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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 0-2723
------------------------
GENERAL AIRCRAFT CORPORATION
04-2082799
(I.R.S. EMPLOYER IDENTIFICATION NO.)
DELAWARE
(STATE OF INCORPORATION)
21 NOTTINGHAM STREET
LOWELL, MASSACHUSETTS 01851
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
978-937-5081
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
NONE
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK $0.01 PAR VALUE NONE
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 _____ No __X__.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) 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]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: Unknown - there is currently no public
market.
On September 22, 1998 the registrant had outstanding 5,347,744 shares of
common stock of $0.01 par value, which is registrant's only class of common
stock.
PART I
ITEM 1. BUSINESS
DEVELOPMENT OF BUSINESS
Incorporated in 1950, General Aircraft Corporation ("GAC" or the "Company")
has evolved over the past 48 years from a manufacturer of aircraft to its
current businesses of the manufacture of semiconductor test equipment and
printed circuit boards.
The Company discontinued operations as a manufacturer of STOL aircraft and
sold the production rights and assets of its Helio Aircraft division in
October 1976. From then until October 1986, all Company operations were
conducted through Helio Precision Products ("HPP"), a manufacturer of sheet
metal parts, located at Hanscom Field, Bedford, Massachusetts. In October
1986, the Company acquired the inventory of Accutest Corporation
("Accutest"), a manufacturer of test equipment for the semiconductor
industry. Also in October 1986, the Company commenced manufacturing of
printed circuit boards under the name GAC Printed Circuits ("PC"). In
March 1989, the Company launched the Presage Computer ("Presage") division
to assemble IBM compatible personal computers. In October 1991, the Company
sold the assets of HPP after several years of steadily declining business.
During 1992, Presage Computer was dissolved when increased competition
made its business unprofitable. Since 1993, the Company operations have
solely consisted of its Accutest and GAC Printed Circuits Divisions.
During 1994 and 1995, Accutest developed an upgrade to its Model 3000 and
Model 3600 Process Evaluation Testers which eliminates the DEC computer,
and, utilizing an IBM compatible Pentium computer, enabling the user to
run new test software under their choice of DOS, OS2/Warp, or Windows
operating systems. Additionally, Accutest developed a new two-piece housing
for its tester which allows only a small remote test station to occupy
space in a user's clean room, reducing both required space and potential
contamination. Accutest created a new tester model utilizing the software
upgrade, combined with the new housing, called the Model 4600. IBM
Corporation purchased several software upgrades for its Model 3600 units
during 1995, and IBM engineers report a 50% increase in the unit's
throughput. In addition to IBM, major customers of Accutest include:
Motorola, Philips Semiconductor, National Semiconductor Corporation and
Harris Semiconductor. In June 1994, the Company hired a new General Manager
for its PC division. This individual brought with him many years of
experience in the successful day-to-day management of manufacturing printed
circuit boards. Numerous changes have been made in PC plant operations
resulting in improved manufacturing efficiencies. Additionally, all
computerized information systems have been reworked and upgraded to provide
accurate and timely information. Other improvements include: a
computerized bar-coding system for job tracking, a Mania bare board tester,
and several new machines utilized in the manufacturing process. The results
of the changes and improvements are numerous and include a reduction
in customer returns from 6.65% of sales in 1993 to less than 0.52% in 1997.
Significant efforts have been made by PC to improve service to its customer
base. Internal changes have been implemented between the sales and customer
service departments to increase service to PC's customers. Significant
customers currently include: Eastprint, Inc., Spacetec I.M.C. Corp.,
Cambridge Technology, Eastern Air Devices, and A.T.C. Power.
PC employs a Director of Environmental Control to insure that the Company
is in compliance with the continually changing and increasingly stringent
regulations from the Department of Environmental Protection, Lowell
Wastewater Treatment Facility and OSHA.
The Company is a Delaware corporation. Its principal offices are located
in two adjacent buildings located at 21 Nottingham Street, Lowell,
Massachusetts, 01851. Its telephone number is (978) 937-5081.
PRINCIPAL PRODUCTS
Commencing in 1993 and continuing through the present, the Company has
operated in two business segments: As a manufacturer of printed circuit
boards and electronic test equipment.
GAC Printed Circuits Division manufactures single sided, double sided, and
multi-layered printed circuit boards. The division's work is UL certified
and Qualified to Military Specification MIL-P-55110D. All boards are made
to customer specifications. Commercial industries, including computer,
medical, testing, automotive, research, space, and electronics are being
pursued.
Accutest Division's business consists of the manufacture of three models of
automatic test equipment for the semiconductor industry. The Model 7700 is
a static memory tester, and the Models 3600 and 4600 are parametric testers.
Additionally, the business includes the design and engineering of customized
products to customer specifications. There is also a small repair business,
based on servicing an installed customer base. The Division pursues only
commercial business in the computer, IC (integrated circuits) testing,
automotive, space, research and design, and electronic industries.
MARKETING
For the GAC Printed Circuits Division, sales are handled by an in-house
sales representative, an independent sales representative, and by
management. Sales for the Accutest Division are handled by management.
COMPETITION
The GAC Printed Circuits Division sells to customers primarily in the New
England region. There are approximately 100 circuit board manufacturers in
New England. HADCO Company (Salem, New Hampshire) is substantially larger
than all other competitors in the region.
The Accutest Division has approximately six competitors in the United
States. Of these, Teradyne (Boston, Massachusetts), Genrad (Concord,
Massachusetts), and Keithley (Cleveland, Ohio) dominate the field.
BACKLOG
For the Company, at December 31, 1997, the dollar amount of unfilled
contract backlog and firm orders for custom manufacturing was approximately
$97,303 compared with a backlog of approximately $81,490 as of December 31,
1996. All of the 1996 year-end backlog of work was completed by the end
of 1997.
There is no significant seasonal aspect to the business of any of the
Company's Divisions.
RAW MATERIALS
The GAC Printed Circuits Division uses copper clad laminate and various
chemicals in the manufacturing process of printed circuit boards. All of
these materials are readily available from numerous sources. No one
source is essential to the Division.
The Accutest Division uses various electronic components to manufacture
and repair its products. All components are available from numerous
electronic distributors within a five to ten day period.
PATENTS, LICENSES, ETC.
None of the processes used in the Company's Divisions' custom manufacturing
business is proprietary, and no patents, special licenses, franchises or
concessions are owned by the Company.
RESEARCH AND DEVELOPMENT
The Company developed no new products during the calendar year 1997.
CUSTOMERS
The Accutest and GAC Printed Circuits Divisions rely on numerous commercial
customers from a wide-range of industries. No single customer is
responsible for 10% or more of these Divisions' consolidated revenues.
