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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-21540
COMMANDER AIRCRAFT COMPANY
(Exact name of registrant as specified in its charter)
Virginia 62-1363505
(State of Incorporation) (IRS Employer
Identification No.)
7200 NW 63rd Street
Hangar 8, Wiley Post Airport
Bethany, Oklahoma 73008
(Address of principal executive offices) (Zip Code)
(405) 495-8080
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock; $.50 par value
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes __X__ No _____
Indicate by check mark if the disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the 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__
Based on the closing sales price of March 12, 1998 the aggregate
market value of the voting stock held by non-affiliates of the
registrant was $1,771,459.
The number of shares outstanding of the registrant's common stock,
$.50 par value, was 7,280,548 at March 12, 1998.
Total number of pages, including cover page 38
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PART 1
ITEM 1. BUSINESS
Commander Aircraft Company (the "Company") manufactures, markets, and
provides support services for single engine, high performance Commander
aircraft. Incorporated in 1988, the Company is one of the few manufacturers
in the world that produces single engine high performance aircraft certified
by the Federal Aviation Administration (FAA).
Commander aircraft are derived from a line of single engine high performance
aircraft designed, certified and produced by the General Aviation Division of
Rockwell International in the 1970's. Rockwell later sold its General
Aviation Division to Gulfstream Aerospace Corporation, from whom Commander
Aircraft Company acquired the rights to the single engine high performance
Commander line. Subsequently, the Company designed, engineered and
implemented improvements to the Commander line. With an airframe design
decades newer than the competition, Commander aircraft are certified to
Federal Aviation Regulation (FAR) 23 through Amendment 7, meeting more
stringent standards for single engine high performance aircraft than aircraft
certified under the older Civil Air Regulation (CAR) 3.
The Company's first production model, the Commander 114B, was certified by
the FAA in 1992. The Commander 114B offers substantially improved
performance, state-of-the-art instrumentation and avionics, and a luxuriously
appointed, spacious cabin, while retaining the proven airframe and other
features of the original Rockwell International design. The Commander 114B
features an extensive range of standard equipment, retractable landing gear,
260 horsepower fuel injected engine, and a constant speed propeller. The
aircraft has received favorable reviews in the aviation press worldwide and
is recognized for its beautiful design and its excellent flight, landing and
handling characteristics.
The Commander 114B, with a standard range of 725 nautical miles (833 statute
miles), 1,216 pound useful load, maximum cruise speed of 164 knots (188 miles
per hour), large luxurious four place cabin and low operating and maintenance
costs, offers an optimum combination of performance, comfort, style, luxury,
utility and safety. The Commander 114B is an ideal airplane for pleasure,
business and flight training.
In 1994, the Company added the Commander 114AT All-Purpose Trainer to its
line of single engine, high performance aircraft. The Commander 114AT is a
four place high performance trainer designed for military, professional and
civilian flight training. An all-in-one aircraft, the Commander 114AT
All-Purpose Trainer is ideal for primary through instrument flight training.
The Commander 114AT shares the same design heritage as the luxurious
Commander 114B, with a modified instrument panel and utilitarian interior.
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In 1995, the Company received certification from the FAA for the Commander
114TC, a turbocharged version of the Commander 114B. The Commander 114TC is
equipped with the same beautiful, expansive interior and state-of-the-art
systems as the Commander 114B, but utilizes a 270 horsepower turbocharged
Lycoming engine which provides speeds up to 197 knots (227 miles per hour).
The Commander 114TC is certified to an altitude of 25,000 feet, which makes
it an excellent aircraft for mountainous regions, as well as high density
altitude environments. Reviews of the Commander 114TC by the aviation press
have been extremely positive.
The Company continues to upgrade its products each year with new standard and
optional equipment, such as long-range fuel tanks for the 114B, de-ice
equipment for all models, and a traffic alert system for increased safety in
congested airspace.
BUSINESS STRATEGY
The Company's business strategy is to capture a significant share of the
existing domestic and international market for the single engine, high
performance aircraft by offering a premium updated version of an established
aircraft design. Commander aircraft have an airframe design decades newer
than the competition and are certified to more stringent standards. The
Company believes the domestic and international market for its aircraft
includes individuals and corporations that will purchase the Company's
aircraft for training, pleasure and business travel, and governments,
commercial and military organizations that will use the aircraft for training
and other purposes.
The Company believes the market for its products will improve as a result of
attrition of the existing fleet of aging single engine high performance
aircraft, development of new international markets for general aviation
aircraft, increased use of single engine aircraft as a corporate tool for
small and medium-sized businesses, and demand for advanced single engine
trainers.
Recognizing that the size of the used aircraft market is significantly larger
than new aircraft sales, the Company has structured a separate aviation
services division within the Company to purchase, refurbish and sell
pre-owned aircraft at reasonable profit margins. The Aviation Services
Division also acts as broker for pre-owned aircraft and serves as advisor to
potential aircraft buyers and sellers.
MARKETING AND SALES
The Company markets its aircraft through a factory direct sales and marketing
organization comprised of regional sales personnel who are managed and
supported from the Company's headquarters in Oklahoma. The marketing
organization is augmented by a worldwide network of Commander Authorized
Sales and Service Representatives
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(ASSRs). The Company's marketing program utilizes a highly focused domestic
and international advertising and public relations program that includes
product advertising in leading business and aviation publications.
