $ 48,991
1999 44,416
2000 44,591
2001 30,406
-------
$168,404
=======
<PAGE>
GAP INSTRUMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
6. SHAREHOLDERS' DEFICIT
Stock Exchanged for Services
During 1997, the Company issued 325,507,000 shares of common stock in
exchange for consulting services rendered. Operations have been charged
$326 representing the par value of the common stock issued.
During 1996, the Company issued 12,630,700 shares of common stock in
exchange for consulting services rendered. The value of the services has been
charged to operations, and additional paid-in capital has been increased by
$252,601 representing the excess value of the services over the par value of
the common stock issued.
Recapitalization
During 1996, the Company authorized an additional 500,000,000 shares of
common stock, bringing the number of shares authorized to 604,000,000. The
par value of the stock was reduced to $.000001.
7. INCOME TAXES
Unused operating losses for federal and state income tax purposes of
approximately $1,328,000 are available for carry forward against future years'
taxable income and expire in various years from 2001 to 2010.
Deferred tax benefits for the carryforward losses have been fully offset
by valuation allowances since it has not been established that realization of
these benefits is more likely than not.
8. RELATED PARTY TRANSACTIONS
The Company currently rents its facility from a principal shareholder on
a month to month basis for $10,000 per month. Rent expense was $115,800 in
1997 and $35,400 in 1996.
<PAGE>
GAP INSTRUMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
8. RELATED PARTY TRANSACTIONS (continued)
Two principal shareholders provide the Company with electromechanical
assembly and network services. The total expense was $183,112 and $84,369
in 1997 and 1996, respectively. Additionally, included in accounts payable
at September 30, 1997 and 1996 are $353,952 and $111,769 , respectively,
payable to these shareholders.
The balance due to shareholders represents non-interest bearing advances
with no definite due date.
9. INDUSRTY SEGMENTS
The Company classifies its operations into two segments: electromechanical
assembly and Value Added Network subscriptions.
Information about those segments is as follows:
Year ended September 30, 1997
-----------------------------
Electromechanical Value Added
Assembly Network Other Total
----------------- ----------- ----- -----
Net sales $356,590 $44,863 $ - $401,453
======== ======= ===== ========
Income (loss) from
operations $226,294 $(166,698) $ - $61,846
======== ======= =====
General corporate expenses 362,920
-------
Loss from operations $(301,074)
=======
Identifiable assets
at September 30,1997 $5,507 $18,200 $ - $23,707
===== ====== =====
Corporate assets 87,365
------
Total assets at September 30, 1997 $111,072
========
Nine months ended September 30, 1996
------------------------------------
Electromechanical Value Added
Assembly Network Other Total
----------------- ----------- ----- -----
Net sales $154,837 $18,392 $15,174 $188,403
======== ======= ====== ========
Income (loss) from
operations $75,571 $(64,624) $15,174 $26,121
======== ======= ======
General corporate expenses 417,836
-------
Loss from operations (391,715)
Reorganization expenses 6,500
-------
Net loss $(398,215)
=======
Identifiable assets
at September 30,1996 $69,535 $2,600 $ - $72,135
===== ====== =====
Corporate assets 68,411
------
Total assets at September 30, 1996 $140,546
========
Operating profit is total revenue less operating expenses, and excluding
general corporate expenses.
Identifiable assets are those used by each segment of the Company's
operations.
Corporate assets are primarily cash and office equipment.
<PAGE>
GAP INSTRUMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
10. COMMITMENTS AND CONTINGENCIES
Litigation
In November 1997, a judgement in the amount of $50,947, plus accrued
interest, was enterd in New York State Supreme Court against the Company
for a breach of contract suit by a former officer. The accompanying
financial statements for 1997 reflect a provision for the judgement
plus accrued interest aggregating $88,600. The Company, however,
intends to appeal the decision and pursue its previously filed counter-claim
in the amount of $53,000. There can be no assurance that the Company
will be successful in either action.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
GAP Instrument Corp.