These Divisions did not do business with the United States Government on
a direct basis in either 1996 or 1997.
EXPORT SALES
The Company exported no products to customers in 1997. The Company is not
dependent on foreign sales.
EMPLOYEES
As of December 31, 1997, The Company employed twenty full-time and two
part-time people, including thirteen in manufacturing and seven in selling
and administrative capacities, during 1997.
The Company has never had a work stoppage by its employees and none of its
employees is presently represented by any labor organization. The Company
believes that its employee relations are satisfactory.
ENVIRONMENTAL LAWS
It is not expected that compliance with Federal, State or local governmental
protection laws will materially affect the operation of either of the
Company Divisions.
ITEM 2. PROPERTIES
The Company rents approximately 100,000 square feet of space in Lowell,
Massachusetts. This space consists of two buildings: one is a two-story
masonry structure; the other, a one-story cinder block structure. The
former building is utilized by GAC Printed Circuits Division, and the latter
provides facilities for the Accutest Division and the Company's corporate
headquarters.
ITEM 3. PENDING LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 29, 1997, a special meeting of the stockholders was held. The
sole item of business brought before the meetings was a proposal to amend
the Company's Certificate of Incorporation to effect a one for five split
of the Company's issued and outstanding stock. The proposal was approved
by a vote of 15,022,573 shares voting in favor, 2,500 shares against, and
500 shares abstaining.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
In the past, the common stock of the Company was traded in the Over-The-
Counter Market. Over the past several years, there has been no established,
public trading market for the Company's common stock.
As of September 22, 1998, the approximate number of holders of common stock
is 1,500. Dividends have not been paid in the last fourteen years. The
Company's immediate plans are to reinvest earnings.
CHANGES IN SECURITIES
(A) On January 29, 1997, a special meeting of the stockholders was held at
which an amendment to the Company's Certificate of Incorporation effecting
a one for five reverse split of the Company's issued and outstanding common
stock was approved. The amendment was filed with the Secretary of State of
Delaware on February 13, 1997. No fractional shares were issued in
connection with the reverse split. In lieu thereof, stockholders whose
shares were not evenly divisible by five received one additional share of
common stock for the fractional share to which the stockholder would
otherwise have been entitled.
(B) In December 1996, the Company agreed to sell an aggregate of 1,000,000
shares of the Company's common stock, $.01 par value per share, for a total
purchase price of $1,000,000, or $1.00 per share, to two investors, namely
Centennial Technologies, Inc. ("Centennial") and Standbridge, Ltd.
("Standbridge"). The sale of the shares was to be consummated following
completion of the one for five reverse split of the Company's common stock.
On or before December 11, 1996, the parties revised their agreement to
provide for consummation of the transactions in advance of the reverse
stock split. Specifically, on December 11, 1996, the Company executed two
promissory notes, one payable to Centennial and one payable to Standbridge.
Each note was in the original principal amount of $500,000 and was
convertible into shares of the Company's common stock. In exchange for
the notes, the Company received $500,000 from Standbridge and 11,490
shares of Centennial from Centennial. It was contemplated that the notes
would be converted to common stock immediately following the reverse stock
split.
Due to various factors affecting Centennial, including a large-scale
investigation of its former President and Chief Executive Officer, a major
restatement of its financial statements and the de-listing of its common
stock from NYSE, on May 20, 1997, the Company and Centennial agreed to
unwind the sale of shares of common stock of the Company to Centennial.
Centennial returned the $500,000 promissory note to the Company and the
Company returned the 11,940 shares of Centennial common stock to Centennial.
The transaction with Standbridge was unaffected.
During the first quarter of 1997, 803,330 warrants were issued to debt
holders of the Company in exchange for $2,409,990 in debt. These warrants
entitle the holders to buy stock at $1.85 per share within five years of
the issuance of the warrants.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below are derived from financial
statements that have been audited by Becker & McCafferty, P.C. The balance
sheet at December 31, 1995, 1996 and 1997 and the related statements of
operations and of cash flows for the three years ended December 31, 1997
and notes thereto appear elsewhere in this form 10-K. The data set forth
below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and related notes included elsewhere in this Form 10-K.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
1997 COMPARED TO 1996
Accutest sales declined by 2.5% during 1997, while GAC Printed Circuit's
sales declined 14.0%. Net sales for the Company were $1,200,049 which
represented a 1.4% or $19,432 decline from 1996 sales of $1,394,369.
Cost of goods sold increased 4.1% from 78.7% in 1996 to 82.8% in 1997.
Selling, general and administrative expenses decreased by $273,253 or 35.9%
compared to prior year expenses of $760,306.
Return on net sales after taxes was negative due to the substantial net loss.
Working capital increased by $5,117,510 to $731,258, compared to last year
at ($4,386,252). The current ratio at the end of the year was positive at
1:0.2.
Return on total assets for the period was negative.
Return on equity for the period was negative.
1996 COMPARED TO 1995
Accutest sales declined by 66.6% during 1996, while GAC Printed Circuit's
sales declined 10.2%. Net sales for the Company were $1,394,369 which
represented a 16.5% or $274,623 decline from 1995 sales of $1,668,992.
Cost of goods sold increased 4.7% from 74.0% in 1995 to 78.7% in 1996.
Selling, general and administrative expenses increased by $35,205 or 4.9%
compared to prior year expenses of $725,101.
Return on net sales after taxes was negative due to the substantial net loss.
Working capital decreased by $571,591 to ($4,386,252), a decrease of 13.0%
compared to last year ($3,814,661). The current ratio at the end of the
year was negative at 1:13.4.
Return on total assets for the period was negative.
Return on equity for the period was negative.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically received amounts sufficient to provide for working
capital from affiliated entities. It is not expected that further funds
will be available from affiliates, and there is no requirement that would
ensure future funding.
Continuing losses could further erode the Company's working capital and the
net capital deficiency raises doubts about the Company's ability to remain
a going concern.
There are no immediate plans for any capital improvements. Although the
Company's 1 for 5 reverse stock split provided the Company with stock to
issue to raise additional equity, there is no assurance that the Company
will be successful.
ITEM 8. FINANCIAL STATEMENTS, FINANCIAL STATEMENTS SCHEDULES AND
SUPPLEMENTARY DATA
Financial statements are located at the latter part of this report. Please
see Pages F1 - F24.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table indicates certain information with respect to the
directors of the Company.