The Company increased the number of Commander domestic and international
ASSRs from 167 in 1996 to 183 by the end of 1997, giving the Company one of
the most comprehensive worldwide service and support networks in its class.
The Company grants domestic Commander Authorized Sales and Service
Representatives the non-exclusive right to sell Commander aircraft.
Commander ASSRs receive a sales commission for identifying purchasers, and
provide a full complement of service and support services, including
financing, insurance, service and support, hangar/storage, flight
instruction, and professional pilot service. The Company selects ASSRs from
among experienced independent aviation sales and service organizations that
it believes to have excellent facilities, service capabilities, reputation
and financial strength. Through its ASSRs, Commander Aircraft Company offers
a turn-key aircraft ownership program designed to stimulate ownership of
Commander aircraft by companies that have not previously owned or operated
aircraft. This flexible program can be tailored to meet each customer's
specific requirements.
All new aircraft sold in 1997 were delivered to domestic customers. Two
pre-owned aircraft totaling $401,000, approximately 18% of pre-owned
revenues, were exported to customers in England. Information regarding the
Company's export sales and major customers is incorporated herein by
reference to Note J - Significant Customers, of the Notes to Financial
Statements. The Company anticipates that domestic sales will continue to
account for a significant portion of its market in the future, however it is
anticipated that international markets will improve and account for a larger
portion of the Company's sales in the future.
The Company has been dependent upon its ability to sell a single product line
for which a small market exists, and sales being in sufficient quantities and
at prices that will allow it to recover operating costs and earn a profit.
Although the Company believes that the market for its new aircraft will grow
and its share will increase, there can be no assurances that economic
conditions will not have an adverse effect on future sales. The Aviation
Services Division will continue to be expanded in 1998 to include sales and
brokering of twin engine piston and turbine aircraft, in addition to single
engine piston aircraft.
PARTS AND MATERIALS AVAILABILITY
Commander Aircraft Company purchases parts and materials from over 100
different suppliers. Though some of these vendors are key to the manufacture
of the Company's aircraft, there are no long term commitments or contracts
with any suppliers. The Company considers its relationship with its
suppliers to be satisfactory and does not anticipate any shortages or
interruption to production due to lack of available components on a timely
basis.
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COMPETITION
Purchasers of high performance aircraft choose among competitive models on
the basis of numerous factors, including performance, reliability, price,
appearance, quality of service and reputation of the aircraft and the
manufacturer. Commander Aircraft Company believes that it can favorably
compete with its competitors on the basis of the quality, comfort, and
performance of its aircraft, and the quality and scope of the support
services the Company provides to its customers. The Company further believes
its aircraft are competitively priced and have a number of features,
including certification to stricter standards, newer, more attractive design
and larger cabin size, which make them competitive with or superior to the
single engine, high performance aircraft produced by its four principal
competitors: Beech Aircraft Corporation, which suspended production of its
F33A Bonanzas in 1994; Mooney Aircraft Corporation, which produces a single
engine aircraft that is significantly smaller than the 114B; New Piper
Aircraft Corporation, which produces two single engine, six place retractable
gear aircraft with similar performance; and Socata whose marketing efforts
are, for the most part, focused in Europe and Asia. Each of these
competitors has been well established in the general aviation industry for
years and may have access to greater resources than are available to the
Company.
INSURANCE
The Company carries most types of insurance customary for a manufacturer of
general aviation aircraft, including coverage for general liability, property
damage, aircraft loss or damage and worker's compensation, but does not carry
product liability insurance. There is no assurance that the amount of
insurance carried by the Company would be sufficient to protect it fully in
the event of a serious accident or liability claim, but the Company believes
that the amounts and coverage of its insurance protection are reasonable and
appropriate for the Company's business operations. Although highly probable,
there is no assurance that such insurance will continue to be available on
commercially reasonable terms.
In mid-1994, Congress enacted the General Aviation Revitalization Act, S.
1458, which established an 18-year statute of repose for general aviation
aircraft and component manufacturers. This legislation prohibits product
liability suits against aircraft manufacturers when the aircraft involved in
an accident is more than 18 years old when the accident occurs. This action
eliminated all Rockwell manufactured Commanders produced in the 1970's from
the Company's liability tail. The only aircraft that the Company is
responsible for are the model 114B, 114AT and 114TC manufactured from 1992
through the present. At December 31, 1997 this totaled approximately 130
aircraft, which includes 67 aircraft exported from the United States.
Through March 1, 1995, the Company maintained product liability insurance
with coverage of $10 million per occurrence and $10 million in the aggregate,
with deductible of $200,000 for aircraft built through March 1, 1995. To
date, there has been only one claim filed against the Company with respect to
any of the aircraft manufactured by
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Rockwell International or any of the new aircraft manufactured by the
Company. This action was dismissed by the court in December 1997. Management
believes that the interest of shareholders is better served by vigorously
defending claims through the services of highly qualified specialists and
attorneys rather than retaining product liability insurance to settle
exorbitant claims. As such, the Company elected not to retain product
liability insurance coverage commencing March 1, 1995. The Company could be
exposed to significant financial risks if losses from product liability were
to occur.
The Company does not carry business interruption or key man insurance.