We have audited the accompanying balance sheets of GAP Instrument Corp. as of
September 30, 1997 and 1996 and the related statements of loss and accumulated
deficit, and cash flows for the year ended September 30, 1997 and for the
nine months ended September 30, 1996. These financial statements are the
responsibility of the Campany's management. Our responsibility is to express
an opinion on these 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 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 reasonable basis
for our opinion.
As more fully described in Note 6 to the financial statements, during 1997
the Company issued 325,507,000 shares of its common stock in exchange for
services rendered and charged operations $326, the par value of the shares
issued. In our opinion, operations should have been charged an amount equal
to either the fair value of the services rendered or shares issued, to
conform with generally accepted accounting principles. The effects of
this departure from generally accepted accounting principles on the
1997 financial statements are not reasonably determinable.
In our opinion, except for the effects of the matter discussed in the
preceding paragraph on the 1997 financial statements the financial
statement referred to above present fairly, in all material respects,
the financial position of GAP Instrument Corp. as of September 30, 1997
and 1996, and the results of its operations and its cash flows for the
periods then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has recently emerged from bankruptcy,
has suffered recurring losses from operations and has a working capital
and shareholder deficiency at September 30, 1997. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.
The accompanying financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
ISRAELOFF, TRATTNER & CO., CPAs, P.C.
December 12, 1997
Valley Stream, New York
<PAGE>
Item 8 - Disagreements on Accounting and Financial Disclosure
None
Part III
Item 9 - Directors and Executive Officers of the Registrant
Common Stock
Served of Company as
Principal Director Beneficially Owned on
Name Age Occupation From September 30, 1997
_____________________________________________________________________________
James M. Edwardson 54 Chairman of Board 1993 320,000,000 shares
and CEO
Robert Baer 56 President 1995 2,026,000 shares
Letty A. Norjen 62 Secretary & Director 1993 2,999,000 shares
Deirdre C Morrison 37 Treasurer - 66,000 shares
Michael H. Fasullo 51 Director 1993 3,000,000 shares
The shares of Common Stock indicated above are the only securities of GAP
Instrument Corp. owned by the directors and executive officers of the
registrant.
BUSINESS EXPERIENCE
James Edwardson, Chairman of the Board of Directors and CEO has twenty
plus years experience managing high tech corporations. In March of 1993 Mr.
Edwardson was added to the Board of Directors to help change the direction of
the company and develop some new high tech products or services to take GAP
Instrument Corp. into the twenty-first century.
Robert Baer, President and Director, has owned and operated various
businesses for the past thirty years. Bob was elected President in June 1995.
He has guided GAP Instrument Corp. through its recent reorganization.
Letty A. Norjen, Secretary and Director, has served as a corporate
officer and director in various corporations for the past twenty years. She
currently sits on the Board of Directors of four corporations. She has
extensive experience in the service industry, and dealing with the public.
Letty joined GAP in 1993.
Deirdre Morrison, Treasurer and CFO, is a CPA with more than fifteen
years experience in the areas of accounting and auditing. Deirdre joined GAP
in June 1995.
Michael H. Fasullo, Director, is a Senior administrator for a Government
agency. He has twenty plus years experience in the internal workings of
Government. Michael became a Director of GAP in 1993.