<TABLE>
<CAPTION>
Positions and Offices
with the Company (in
addition to that of Director
Name of Individual Director) Age Since
- ----------------- ----------------------- ------ -----
<S> <C> <C> <C>
Robert E. Lockwood Chief Executive Officer 50 1985
Secretary
Susan M. Winslow President/Treasurer 40 1986
</TABLE>
- --------
Mr. Lockwood has been a senior management consultant from 1983 to present.
Prior to that, he practiced for several years as a private management and
financial consultant to businesses in Massachusetts and New Hampshire. He
has been involved in the successful turnaround of many troubled businesses.
He currently serves as a director on the boards of several companies in
Massachusetts. Mr. Lockwood was appointed director of the Company on
March 19, 1985. He was elected Chief Executive Officer on October 13, 1986.
Mrs. Winslow has been a management consultant to a number of businesses for
the past ten years. On October 13, 1986, Mrs. Winslow was appointed
director of the Company. She was elected Treasurer of the Company on
March 19, 1987, and elected to the additional position of President on
January 4, 1988.
There is no family relationship between the above named persons.
There is currently a vacancy on the Board of Directors.
The term of office of each of these directors is until the next annual
meeting and the election and qualification of their successors.
<TABLE>
<CAPTION>
THE EXECUTIVE OFFICERS OF THE COMPANY
Name Age Position
- ------------------------ ----- ----------------------------
<S> <C> <C>
Robert E. Lockwood 50 Chief Executive Officer
Secretary
Susan M. Winslow 40 President/Treasurer
</TABLE>
- --------
The term of office of each of these executive officers is until the next
annual meeting and the election and qualification of their successors.
To the Company's knowledge, based solely on review of copies of reports
pursuant to Section 16(a) of the Securities Exchange Act, as amended,
furnished to the Company and written representations that no other reports
were required during the fiscal year ended December 31, 1997, the Company's
officers, directors, and greater than ten percent beneficial owners
complied with all filing requirements under Section 16(a).
ITEM 11. EXECUTIVE COMPENSATION
Executive compensation disclosure has been omitted because the Company's
Chief Executive Officer takes no salary, bonus, restricted stock awards,
options, SARS, long-term incentives or other compensation from the Company
and no other officer of the Company earns total salary and bonus exceeding
$100,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) The following table indicates as to each class of equity securities of
the Company the amount beneficially owned directly or indirectly by each
owner of at least five percent of the shares outstanding as of September 22,
1998.
<TABLE>
<CAPTION>
Shares Percent
Title of Beneficially of
Class Name Owned Class
--------------------- ---------------------- ------------ --------
<S> <C> <C> <C>
Common Stock Brookline Management 477,600 9% (1)
$0.01 par value Corporation Profit
Sharing Trust
Brookline Management 318,400 6% (1)
Corporation
Pension Trust
</TABLE>
- --------
(1) Calculated on the basis of 5,347,744 shares of Common Stock
outstanding on September 22, 1998.
(b) The following table indicates as to each class of equity securities
of the Company, the amount beneficially owned directly or indirectly by
each director, the Chief Executive Officer and by all directors and
executive officers as a group as of September 22, 1998.
<TABLE>
<CAPTION>
Shares Percent
Title of Beneficially of
Class Name Owned Class
--------------- ----------------------- -------------- -----------
<S> <C> <C> <C>
Common Stock Robert E. Lockwood 2,000 (1) 0.0005 (2)
$0.01 par value
Susan Winslow 20,000 (3) 0.005 (2)
All current Directors 22,000 0.0055 (2)
and Executive Officers
as a group (2 persons)
</TABLE>
- --------
(1) Does not include (i) 477,600 and 318,400 shares issued to Mr. Lockwood
as a Trustee of Brookline Management Corporation Profit Sharing Trust
(BMC-PST) and Brookline Management Corporation Pension Trust (BMC-PT),
respectively, (ii) 198,000 shares issued to Mr. Lockwood's wife, Mary H.
Lockwood, as Trustee of the Lockwood Family Trust, and (iii) 28,223 shares
issued to Mary H.Lockwood. Mr. Lockwood disclaims any beneficial ownership
of the above shares.
(2) Calculated on the basis of 5,347,744 shares of Common Stock
outstanding on September 22, 1998.
(3) Does not include 100,000 shares issued to Mrs. Winslow as Trustee of
the Fisher Hill Trust and 20,000 shares issued to Mrs. Winslow's daughter,
Kathryn Mary Winslow. Mrs. Winslow disclaims any beneficial ownership of
the above stock.
ITEM 13. TRANSACTIONS WITH MANAGEMENT AND OTHERS
None
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - See index to Financial Statements
2. Financial Statement Schedules - See index to Financial Statements.
3. Exhibits - None.
(b) Reports on Form 8-K - None.
Pursuant to the requirements of Section 13 of 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.
GENERAL AIRCRAFT CORPORATION
By: Robert E. Lockwood By: Susan M. Winslow
Robert E. Lockwood Susan M. Winslow
Chief Executive Officer President/Treasurer
Secretary
September 22, 1998 September 22, 1998
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 the dates indicated:
By: Robert E. Lockwood By: Susan M. Winslow
Robert E. Lockwood Susan M. Winslow
Chief Executive Officer President/Treasurer
Secretary
September 22, 1998 September 22, 1998
<PAGE>
INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND REPORT OF
CERTIFIED PUBLIC ACCOUNTANTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INDEPENDENT AUDITOR'S REPORT...................... F1
FINANCIAL STATEMENTS
Balance Sheets.................................. F2 - F3
Statements of Income and Retained Earnings...... F4 - F5
Statement of Shareholders Equity................ F6
Statements of Cash Flow......................... F7 - F8
Notes to Financial Statements................... F9 - F17
SUPPLEMENTARY INFORMATION
Statements of Income By Division................ F19
Statements of Selling, General and
Administrative Expenses By Division............ F20
Prior Period Statements of Income and
Retained Earnings.............................. F21
Prior Period Statements of Cash Flow............ F22 - F24
</TABLE>
- --------
<PAGE>
To the Board of Directors and Stockholders
General Aircraft Corporation
Lowell, MA 01851
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of General Aircraft
Corporation as of December 31, 1997 and 1996, and the related statements
of income, retained earnings, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
Except as explained in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the 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 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 audit provides a reasonable basis for
our opinion.
We did not observe the taking of the physical inventory as of December 31,
1995, since that date was prior to our appointment as auditor for the
Company, and we were unable to satisfy ourselves regarding inventory
quantities by means of other auditing procedures. Inventory amounts as of
December 31, 1995 enter into determination of net income and cash flows for
the year ended December 31, 1996.
Because of the matter discussed in the preceding paragraph, the scope of
our work was not sufficient to enable us to express, and we do not express
and opinion on the results of operations and cash flows for the year ended
December 31, 1996.