GOVERNMENTAL REGULATION
In order for an aircraft model to be manufactured for sale, the FAA must
issue a Type Certificate for the aircraft model and, in order for a
particular aircraft to be operated, an Airworthiness Certificate for that
aircraft must be issued. The Company was issued a Type Certificate for the
Commander 114B in 1992 and a Type Certificate for the Commander 114TC in
1995. The Company owns Type Certificates for all predecessor single engine
Commander models. The Company received a Production Certificate from The FAA
in 1993, which allows the Company to issue Airworthiness Certificates under
authority delegated by the FAA. An Airworthiness Certificate is issued for a
particular aircraft when it is certified to have been built in accordance
with specifications approved under the Type Certificate for that particular
model aircraft. Commander aircraft are certified to FAR 23, Amendment 7
meeting more stringent standards for single engine aircraft than aircraft
certified under the older CAR 3 regulation. The following table compares
these standards:
<TABLE>
Certification Requirements: FAR 23 CAR 3
(THROUGH AMENDMENT 7)
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Increased gust loading 50 ft/sec 30 ft/sec
Fatigue evaluation - Fail-safe Static load
Wing and associated structures Safe life margin
Fail-safe elevator control system Yes No
Gear and door substantiation under
all conditions Yes No
Flap actuated aural warning Yes No
More stringent usable fuel testing Yes No
Non-siphoning fuel caps Yes No
Improved accessibility of fuel
selector switch Yes No
More stringent lightning strike
analysis Yes No
</TABLE>
EMPLOYEES
The Company has a total of 79 full-time employees. Commander Aircraft
Company believes that its future success will depend, in part, upon its
continued ability to recruit
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and retain highly skilled employees. Although competition for qualified
personnel is strong, the Company has been successful in attracting and
retaining skilled employees. None of the Company's employees are covered by
a collective bargaining agreement, and Commander considers its employee
relations to be good.
ITEM 2. PROPERTIES
The Company's 103,650 square foot facility, which consists of three buildings
constructed in 1981, is located at the Wiley Post Airport in Bethany,
Oklahoma. The facility is leased from the Oklahoma City Airport Trust
Authority under a lease that expires in October 1998 and is renewable upon
mutual agreement. Management believes the lease will be renewed under the
renewal option. The Company performs all of its operations and services from
this facility. During the past nine years, the Company has improved its
facility to assure safety and compliance with environmental laws and
regulations.
A summary of lease payments is presented in Note I - Leases, of the Notes to
Financial Statements for 1997, which is hereby incorporated by reference.
ITEM 3. LEGAL PROCEEDINGS
The Company was not a party to any pending legal proceeding as of March 4,
1998. The company's business activities may from time to time subject it to
legal proceedings. See "Insurance" under Part 1, Item 1.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED HOLDER MATTERS
The common stock of Commander Aircraft Company, $.50 par value, is traded on
the NASDAQ Small-Cap Market (symbol CMDR). This table presents its high and
low market prices during the past two years. The Company has never paid
dividends in the past, and does not intend to pay dividends in 1998.
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<TABLE>
Quarterly Common Stock Price Ranges
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1997 1996
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QUARTER HIGH LOW HIGH LOW
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<S> <C> <C> <C> <C>
1st 2 3/4 1 3/4 4 1/4 3
2nd 2 1/2 1 1/4 4 3/4 2
3rd 2 9/16 1 5/8 4 1/2 2 1/2
4th 4 7/8 1 13/16 3 1/4 1 3/4
</TABLE>
There were 388 holders of the Company's common stock as of April 28, 1997,
including shareholders whose shares are held in "street" name.
In February 1997, the company issued 200,000 shares of common stock to a
shareholder and its affiliate in exchange for $2,000,000 of notes payable and
accrued interest on those notes. In October 1997 the company sold 300,000
shares of common stock to the shareholder and its affiliate for cash in the
amount of $10 per share or an aggregate of $3,600,000. The issuance of shares
in these transactions was not registered under the Securities Act of 1933, as
amended (the "Act"), in reliance upon the exemption in Section 4(2) of the Act
for transactions not involving any public offering.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for each year in the five year
period ended December 31, 1997 have been derived from the Company's audited
financial statements. This data should be read in conjunction with the
Financial Statements and related notes thereto and other financial information
appearing elsewhere in this Form 10-K.
<TABLE>
Year Ended December 31
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(Amounts in thousands, except per share data)
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATION DATA:
Net sales $8,062 $7,958 $9,398 $7,619 $8,120
Loss from continuing
operations and before
extraordinary item $(2,140) $(3,408) $(2,559) $(4,976) $(4,422)
Extraordinary gain - - - - $601
Net loss $(2,140) $(3,408) $(2,559) $(4,976) $(3,821)
Loss per share before
extraordinary gain $(.31) $(.51) $(.39) $(.84) $(.85)
Loss per share $(.31) $(.51) $(.39) $(.84) $(.74)
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BALANCE SHEET DATA:
Total assets $10,940 $11,060 $14,715 $12,790 $11,712
Long-term debt - $2,446 - $5,325 $4,800
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations:
1997 VS. 1996
Revenues increased slightly more than 1% in 1997 to $8,062,369 from $7,958,138
in 1996, and the net loss from operations was reduced by more than 37% to
$2,140,637 in 1997 from $3,408,200 in 1996. Net loss per share decreased to
$.31 in 1997 from $.51 in 1996. During 1997 the Company delivered 12 new
aircraft and 22 pre-owned or consigned aircraft compared to 15 new aircraft and
18 pre-owned or consigned aircraft in 1996. Overall, 1997 revenues from
aircraft sales of $6,860,413 were relatively flat compared to 1996 revenues
from aircraft sales of $6,893,896.