Item 10 - Management Remuneration and Transactions
Name and
Principal
Position Year Restricted Stock Received
- -----------------------------------------------------------------------------
James Edwardson 1997 $320
CEO 1996 -
Robert Baer 1997 -
President 1996 $10,000
Letty Norjin 1997 $1
Secretary 1996 $10,000
Deirdre C Morrison 1997 -
Treasurer 1996 $1,000
Michael Fasullo 1997 $1
Director 1996 $10,000
Item 11 - Security Ownership of Certain Beneficial Owners and Management
Name and Address Amount Beneficially Owned Percent of Class
- -------------------------------------------------------------------------------
Eloco, Inc. 30,996,732 7
244 Mill Road
Yaphank, NY 11980
Advanced Logic Resources, Inc. 31,306,950 7
245 Mill Road
Yaphank, NY 11980
Allen Binnie 21,594,055 5
151 Leisure Glen Drive
Ridge, NY 11961
Advanced Logic Resources of WV Inc 65,803,682 (1) 15
244 Mill Road
Yaphank, NY 11980
Floco Inc 65,803,682 (1) 15
244 Mill Road
Yaphank, NY 11980
Edwardson Kennels Inc. 62,303,682 (1) 15
244 Mill Road
Yaphank, NY 11980
James Edwardson 387,656,232 (2) 88
245 Mill Road
Yaphank, NY 11980
(1) Amount includes the 30,996,732 shares owned by Eloco Inc. and the
31,306,950 shares owned by Advanced Logic Resources, Inc by virtue of owning
25% stock interest in the aforementioned companies.
(2) Amount includes the 30,996,732 shares owned by Eloco Inc.,the
31,306,950 shares owned by Advanced Logic Resources, Inc., the 3,500,000
shares owned by Advanced Logic Resources of West Virgina, Inc. and the
3,500,000 shares owned by Floco Inc., by virture of controling the
operations of the aforementioned companies.
Beneficially owned securities of GAP Instrument Corp. held by all
Directors and Officers of GAP Instrument Corp. as a group:
Amount Beneficially Owned Percent of Class
395,747,232 91
(2) Late reports of transactions not reported in a timely basis. Fiscal year
ended Septmber 30, 1996
1. Advanced Logic Resources Inc., amended Form 3
2. Advanced Logic Resources Inc., Form 4: 15 transactions
3. Eloco Inc., amended Form 3
4. Eloco Inc., Form 4: 15 transactions
5. James Edwardson, amended Form 3
6. James Edwardson, Form 4: 1 transaction
7. Michael Fasullo, amended Form 3
8. Michael Fasullo, Form 4: 2 transactions
9. Letty Norjen, amended Form 3
10. Letty Norjen, Form 4: 2 transactions
11. Deirdre Morrison, Form 3
12. Deirdre Morrison, Form 4: 2 transactions
13. Robert Baer, Form 3
14. Robert Baer, Form 4: 2 transactions
15. Floco Inc., ALR of West Virginia, Inc. and Edwardson Kennels Inc.
(Filing jointly/group); Form 3
16. Floco Inc., ALR of West Virginia, Inc. And Edwardson Kennels Inc.
(Filing jointly/group); Form 4: 15 transactions.
Item 12- Certain Relationships and Related Transactions
None
<PAGE>
PART IV
Item 13 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(1) Financial Statements: Reference is made to Part II, Item 8.
(2) Exhibits Index:
(3), (4) Reference is made to Form 10-K for the year ended December 31, 1980.
(5), (9), (10), (11), (12), (13), (18), (19), (20), (22), (23), (24), (25),
and (28) are not applicable.
(3) Financial Statement Schedules for the Year Ended September 30, 1997,
and for the Nine Months Ended September 30, 1996.
(4) Reports on Form 8-K: The Company filed a Report on Form 8K for the last
quarter covered by these financial statements.
The Company filed no Report on Form 8K subsequent to year end.
(THIS SPACE INTENTIONALLY LEFT BLANK)
<PAGE>
SIGNATURES
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.
GAP INSTRUMENT CORP.
By______________________________________ Date DEC 22, 1997
James M. Edwardson
Chairman of the Board of Directors
and Chief Operating Officer and President
By______________________________________ Date DEC 22, 1997
Robert Baer
President
By______________________________________ Date DEC 22, 1997
Letty A. Norjen
Secretary and Director
By______________________________________ Date DEC 22, 1997
Deirdre C Morrison
Treasurer
By______________________________________ Date DEC 22, 1997
Michael H. Fasullo
Director