In our opinion, the balance sheets of General Aircraft Corporation as of
December 31, 1997 and 1996, and the related statements of income and
retained earnings, and cash flows for the year ended December 31, 1997,
present fairly in all material respects the financial position of General
Aircraft Corporation as of December 31, 1997 and 1996, and the results of
its operations and cash flows for the year ended December 31, 1997, 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 H to the
financial statements, the Company has suffered recurring losses from
operations that raise substantial doubt about its ability to continue as a
going concern. Management's plan in regards to these matters are also
described in Note H. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Becker & McCafferty, P.C.
Certified Public Accountants
April 22, 1998
F1
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 182,670 $ 106,360
Accounts Receivable 229,219 150,564
Loans Receivable - Employee 10,090 0
Loans Receivable 23,045 0
Security Deposits 1,200 1,200
Prepaid Expenses 5,586 6,087
Inventory 103,767 90,390
Notes Receivable 300,000 0
Available For-Sale Securities 11,625 0
Investments 50,000 0
-------------- -------------
TOTAL CURRENT ASSETS 917,202 354,601
-------------- -------------
PROPERTY AND EQUIPMENT
Furniture and Fixtures 10,777 10,727
Leasehold Improvements 124,515 124,515
Machinery 252,352 247,902
Computer Equipment 59,537 59,537
-------------- ------------
447,181 442,681
Less Accumulated Depreciation (374,577) (366,733)
-------------- ------------
TOTAL PROPERTY AND EQUIPMENT 72,604 75,948
-------------- ------------
TOTAL ASSETS $ 989,806 $ 430,549
============== ============
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
F2
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
1997 1996
------------ -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $ 0 $ 506,500
Accounts Payable 165,825 113,086
Accrued Expenses and Withholdings 20,119 16,098
Accrued Loss Contingency 0 37,000
Accrued Interest 0 320,650
Loans Payable - Affiliates 0 2,485,724
Loans Payable - Stockholders 0 119,961
------------ -----------
TOTAL CURRENT LIABILITIES 185,944 3,599,019
------------ -----------
STOCKHOLDERS' EQUITY
Common Stock 268,739 200,000
Warrants Outstanding 2,160,990 0
Additional Paid-in Capital 3,149,219 1,099,633
Unrealized Loss on Available
For-Sale Securities (3,042) 0
Retained Earnings/(Deficit) (4,772,044) (4,468,103)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 803,862 (3,168,470)
------------ -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 989,806 $ 430,549
============ ===========
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
F3
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---------------- --------------
<S> <C> <C>
REVENUE
Sales $ 1,206,514 $ 1,404,071
Sales Returns and Allowances (6,465) (9,702)
---------------- --------------
NET SALES 1,200,049 1,394,369
---------------- --------------
COST OF GOODS SOLD
Beginning Inventory 90,390 172,335
Purchases 261,565 237,093
Labor 689,035 738,063
Other 56,945 39,902
Ending Inventory (103,767) (90,390)
---------------- --------------
TOTAL COST OF GOODS SOLD 994,168 1,097,003
---------------- --------------
GROSS PROFIT 205,881 297,366
OPERATING EXPENSES
Selling, General and Administrative 487,053 760,306
---------------- --------------
NET (LOSS) FROM OPERATIONS (281,172) (462,940)
OTHER INCOME AND (EXPENSE)
Interest Income 24,763 6
Interest Expense (9,383) (114,162)
Forgiveness of Debt 10,127 0
Loss on Sale of Securiies (365,186) 0
--------------- ---------------
NET INCOME/(LOSS) BEFORE UNUSUAL AND (620,851) (577,096)
EXTRAORDINARY ITEM
UNUSUAL ITEMS
Change In Accounting Estimate 316,910 75,000
Loss Contingency 0 (12,000)
Inventory Obsolescence 0 (61,914)
-------------- ---------------
316,910 1,086
NET (LOSS) BEFORE EXTRAORDINARY (303,941) (576,010)
ITEM
EXTRAORDINARY ITEM - INCOME FROM
FORGIVENESS OF DEBT
(Net of Income Tax Obligation of Zero) - 1,141,834
-------------- ---------------
NET INCOME/(LOSS) $ (303,941) $ 565,824
(CONTINUED)
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
F4
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
-------------- --------------
<S> <C> <C>
Retained Earnings at Beginning
of Year as Previously Reported $ (5,609,937) $ (5,033,927)
Prior Period Adjustment 1,141,834 0
Balance at Beginning of Year, ------------- -------------
as Adjusted (4,468,103) (5,033,927)
------------- -------------
Retained Earnings at End of Year $ (4,772,044) $ (4,468,103)
============= =============
BASIC EARNINGS (LOSS) PER SHARE:
Net Income before Unusual and
Extraordinary Item $ (0.7731) $ (0.1443)
Unusual Item 0.3947 0.0002
Extraordinary Item (Net of Income
Tax Obligation of Zero) 0.0000 0.2855
------------ -------------
NET INCOME PER SHARE $ (0.3784) $ 0.1414
============ =============
FULLY DILUTED EARNINGS (LOSS) PER SHARE:
Net Income before Unusual Item $ (0.7731) $ (0.1443)
Unusual Item 0.3947 0.0002
Extraordinary Item (Net of Income
Tax Obligation of Zero) 0.0000 0.2855
------------ ------------
NET INCOME PER SHARE $ (0.3784) $ 0.1414
============ ============
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
F5
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
Additional Unrealized Retained
Common Warrants Paid-In Loss on Earnings/
Stock Outstanding Capital Securities (Deficit) Total
-------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance -
12/31/95 $200,000 $1,099,633 (5,033,927)(3,734,294)
Net 1996
Income 565,824 565,824
--------- ---------- ----------- ----------- ---------- ----------
Balance -
12/31/96 $200,000 $1,099,633 (4,468,103)(3,168,470)
Stk Split
(Par Val
$0.05) 0 0
Sale of
Common
Stock 22,388 805,937 828,325
Issuance
of Common
Stock for
Note Rec. 8,108 291,892 300,000
Issuance
of Common
Stock for
Note Rec. 13,243 476,757 490,000
Debt
Converted
to Common
Stock 25,000 475,000 500,000
Issuance
of Warrants
to Cover
Debts 2,160,990 2,160,990
Unrealized
Loss on
Available
For-Sale
Securities (3,042) (3,042)
Net Loss -
1997 (303,941) (303,941)
--------- ----------- ---------- ---------- ---------- ----------
Balance -
12/31/97 $268,739 2,160,990 3,149,219 (3,042) (4,772,044) 803,862
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
F6
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
STATEMENTS OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 1997
1997
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME/(DEFICIT) $ (303,941)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation 7,844
Management Fees 3,000
Forgiveness of Debt (10,127)
Unusual Item - Change in Accounting Estimate (316,910)
CHANGES IN OPERATING ASSETS AND LIABILITIES
Increase in Accounts Receivable (78,655)
Increase in Inventory (13,377)