Revenues from service and parts increased 13% to $1,201,956 in 1997 from
$1,064,242 in 1996. The increase was due to additional pre-owned aircraft
serviced by the Company's service facility prior to their resale and an
increase in revenues generated by refurbishment of customer-owned aircraft and
sub-contracted paint work.
Aircraft cost of sales changed very little, totaling $6,750,525 in 1997
compared to $6,814,750 in 1996, as revenues from aircraft sales remained
relatively flat. Cost of sales for service and parts increased approximately
11% in 1997 to $1,025,367 from $921,089 in 1996. The increase in cost was due
to the increase in the volume of revenue from service work and parts sales in
1997.
Engineering and product development expenses decreased 13% in 1997 to $316,158
from $363,215 in 1996. Development efforts were limited to routine product
improvements and production refinements. The majority of the cost of the
Company's de-icing project certification was borne by the equipment supplier.
Sales and marketing expenses were reduced by 40% to $1,483,439 in 1997 from
$2,482,025 in 1996. The decrease was accomplished by a consolidation of
several sales territories, a reduction in personnel and substantial re-focusing
of advertising expenditures. General and administrative expenses decreased to
$850,234 in 1997 from $862,788 in 1996. The decrease was due to lower legal
expenses as all litigation was brought to a successful conclusion by the end of
1997.
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Interest income decreased to $292,949 in 1997 from $377,517 in 1996. The
decrease was due to Commander International reducing its note payable to the
Company by over $1.1 million during 1997, and payment in full of one of the
three remaining notes for retail financing held by the Company. Other income
resulting from miscellaneous sales and adjustments totaled $73,848 in 1997
compared to $41,223 in 1996.
Interest expense totaled $131,768 for 1997 compared to $316,913 for 1996. A
total of $86,795 interest was recognized on the debentures which were exchanged
for equity February 1, 1997 or redeemed October 15, 1997. An additional $34,251
interest expense was incurred on borrowings under the Company's line of credit
at Will Rogers Bank. Interest expense for 1996 related to the debentures
totaled $275,998 and $40,915 for the bank line at Will Rogers Bank.
1996 VS. 1995
Revenues decreased 15% in 1996 to $7,958,138 from $9,398,077 in 1995, and the
net loss from operations increased to $3,408,200 in 1996 from $2,559,289 in
1995. Net loss per share increased to $.51 in 1996 from $.39 in 1995. A total
of 15 new aircraft, 13 used aircraft, and 5 consigned aircraft were delivered
in 1996 compared to 25 new aircraft and no used aircraft delivered in 1995.
Revenues from aircraft sales fell to $6,893,896 in 1996 from $8,398,093 in 1995
as the added sales of used aircraft were not sufficient to offset the decrease
in revenues from new aircraft sold.
Revenues from service and parts increased over 6% to $1,064,242 in 1996 from
$999,984 in 1995. The increase was attributable, in part, to used aircraft
that were refurbished at the Company's factory service center prior to resale.
Aircraft cost of sales decreased 10% in 1996 from 1995 due mainly to the
decrease in new aircraft sold. Total aircraft cost of sales for 1996 was
$6,814,750 and $7,587,756 for 1995. Due to lower production in volume in 1996
fixed overhead costs increased the average cost of sales per aircraft. Cost of
sales for service and parts increased about 9% in 1996 from 1995 due to a 6%
increase in revenues and slightly higher operating costs. Service and parts
cost of sales increased to $921,089 in 1996 from $848,046 in 1995.
Engineering and product development costs decreased 30% in 1996 to $363,215
from $519,777 in 1995. In 1995 the Company invested a substantial amount of
engineering and product development in the certification process for the
Commander 114TC.
Sales and marketing expenses increased approximately 9% to $2,482,025 in 1996
from $2,274,263 in 1995. The increase was due to the expansion of field sales
offices in 1996. General and administrative expenses decreased 2% to $862,788
in 1996 from $880,849 in 1995. This reduction was a result of decreased
expenses for salaries, benefits and accounting services.
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Interest income decreased to $377,157 in 1996 from $399,170 in 1995. Income
from the note receivable from Commander International totaled $309,195 in 1996
compared to $281,972 in 1995. Interest income from notes receivable on aircraft
decreased to $59,614 in 1996 from $101,026 in 1995 because two of the five
aircraft financed by the Company were paid in full in January 1996. Interest
earned on bank balances and other deposits totaled $8,708 in 1996 compared to
$16,172 in 1995. Other income from miscellaneous sales in 1996 totaled $41,223
compared to $110,436 in 1995. A one time credit for a prior year expense
increased the amount of other income in 1995.
Interest expense totaled $316,913 for 1996 compared to $164,488 for 1995.
Interest expense of $275,998 related to debentures is included although payment
of $70,382 was waived when the debentures were exchanged for equity February 1,
1997. An additional $40,915 of interest expense was incurred in 1996 on
borrowings under the Company's line of credit at Will Rogers Bank. Other
expenses totaled $24,298 for 1996 compared to $191,793 in 1995. Other costs
for 1995 included costs and reserves for litigation expenses.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $2,189,711 during 1997 primarily due to the equity
investment made in October 1997 by the Company's majority shareholder, which
purchased 360,000 shares of newly issued Common Stock for $3,600,000. The
Company used $900,000 to redeem notes payable to the shareholder and
approximately $600,000 to repay bank credit lines. The balance increased the
company's cash reserves. Total notes receivable decreased $1,363,557 reflecting
the payments made by Commander International during 1997 and the payoff of one
of the three remaining aircraft that the Company had financed. Inventories
decreased $969,191 from December 31, 1996 to December 31, 1997 due mainly to
reductions in raw material, purchased parts and work in process. Accounts
payable were reduced to $270,254 at December 31, 1997 from $507,644 at December
31, 1996. Accrued expenses and deposits decreased to $388,125 by the end of
1997 from $674,564 at the end of 1996 due primarily to a reduction in accrued
property taxes, litigation costs, and accrued expenses related to the Company's
401k program. Finished aircraft inventory at December 31, 1997 consisted of
four new demonstrator aircraft. Four pre-owned aircraft were on hand December
31, 1997, one of which was being used as a demonstrator aircraft.
Capital expenditures totaled $23,386 in 1997 for office equipment, computers
and various tooling purchased or manufactured during the year. Disposals or
sales of capital equipment totaled $76,850 in 1997. One aircraft, carried as a
fixed asset, was sold in 1997.
During 1996 and 1995 the Company entered into various note agreements with the
majority shareholder and affiliates of this shareholder. The initial maturity
date of these notes was extended from June 30, 1996 to June 30, 1997. At
December 31, 1996 the
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Company owed $2,800,000 to the majority shareholder and affiliates for these
10% interest, unsecured notes. Effective February 1, 1997 the Company accepted
an offer from the majority shareholder and affiliates to exchange $2,000,000
of these notes, along with accrued interest, for 200,000 shares of common
stock. An additional $100,000 note was issued to the related party in January
1997.
On October 15, 1997, the Board of Directors authorized the issuance and sale of
360,000 shares of the Company's common stock to KuwAm Corporation and its
partners, at a price of $10.00 per share. The $3,600,000 equity investment
allowed the Company to repay all bank debt ant redeem the remaining $900,000 of
10% demand notes, leaving the Company virtually debt free at December 31, 1997.
The balance of the proceeds will be used to expand the Company's Aviation
Services Division.
The Company maintains a line of credit with a local bank in the amount of
$600,000. At December 31, 1997 borrowings under this line totaled $102,000.
The revolving notes bear interest at 9.25% and are secured by aircraft. The
notes mature April 5, 1998, and have been classified as long-term debt at
December 31, 1997. Management expects the line of credit to be extended for at
least one year.
The Company has financed its cash needs since inception with debt, private
investor capital, proceeds from an initial public offering and from subsequent
stock issuances. The Company plans to use a portion of the balance of cash
remaining from the stock sale to fund expansion of the newly formed Aviation
Services Division in 1998 and to provide funds if cash requirements exceed
income. Management does not believe additional outside funding will be
required in 1998. A more detailed discussion of the Company's plans to
maintain liquidity for 1998, are included in Note O - Management Plans, of the
Notes to Financial Statements for 1997.
MANAGEMENT PLANS
The Company has had losses and net cash outflows since its inception, and its
independent public accountants have indicated that there is doubt about its
ability to continue as a going concern. In 1997, management implemented plans
to improve the Company's operational performance and liquidity and capital
resources. The principal elements of these plans are (i) to expand its
Aviation Services Division, which purchases, refurbishes, and sells pre-owned
aircraft; (ii) offer additional options on its new aircraft; (iii) reduce
inventory costs through just-in-time production scheduling; and (iv) reduce
marketing expenses through more focused advertising and implementation of a
more efficient marketing organization. In addition, in October 1997, the
company's majority shareholder and affiliates purchased 360,000 newly issued
shares of common stock for $3,600,000. The Company used approximately
$1,500,000 of the proceeds to repay debt, leaving it virtually debt free, and
the balance is available for working capital requirements and to fund the
expansion of the Aviation Services Division. For additional information
concerning management's plans, see Note O - Management Plans of Notes to
Financial Statements.