Increase in Marketable Securitie (14,667)
Decrease in Loss Contingency (37,000)
Decrease in Prepaid Expenses 501
Increase in Accounts Payable 52,739
Decrease in Accrued Interest (113)
Increase in Accrued Expenses and Taxes 4,021
-----------
NET CASH USED BY OPERATING ACTIVITIES (706,685)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in Other Entities (50,000)
Purchase of Equipment (4,500)
Loans to Affiliates (60,000)
Advance to Affiliates (100,000)
Loan Receivable (23,045)
Loans to Employees (10,090)
Payments from Affiliates 650,000
-----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 402,365
-----------
CASH FLOW FROM FINANCING ACTIVITIES
Payments to Affiliates (327,734)
Payments to Stockholder (119,961)
Proceeds from Sale of Common Stock 828,325
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 380,630
-----------
NET INCREASE IN CASH 76,310
CASH BALANCE, JANUARY 1, 1997 106,360
-----------
CASH BALANCE, DECEMBER 31, 1997 $ 182,670
===========
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
F7
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
STATEMENTS OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 1996
1996
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME/(DEFICIT) $ 565,821
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation 6,919
Forgiveness of Debt (1,041,711)
Unusual Item - Change in Accounting Estimate (75,000)
Unusual Item - Loss Contingency 12,000
CHANGES IN OPERATING ASSETS AND LIABILITIES
Decrease in Accounts Receivable 50,541
Decrease in Inventory 81,945
Increase in Prepaid Expenses (6,087)
Increase in Accounts Payable 606
Increase in Accrued Expenses and Taxes (110,622)
Increase in Accrued Interest 12,458
-----------
NET CASH USED BY OPERATING ACTIVITIES (503,130)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (2,500)
-----------
NET CASH USED BY INVESTING ACTIVITIES (2,500)
-----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from Affiliates 584,000
Payments to Affiliates (502,015)
Proceeds from Long Term Borrowing 500,000
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 581,985
-----------
NET INCREASE IN CASH 76,355
CASH BALANCE, JANUARY 1, 1996 30,005
----------
CASH BALANCE, DECEMBER 31, 1996 $ 106,360
==========
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
F8
<PAGE>
GENERAL AIRCRAFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of General Aircraft
Corporation is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of
General Aircraft Corporation's management who are responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
BUSINESS OPERATIONS
The Company had two operating divisions at December 31, 1997 and 1996. Each
division independent of the other. GAC Printed Circuits manufactures
according to customer specifications, printed circuit boards. GAC Accutest
manufactures, installs and repairs electronic test equipment.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
DEPRECIATION AND AMORTIZATION
Depreciation is provided for by the straight-line method in amounts
sufficient to relate the cost of the depreciable assets to operations over
their estimated service lives. Leasehold improvements are amortized over
the estimated service lives of the improvements. Depreciation expense for
the years ending 1997 and 1996 were $7,844 and $6,919 respectively.
INVENTORY
At December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw Material $ 45,007 $ 46,637
Work in Process 30,688 23,038
Finished Goods 28,072 20,715
$ 103,767 $ 90,390
</TABLE>
Inventories are stated at the lower cost or market. Cost is determined
by the first-in, first-out method.
NOTE B - EXTRAORDINARY ITEM/PRIOR PERIOD ADJUSTMENT
In 1997, subsequent to issuing the 1996 year-end financial statement, the
Federal Deposit Insurance Company (FDIC) issued the company a 1099 for the
year ending 1996 forgiving debt in the amount of $1,141,834.
F9
<PAGE>
GENERAL AIRCRAFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(NOTE B - CONTINUED)
In 1991 the Company was indebted to Bank Five who became insolvent and was
seized by federalregulators. Prior to forgiveness of the debt and issuance
of the 1099 no terms, conditions, or efforts by the bank or the FDIC were
made to collect on the note from the Company.
Restatement of the 1996 financial statements reported as an extraordinary
item, resulted in income of $1,141,834. The applicable income tax effect
is zero.
NOTE C - UNUSUAL ITEMS
CHANGE IN ACCOUNTING ESTIMATE
Since 1991, when Bank Five was seized by the federal regulators (see Note
B above) the Company was indebted to Bank Five, therefore interest was
accrued and recorded each year. The amount of accrued interest beginning
in 1991 and continuing through 1996 were estimates deemed appropriate by
the Company. As a result of the information received by the FDIC and the
amount of debt forgiven, the actual amount of accrued interest forgiven
required a change in estimates of the prior periods of $316,910.
During January of 1997, the Company, settled a claim in which a contingent
liability was recorded for $100,000 at December 31, 1995. The settlement
was for $25,000, and required a change in estimate of $75,000 at December 31,
1996.
CONTINGENT LIABILITY
The Company had the following outstanding claims against them at December 31,
1996. Both claims were settled in January of 1997.
<TABLE>
<S> <C> <C>
Workers Compensation Lawsuit $ 25,000
Massachusetts Dept. of Environmental Protection 12,000
----------
$ 37,000
==========
</TABLE>
INVENTORY OBSOLESCENCE
The Company wrote-off Accutest Division inventory deemed obsolete totaling
$61,914 at December 31, 1996.
NOTE D - LOAN PAYABLE - STOCKHOLDER
In 1995 a Stockholder of the Corporation paid off a bank note and accrued
interest on behalf of the Corporation in the amount of $119,961. Non-
interest bearing. Balance was paid in full during 1997.
F10
<PAGE>
GENERAL AIRCRAFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE E - RELATED PARTY TRANSACTIONS
LOANS PAYABLE - AFFILIATES
The Company had received in prior years amounts sufficient to provide for
working capital from the following affiliated entities. The affiliated
entities share in common ownership and/or management. During 1997 all
outstanding balances due to affiliated Companies were satisfied.
<TABLE>
<CAPTION>
1996
------------------
<S> <C> <C>
Brookline Management $ 267,566
St. Jude Trust 1,532,344
Employment Leasing 407,200
Team 185,000
Liquidators, Inc. 93,614
------------------
$ 2,485,724
==================
</TABLE>
MINIMUM LEASE PAYMENTS ON FACILITIES
In 1996 the Company leased and occupied approximately 100,000 square feet
of production and office facilities from St. Jude Management Company, a
related party. Terms of lease, a tenancy at will, required monthly payments
of $20,000.