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INFLATION
Management believes that the overall effect of inflation on the Company's costs
of materials and supplies has been minimal. For each of the past five years,
cost of sales was virtually the same as it would have been on a current cost
basis. The Company uses a moving average cost for inventory valuation and cost
changes are not readily recognized in the short-term.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Supplementary Data:
Page
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Report of Independent Certified Public Accountants 14
Financial Statements:
Balance Sheets December 31, 1997 and 1996 15
Statements of Operations for the years ended 17
December 31, 1997, 1996 and 1995
Statement of Stockholder's Equity for the 18
years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended 19
December 31, 1997, 1996 and 1995
Notes to Financial Statements 20
Supplementary Financial Data:
Selected Quarterly Financial Data for the years ended
December 31, 1997 and 1996 (unaudited) 31
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders
Commander Aircraft Company
We have audited the accompanying balance sheets of Commander Aircraft Company
(a Virginia corporation), as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. 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 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 a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Commander Aircraft Company, as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note O to the
financial statements, the Company has suffered recurring losses and net cash
outflows from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note O. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
February 6, 1998
14
<PAGE>
COMMANDER AIRCRAFT COMPANY
BALANCE SHEETS
December 31,
<TABLE>
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,022,024 $ 78,911
Certificates of deposit 1,224,845 118,392
Accounts receivable 342,917 23,438
Current portion of notes receivable from related party 996,971 1,560,000
Current portion of notes receivable 55,269 60,077
Inventories 5,610,129 6,579,320
Prepaid expenses and other assets 203,815 69,157
----------- -----------
Total current assets 9,455,970 8,489,295
PROPERTY AND EQUIPMENT - AT COST
Office equipment and furniture 296,729 284,054
Vehicles and aircraft 84,021 422,099
Manufacturing equipment 354,837 354,837
Tooling 518,648 515,299
Leasehold improvements 237,161 232,073
----------- -----------
1,491,396 1,808,362
Less accumulated depreciation 777,940 803,356
----------- -----------
713,456 1,005,006
OTHER ASSETS
Notes receivable from related party, less current
maturities 500,000 1,088,181
Notes receivable, less current maturities 270,105 477,647
----------- -----------
770,105 1,565,828
----------- -----------
$10,939,531 $11,060,129
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 270,254 $ 507,644
Accrued expenses 312,945 664,584
Refundable deposits 75,180 9,980
Current portion of long-term debt 102,000 -
Notes payable - related parties - 800,000
------------ ------------
Total current liabilities 760,379 1,982,208
LONG-TERM DEBT, less current portion - 445,500
NOTES PAYABLE - RELATED PARTIES - 2,000,000
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock - $.50 par value; authorized, 10,000,000
shares; issued and outstanding, 7,280,548 shares in
1997 and 6,720,548 shares in 1996 3,640,274 3,360,274
Additional paid-in capital 37,178,230 31,770,862
Accumulated deficit (30,639,352) (28,498,715)
------------ ------------
10,179,152 6,632,421
----------- -----------
$ 10,939,531 $ 11,060,129
------------ ------------
------------ ------------
</TABLE>
16
<PAGE>
COMMANDER AIRCRAFT COMPANY
STATEMENTS OF OPERATIONS
Year ended December 31,
<TABLE>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES
Aircraft $ 6,860,413 $ 6,893,896 $ 5,554,766
Related parties - aircraft - - 2,843,327
Service 1,201,956 1,064,242 999,984
----------- ----------- -----------
8,062,369 7,958,138 9,398,077
COST OF SALES
Aircraft 6,750,525 6,814,750 7,587,756
Service 1,025,367 921,089 848,046
----------- ----------- -----------
7,775,892 7,735,839 8,435,802
----------- ----------- -----------
Gross margin 286,477 222,299 962,275
OTHER OPERATING EXPENSES
Product development and engineering costs 316,158 363,215 519,777
Selling, general, and administrative expenses 2,333,673 3,344,813 3,155,112
----------- ----------- -----------
2,649,831 3,708,028 3,674,889
----------- ----------- -----------
Operating loss (2,363,354) (3,485,729) (2,712,614)
OTHER INCOME (EXPENSES)
Interest income 292,949 377,517 399,170
Other income 73,848 41,223 110,436
Interest expense (131,768) (316,913) (164,488)
Other expense (12,312) (24,298) (191,793)
----------- ----------- -----------
222,717 77,529 153,325
----------- ----------- -----------
NET LOSS $(2,140,637) $(3,408,200) $(2,559,289)
----------- ----------- -----------
----------- ----------- -----------
BASIC AND DILUTED LOSS PER SHARE
Weighted average common shares outstanding 6,980,494 6,720,548 6,580,037
----------- ----------- -----------
----------- ----------- -----------
Loss per share $ (.31) $ (.51) $ (.39)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE>
COMMANDER AIRCRAFT COMPANY
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996, and 1995
<TABLE>
Common Stock Additional Total
----------------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
--------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 6,009,215 $3,004,608 $25,393,098 $(22,531,226) $ 5,866,480
Exchange of subordinated debt for
common stock 640,000 320,000 6,186,764 - 6,506,764
Exercise of warrants 71,333 35,666 191,000 - 226,666
Net loss - - - (2,559,289) (2,559,289)
--------- ---------- ----------- ------------ -----------
Balance at December 31, 1995 6,720,548 3,360,274 31,770,862 (25,090,515) 10,040,621
Net loss - - - (3,408,200) (3,408,200)
--------- ---------- ----------- ------------ -----------
Balance at December 31, 1996 6,720,548 3,360,274 31,770,862 (28,498,715) 6,632,421
Exchange of notes payable for
common stock 200,000 100,000 1,987,368 - 2,087,368
Sale of common stock 360,000 180,000 3,420,000 - 3,600,000
Net loss - - - (2,140,637) (2,140,637)
--------- ---------- ----------- ------------ -----------
Balance at December 31, 1997 7,280,548 $3,640,274 $37,178,230 $(30,639,352) $10,179,152
--------- ---------- ----------- ------------ -----------
--------- ---------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
COMMANDER AIRCRAFT COMPANY
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net loss $(2,140,637) $(3,408,200) $(2,559,289)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 101,853 165,523 190,603
Sale of aircraft and parts on notes receivable (73,352) (97,820) (3,816,636)
Receipts on aircraft notes receivable 952,147 2,485,324 1,595,666
(Gain) loss on retirement of property and equipment (8,425) 3,542 22,034
Changes in assets and liabilities
(Increase) decrease in
Accounts receivable (319,479) 243,794 (159,163)
Inventories 1,697,969 851,524 290,054
Prepaid expenses and other assets (199,893) 97,391 139,480
Increase (decrease) in
Accounts payable (237,390) (850,016) 345,445
Accrued expenses (264,271) (174,458) 426,323
Refundable deposits 65,200 (17,820) (38,900)
----------- ----------- -----------
Net cash used in operating activities (426,278) (701,216) (3,564,383)
Cash flows from investing activities
Change in short-term investments (1,106,453) (94,541) (23,851)
Capital expenditures (23,356) (43,572) (63,490)
Proceeds on sales of property and equipment 42,700 8,000 -
----------- ----------- -----------
Net cash used in investing activities (1,087,109) (130,113) (87,341)
Cash flows from financing activities
Proceeds from borrowings 645,000 1,645,600 3,865,000
Payments on borrowings (1,788,500) (850,100) (340,000)
Proceeds from sale of stock 3,600,000 - -
Proceeds from exercise of warrants - - 226,666
----------- ----------- -----------
Net cash provided by financing activities 2,456,500 795,500 3,751,666
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 943,113 (35,829) 99,942
Cash and cash equivalents at beginning of year 78,911 114,740 14,798
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,022,024 $ 78,911 $ 114,740
----------- ----------- -----------
----------- ----------- -----------
CASH PAID DURING THE YEAR FOR:
Interest $ 104,666 $ 277,690 $ 133,145
Income taxes - - -
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
1997
Transfer of aircraft with a net book value of $178,778 from property and
equipment to inventory and exchange of $484,765 in notes receivable and
$65,235 in accrued interest receivable from related party for used aircraft
inventory. Exchange of $2,000,000 in notes payable and $87,368 in accrued
interest for 200,000 shares of common stock.