NOTE RECEIVABLE AFFILIATE
The Company, during 1997 advanced to a related entity working capital loans
aggregating $490,000. The debt was satisfied during 1997.
NOTE F - NOTES PAYABLE
Note Payable at December 31, 1996 consists of the following:
<TABLE>
<CAPTION>
1996
------------
<S> <C>
Note Payable - Stanbridge, Payable on demand,
monthly payments of interest 5%. Secured by
all corporate assets. $ 500,000
Note Payable - Shawmut Bank, Payable on demand,
monthly payments of interest only at prime
plus 1.5%. Secured by all corporate assets. 6,500
-------------
TOTAL NOTES PAYABLE $ 506,500
=============
</TABLE>
F11
<PAGE>
GENERAL AIRCRAFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE G - GOING CONCERN
The Company, as a result of continued losses has raised substantial doubt
about its ability to continue as a going concern. Recurring losses are
direct results of the printed circuits divisions inability to obtain
competitive contracts to manufacture printed circuit boards and the Accutest
division's inability to secure a market for their new test equipment.
Management's plan to restructure debt, increase owner equity and to raise
capital to retool the existing manufacturing process and to restructure
management during 1997 has been delayed while management continues to define
a market niche and select and/or find the appropriate management team.
NOTE H - COMMON STOCK
<TABLE>
<CAPTION>
Dec 31, 1997 Dec 31, 1996
--------------- -------------
<S> <C> <C> <C>
Par Value 0.05 0.01
Shares Authorized 20,000,000 20,000,000
# of Shares Issued and Outstanding 5,374,771 20,000,000
</TABLE>
NOTE I - REVERSE STOCK SPLIT
On January 27, 1997 at a special meeting, the shareholders of the
corporation approved a five-for-one reverse stock split effectively
reducing the outstanding shares of common stock from 20,000,000 to
4,000,000 shares. The share and per share amounts included in these
financial statements are presented on a post-split basis and have been
adjusted to reflect this stock split.
NOTE J - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the year. As of
December 31, 1997 and 1996, 5,374,771 and 20,000,000 shares were issued
and outstanding, respectively.
F12
<PAGE>
GENERAL AIRCRAFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE J - (CONTINUED)
Fully diluted earnings per share is computed by dividing net income by the
weighted average number of shares outstanding. The denominator is adjusted
assuming all warrants had been issued. The computations for weighted average
shares, basic earnings per share and fully diluted earnings per share are as
follows:
COMPARATIVE WEIGHTED AVERAGE SHARES
RETROACTIVE RECOGNITION OF REVERSE STOCK SPLIT
- ----------------------------------------------
<TABLE>
<CAPTION>
Shares Fraction Equivalent
Date Outstanding X Restatement X of Year = Whole Units
- -------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1996
-----
Jan 1 - Dec 31 20,000,000 1/5 12/12 = 4,000,000
=========
1997
-----
Jan 1 - Jan 28 20,000,000 1/5 28/365 = 306,849
Jan 29 - Dec 31 5,374,771 337/365 = 496,246
----------
803,095
==========
</TABLE>
EARNINGS PER SHARE COMPUTATIONS:
- --------------------------------
- - Primary earnings per share computation for 1997:
<TABLE>
<CAPTION>
Earnings
Earnings -- Shares = Per Share
---------- --------- ----------
<S> <C> <C> <C>
Primary earnings per share (303,941) 803,095 (0.3784)
</TABLE>
- - Fully diluted earnings per share computations for 1997:
<TABLE>
<S> <C> <C> <C>
Fully diluted EPS (303,941) 803,095 (0.3784)
</TABLE>
F13
<PAGE>
GENERAL AIRCRAFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE K - CONVERSION OF LONG TERM DEBT
On January 29, 1997 the note payable - Stanbridge for $500,000 was converted
to 500,000 shares of General Aircraft common stock. The common stock issued
to Stanbridge is unregistered and restricted.
NOTE L - MARKETABLE SECURITIES
As of December 31, 1997, the Company had the following available for-sale
marketable securities:
<TABLE>
<CAPTION>
Gross
# of Amortized Unrealized Fair Realized
Shares Cost Losses Value Losses
--------- --------- ---------- ------ --------
<S> <C> <C> <C> <C> <C>
December 31, 1997
JW Charles Financial Service 1,000 14,667 3,042 11,625 0
Omni Multimedia Group, Inc. 9,900 21,163 0 0 21,163
</TABLE>
Omni Multimedia Group, Inc. had stopped trading in the market. All stocks
became worthless in October, 1997.
NOTE M - CONVERSION OF DEBT TO WARRANTS
On February 2, 1997 the Company issued to the following affiliated entities
warrants in exchange for their outstanding debt. The exchange was one
warrant for every $3 of debt.
<TABLE>
<CAPTION>
Debt # of Warrants
Affiliated Entity Converted Issued
- ----------------- --------------- -------------
<S> <C> <C>
St. Jude Management Company $ 1,350,000 $ 450,000
Brookline Management Company 267,000 89,000
TEAM 60,000 20,000
Employment Leasing Corp. 407,190 135,730
Liquidators, Inc. 76,800 25,600
--------------- -------------
$ 2,160,990 $ 720,330
=============== =============
</TABLE>
The warrants grant to the holders the right to purchase from the Company
at any time prior to February 1, 2002 fully paid and non-assessable shares
of common stock of the Company at the purchase price of $1.85 per share.
F14
<PAGE>
GENERAL AIRCRAFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE N - CASH FLOW INFORMATION
The Company considers all short term investments with an original maturity
of three months or less to be cash equivalents. The Company had the
following non-cash investing and financing activities:
December 31, 1997
- -----------------
- A note receivable for $300,000 was assigned to the Company for collection
in exchange for 162,162 shares of common stock.
- Notes payable, Shawmut Bank, in the amount of $6,500 was written-off.
- Accrued interest in the amount of $3,627 was written-off.
- Loans payable to affiliates in the amount of $2,160,990 were converted
to 720,330 warrants.
- Note receivable from affiliate was assumed by the Company in the amount
of $490,000.
- Note payable for $500,000 was converted to 500,000 shares of common stock.
- Change in accounting estimate - accrued interest in prior periods was
overstated by $316,910.
- Amount due to affiliated company for management fees of $3,000 was
converted to debt.
December 31, 1996
- -----------------
- Accrued interest from note payable to bank was forgiven, $100,122.
- Note payable to bank was forgiven, $1,041,711.
- Amount due to affiliated companies for rent and management fees
of $204,000 and $110,000, respectively were converted to debt.