1995
Exchange of $6,400,000 in subordinated debentures and $106,764 in accrued
interest for 640,000 shares of common stock.
The accompanying notes are an integral part of these statements.
19
<PAGE>
COMMANDER AIRCRAFT COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE A - ORGANIZATION AND OPERATIONS
Commander Aircraft Company (the "Company") was incorporated June 22, 1988
under the laws of the Commonwealth of Virginia. The Company manufactures,
markets, and provides support services for single engine, high performance
Commander aircraft.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
1. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less and money market funds to be cash
equivalents. The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to
any significant credit risks on cash and cash equivalents. As of December
31, 1997, the Company has approximately $2,116,000 on deposit at one
financial institution.
2. REVENUE RECOGNITION
Sales of aircraft are recognized upon execution and funding of the
purchase agreement by the buyer which occurs after the Company receives
the airworthiness certificate from the Federal Aviation Administration
("FAA") and for financed aircraft sales when it has been determined that
the buyer's initial and continuing investments in the aircraft are
adequate to demonstrate a commitment to pay. Sales of used aircraft are
recognized upon execution and funding of the purchase agreement. Service
revenue is recognized when the services are performed and billable.
3. INVENTORIES
Inventories consist primarily of finished goods and parts for
manufacturing and servicing of aircraft. Inventory costs include all
direct manufacturing costs and applied overhead. These inventories,
other than used aircraft, are stated at the lower of cost or market, and
cost is determined by the average-cost method. Used aircraft are valued
on a specific-identification basis at the lower of cost or current
estimated realizable wholesale price. Inventory components at December 31
were as follows:
<TABLE>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $2,901,798 $3,119,766
Work in process 819,442 1,307,505
Demonstration aircraft 1,132,713 1,342,941
Used aircraft 756,176 809,108
---------- ----------
$5,610,129 $6,579,320
---------- ----------
---------- ----------
</TABLE>
20
<PAGE>
COMMANDER AIRCRAFT COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE B - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
4. PROPERTY AND EQUIPMENT
Depreciation is computed using the straight-line method for financial
reporting purposes and accelerated methods for tax purposes over
estimated useful lives ranging from three to fifteen years.
5. INCOME TAXES
Deferred income taxes are provided on carryforwards and on temporary
differences between the tax basis of an asset or liability and its
reported amount in the financial statements that will result in taxable
or deductible amounts in future years. Deferred income tax assets and
liabilities are determined by applying the presently enacted tax rates
and laws.
The Company provides for a valuation allowance on deferred tax assets if,
based on the weight of available evidence, it is more likely than not
that some portion or all of the deferred tax asset will not be realized.
6. REFUNDABLE DEPOSITS
Refundable deposits consist of payments made by customers prior to having
repairs performed on their aircraft and deposits on aircraft sold. These
deposits are recognized as revenue in the period the services are
completed or the aircraft sale is recognized.
7. PREPAID ADVERTISING AND ADVERTISING COSTS
The Company expenses the cost of advertising as incurred, except for
prepaid advertising. Prepaid advertising consists of costs for future
magazine advertisement. These costs are expensed when the advertisements
are published. Advertising expense for the years ended December 31,
1997, 1996, and 1995 was approximately $390,000, $1,058,000, and
$981,000, respectively.
8. LOSS PER SHARE
Basic loss per share has been computed on the basis of the weighted
average shares outstanding during each period. Diluted loss per share is
the same as basic loss per share because assumed exercise of options and
warrants (Note H) would be antidilutive.
9. USE OF ESTIMATES
In preparing the Company's financial statements, management makes
estimates and assumptions that affect certain reported amounts and
disclosures; accordingly, actual results could differ from those
estimates.