Cash paid for interest and taxes are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C> <C>
Interest $ 9,383 $ 2,887
=========== ==========
Taxes $ 456 $ 456
=========== ==========
</TABLE>
F15
<PAGE>
GENERAL AIRCRAFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE O - NOTES RECEIVABLE
During 1997 the Company in exchange for 162,162 shares of its common stock
($1.85 per share) assumed the rights to collect on the promissory note with
a face value of $300,000 accruing interest at 8% per annum and due
December 20, 1997. The note receivable had not been collected as of
December 31, 1997.
NOTE P - INVESTMENTS
As of December 31, 1997 the Company had purchased for $40,000 the exclusive
license agreements to market and sell goods at retail. The agreement is for
an infinite period of time, and will operate independently of the Company.
Consolidated financial statements will be required in subsequent years.
As of December 31, 1997 the Company made an initial advance to purchase what
will eventually be a 40% share in Pegasus Acquisition Co., LLC.
NOTE Q - LOAN RECEIVABLE
As of December 31, 1997 the Company had advanced $23,045 as working capital
to an unrelated Company.
NOTE R - INCOME TAXES
The Company has net operating loss carryforwards totaling $4,225,961 that
may be offset against future taxable income. The Company had no federal or
state tax obligations at December 31, 1997 and 1996. A deferred tax
liability on income of $565,824 as restated at December 31, 1996 of
$207,819. Is not expected to be realized. The net operating loss
carryforwards will expire as follows:
<TABLE>
<CAPTION>
Expiring Operating
Year Losses
---------- --------------------
<S> <C> <C>
2004 $ 257,584
2005 845,146
2006 679,052
2007 828,416
2008 621,604
2009 196,349
2010 144,626
2011 351,039
2017 302,145
-------------------
$ 4,225,961
==================
</TABLE>
F16
<PAGE>
GENERAL AIRCRAFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE S - FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values of the Companies financial instruments (all of which
are held for non-trading purposes) are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Cash & Cash Equivalents $ 182,670 $ 182,670 $ 106,360 $ 106,360
Loans Receivable 33,135 33,135 - -
Notes Receivable 300,000 300,000 - -
Avail For-Sale Securities 11,625 11,625 - -
Investments 50,000 50,000 - -
Notes Payable - - 506,500 506,500
</TABLE>
The carrying amount approximates fair value of cash and loans receivable.
Carrying amount and fair value of the note receivable approximate the same
as the balance sheet date and due date of the loan are the same. Available
for sale securities are reported at quoted market prices. The investments
are carried at cost. It is not practicable to estimate the fair value of
the investments because it consists of common stock of untraded companies.
NOTE T - CONCENTRATIONS OF CREDIT RISK
Cash and Cash Equivalents
- -------------------------
The Company maintains cash balances at several financial institutions.
Accounts at each instititute are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1997, the Company's uninsured
cash balances total $28,000.
Trade Accounts Receivable
- -------------------------
The Company's accounts receivable are spread among a large number of
customers that operate in many different geographical locations.
Accordingly, concentration of credit risk is not significant. The
Company adheres to strict credit policies and no one account receivable
is significant in amount.
F17
<PAGE>
Our audits were conducted for the purpose of forming an opinion
on the basic financial statements taken as a whole. The accompanying
Statements of Income and Expense by Division and Prior Period Financial
Information is presented for purposes of additional analysis and is not
a required part of the basic financial statements. Such information has
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
BECKER & McCAFFERTY, P.C.
Certified Public Accountants
April 22, 1998
F18
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
SUPPLEMENTARY STATEMENT OF REVENUE BY DIVISION
FOR THE YEAR ENDED DECEMBER 31, 1997
PRINTED
TOTAL CIRCUITS ACCUTEST CORPORATE
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
SALES
Sales $1,081,738 $1,028,814 $16,905 $36,019
Sales Tooling 61,348 42,530 18,818 0
Sales Misc. 12,654 12,404 250 0
Sales Field Svc 4,042 0 4,042 0
Shipping Charges 6,334 6,300 34 0
Sales Discounts (997) (292) 0 (705)
Sales Comp Hdware 8,225 0 8,225 0
Sales Software 24,675 0 24,675 0
Slss Rtrns & Allow (6,465) (5,865) (600) 0
Rework/Repl Rtrns 5,714 5,714 0 0
Sls- Svc Contracts 1,950 0 1,950 0
Misc. Revenue 831 0 0 831
---------- ---------- --------- ---------
NET SALES $1,200,049 $1,089,605 $74,299 $36,145
========== ========== ========= =========
</TABLE>
SEE ACCOUNTANTS' REPORT ON SUPPLEMENTARY INFORMATION
F19
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
SUPPLEMENTARY STATEMENT OF OPERATING EXPENSES BY DIVISION
FOR THE YEAR ENDED DECEMBER 31, 1997
PRINTED
TOTAL CIRCUITS ACCUTEST CORPORATE
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
OPERATING EXPENSES
Depreciation Expense $ 7,844 $ 7,844 $ 0 $ 0
Insurance Expense 6,120 5,482 0 638
Sales Expense 7,446 5,938 1,200 308
Management 44,850 0 0 44,850
Taxes-Payroll 13,038 6,389 0 6,649
Field Service Expense 637 0 637 0
Professional & Legal 33,288 0 0 33,288
Advertising & Promo 2,156 408 1,748 0
Bank Charges 779 773 0 6
Uncollected Accounts 3,353 3,353 0 0
Office Expenses 6,609 3,705 1,277 1,627
Dues & Subscriptions 150 50 0 100
Sales & Salary 43,496 43,496 0 0
Rent 93,120 90,000 3,120 0
Telephone 9,154 7,293 1,861 0
Utilities 125,096 95,345 29,751 0
Repairs & Maintenance 22,064 21,289 775 0
Maintenance/Rubbish 5,217 4,392 825 0
R & M Labor 30,504 30,504 0 0
Travel & Entertainment 3,592 0 385 3,207
Stock Transfer Fees 15,000 0 0 15,000
Stock Expense 4,818 0 0 4,818
Proxy Expense 7,298 0 0 7,298
Janitorial Expense 1,424 1,118 306 0
-------- --------- -------- ---------
TOTAL OPERATING EXP $487,053 $327,379 $ 41,885 $117,789
</TABLE>
SEE ACCOUNTANTS' REPORT ON SUPPLEMENTARY INFORMATION
F20
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
SUPPLEMENTARY STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
REVENUE
Sales $ 1,206,514 $ 1,404,071 $ 1,676,802
Sales Returns and Allowances (6,465) (9,702) (7,880)
------------- ------------ ------------
NET SALES 1,200,049 1,394,369 1,668,922
------------- ------------ ------------
COST OF GOODS SOLD
Beginning Inventory 90,390 172,335 172,232
Purchases 261,565 237,093 376,215
Labor 689,035 738,063 809,586
Other 56,945 39,902 48,897
Ending Inventory (103,767) (90,390) (172,335)
------------- ------------ ------------
TOTAL COST OF GOODS SOLD 994,168 1,097,003 1,234,595
------------- ------------ ------------
GROSS PROFIT 205,881 297,366 434,327
OPERATING EXPENSES
Selling, General & Administrative 487,053 760,306 725,101
------------- ------------- ------------
NET (LOSS) FROM OPERATIONS (281,172) (462,940) (290,774)
OTHER INCOME AND (EXPENSE)
Interest Income 24,763 6 0
Interest Expense (9,383) (114,162) (42,211)
Forgiveness of Debt 10,127 1,141,834 78,249
Loss from Sale of Securities (365,186) 0 0
------------ ------------- ------------
NET INCOME(LOSS) BEFORE UNUSUAL ITEM (620,851) 564,738 (254,736)
UNUSUAL ITEMS (NOTE I) 316,910 1,086 (100,000)
------------ ------------- ------------
NET INCOME(LOSS) (303,941) 565,824 (354,736)
Adjusted Retained Earnings Deficit,
January 1, (4,468,103) (5,033,927) (4,679,191)
------------ ------------ -------------
Adjusted Retained Earnings Deficit,
December 31, $ (4,772,044) $ (4,468,103) $(5,033,927)
============ ============ =============
</TABLE>
SEE ACCOUNTANTS' REPORT ON SUPPLEMENTARY INFORMATION
F21
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
STATEMENTS OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 1995
1997
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME/(DEFICIT) $ (303,941)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation 7,844
Management Fees 3,000
Forgiveness of Debts (10,127)
Unusual Item - Change in Accounting Estimate (316,910)
CHANGES IN OPERATING ASSETS AND LIABILITIES
Increase in Accounts Receivable (78,655)
Increase in Inventory (13,377)
Increase in Marketable Securities (14,667)
Decrease in Loss Contingency (37,000)
Decrease in Prepaid Expenses 501
Increase in Accounts Payable 52,739
Decrease in Accrued Interest (113)
Increase in Accrued Expenses and Taxes 4,021
-----------
NET CASH USED BY OPERATING ACTIVITIES (706,685)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in Other Entities (50,000)
Purchase of Equipment (4,500)
Loans to Affiliates (60,000)
Advance to Affiliates (100,000)
Loans to Prosports (23,045)
Loans to Employees (10,090)
Payments from Affiliates 650,000
----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 402,365
----------
CASH FLOW FROM FINANCING ACTIVITIES
Payments to Affiliates (327,734)
Payments to Stockholder (119,961)
Proceeds from Sale of Common Stock 828,325
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 380,630
----------
NET INCREASE IN CASH 76,310
CASH BALANCE, JANUARY 1, 1997 106,360
----------
CASH BALANCE, DECEMBER 31, 1997 $ 182,670
=========
</TABLE>
SEE ACCOUNTANTS' REPORT ON SUPPLEMENTARY INFORMATION
F22
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
STATEMENTS OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 1995
1996
--------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME/(DEFICIT) $ 565,821
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation 6,919
Forgiveness of Debts (1,041,711)
Unusual Item - Change in Accounting Estimate (75,000)
Unusual Item - Loss Contingency 12,000
CHANGES IN OPERATING ASSETS AND LIABILITIES
Decrease in Accounts Receivable 50,541
Decrease in Inventory 81,945
Increase in Prepaid Expenses (6,087)
Increase in Accounts Payable 606
Increase in Accrued Expenses and Taxes (110,622)
Increase in Accrued Interest 12,458
-----------
NET CASH USED BY OPERATING ACTIVITIES (503,130)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (2,500)
-----------
NET CASH USED BY INVESTING ACTIVITIES (2,500)
-----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from Affiliates 584,000
Payments to Affiliates (502,015)
Proceeds from Long Term Borrowing 500,000
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 581,985
-----------
NET INCREASE IN CASH 76,355
CASH BALANCE, JANUARY 1, 1996 30,005
-----------
CASH BALANCE, DECEMBER 31, 1996 $ 106,360
==========
</TABLE>
SEE ACCOUNTANTS' REPORT ON SUPPLEMENTARY INFORMATION
F23
<PAGE>
<TABLE>
<CAPTION>
GENERAL AIRCRAFT CORPORATION
STATEMENTS OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 1995
1995
--------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME/(DEFICIT) $ (354,736)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation 33,884
Unusual Item - Loss Contingency 100,000
CHANGES IN OPERATING ASSETS AND LIABILITIES
Decrease in Accounts Receivable 133,841
Increase in Inventory (103)
Decrease in Accounts Payable (47,186)
Increase in Accrued Expenses and Taxes 24,586
Increase In Accrued Interest 25,050
------------
NET CASH USED BY OPERATING ACTIVITIES (84,664)
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (16,300)
------------
NET CASH USED BY INVESTING ACTIVITIES (16,300)
------------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from Affiliates Companies 229,850
Principal Payments of Long Term Debts (228,249)
Proceeds from Stockholder 119,961
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 121,562
-----------
NET INCREASE IN CASH 20,598
CASH BALANCE, JANUARY 1, 1995 9,407
-----------
CASH BALANCE, DECEMBER 31, 1995 $ 30,005
===========
</TABLE>
SEE ACCOUNTANTS' REPORT ON SUPPLEMENTARY INFORMATION
F24
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] DEC-31-1997
[CASH] 182,670
[SECURITIES] 11,625
[RECEIVABLES] 562,354
[ALLOWANCES] 0
[INVENTORY] 103,767
[CURRENT-ASSETS] 917,202
[PP&E] 447,181
[DEPRECIATION] (374,577)
[TOTAL-ASSETS] 989,806
[CURRENT-LIABILITIES] 185,944
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 268,739
[OTHER-SE] 535,123
[TOTAL-LIABILITY-AND-EQUITY] 989,806
[SALES] 1,200,049
[TOTAL-REVENUES] 1,224,812
[CGS] 994,168
[TOTAL-COSTS] 1,481,221
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] (9,383)
[INCOME-PRETAX] 0
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] (38,149)
[CHANGES] 0
[NET-INCOME] (303,941)
[EPS-PRIMARY] (0.38)
[EPS-DILUTED] (0.38)
</TABLE>