21
<PAGE>
COMMANDER AIRCRAFT COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE B - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
10. ADOPTION OF ACCOUNTING STANDARDS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No.
121 requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. During 1996, upon applying the
provisions of SFAS No. 121, the Company determined that no impairment
loss need be recognized for applicable assets of continuing operations.
The Company adopted SFAS No. 128, EARNINGS PER SHARE, during the year
ended December 31, 1997. SFAS No. 128 requires presentation of basic and
diluted earnings per share as defined. All loss per share amounts have
been presented and, where appropriate, restated to conform to SFAS No.
128 requirements.
NOTE C - NOTES RECEIVABLE
From time to time, the Company finances the sale of new aircraft with
notes receivable from customers which are collateralized by the aircraft.
The notes range in length up to ten years with the average being
approximately eight years and bear interest at rates up to 10.5%.
A summary of such notes receivable as of December 31 is as follows:
<TABLE>
1997 1996
-------- --------
<S> <C> <C>
Amounts due within one year $ 55,269 $ 60,077
Amounts due after one year 270,105 477,647
-------- --------
Total notes receivable $325,374 $537,724
-------- --------
-------- --------
</TABLE>
NOTE D - SUBORDINATED DEBT
During 1995, the Company issued subordinated debt totaling $675,000 and
$400,000 to its majority stockholder and an affiliate of this
stockholder, respectively. In March 1995, the Board of Directors of the
Company voted to accept the stockholders' offers to exchange $5,325,000
of subordinated debt outstanding at December 31, 1994 and $1,075,000 of
subordinated debt issued from January 1, 1995 through March 6, 1995 for
common stock at approximately $10 per share. The repayment of accrued
interest of approximately $107,000 was waived. Effective March 7, 1995,
the stockholder and its affiliate exchanged $4,900,000 and $1,500,000,
respectively, of subordinated debt for a total of 640,000 shares of
common stock at $10 per share.
22
<PAGE>
COMMANDER AIRCRAFT COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE E - NOTES PAYABLE - RELATED PARTIES
During 1996, the Company entered into various note agreements with its
majority stockholder and affiliates of this stockholder. These
uncollateralized notes bear interest at 10%, payable quarterly, in
arrears, with all unpaid principal and interest due at maturity.
Accrued interest payable on these notes totaled $70,383 at December 31,
1996.
In January 1997, the Board of Directors of the Company voted to accept
the stockholders' offer to exchange $2,000,000 of outstanding notes
payable for common stock at approximately $10 per share. The repayment
of accrued interest of approximately $87,000 was waived. Effective
February 1, 1997, the stockholder and its affiliate exchanged $1,450,000
and $550,000, respectively, of notes payable for a total of 200,000
shares of common stock at $10 per share.
NOTE F - LONG-TERM DEBT
At December 31, 1997, the Company had outstanding revolving notes
payable to bank bearing interest at 9.25% with interest payable monthly
and principal due in full on March 5, 1998. The notes are secured by
aircraft.
Following is a summary of long-term debt at December 31:
<TABLE>
1997 1996
-------- --------
<S> <C> <C>
Long-term debt $102,000 $445,500
Less current maturities 102,000 -
-------- --------
$ - $445,500
-------- --------
-------- --------
</TABLE>
NOTE G - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments as of December 31, 1997 and
1996 as required by SFAS No. 107, DISCLOSURE ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS. Such information, which pertains to the Company's
financial instruments, is based upon the requirements of SFAS No. 107
and does not purport to represent the aggregate net fair value of the
Company:
CASH AND CASH EQUIVALENTS AND CERTIFICATES OF DEPOSIT. The balance
sheet carrying amounts of cash and cash equivalents and certificates of
deposit approximate fair values of such assets.
NOTES RECEIVABLE. The fair values of notes receivable are estimated
by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities.
NOTES RECEIVABLE FROM RELATED PARTY. Because of the related party
nature of these receivables and the uncertainty of the timing of
ultimate collection, it is not practicable to estimate the fair value.
NOTES PAYABLE - RELATED PARTIES. Because of the related party
nature, it is not practicable to estimate the fair value.
23
<PAGE>
COMMANDER AIRCRAFT COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE G - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
LONG-TERM DEBT. The fair value of long-term debt is the discounted
amount of future cash flows using the Company's incremental rate of
borrowing for similar liabilities.
All of the Company's financial instruments are for purposes other than
trading.
<TABLE>
1997 1996
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $1,022,024 $1,022,024 $ 78,911 $ 78,911
Certificates of deposit 1,224,845 1,224,845 118,392 118,392
Notes receivable 325,374 324,064 537,724 535,583
Notes receivable from related party 1,496,971 - 2,648,181 -
Notes payable - related parties - - (2,800,000) -
Long-term debt (102,000) (102,000) (445,500) (404,546)
</TABLE>
NOTE H - STOCK OPTION PLANS
In December 1993, the Company approved a stock option plan for issuance
of up to 300,000 shares of stock to employees at the discretion of the
committee appointed by the Board of Directors. The number of shares
authorized for issuance under this plan was increased to 500,000 during
1995 and 800,000 during 1996. The stock option plan also provides for
automatic grants of options to purchase 20,000 shares of common stock to
each director on an annual basis. At December 31, 1997, approximately
109,000 shares remain to be granted under the plan. The stock warrants
and options generally vest ratably over a three-year period.
The Company uses the intrinsic value method to account for its warrants
and stock option plan in which compensation is recognized only when the
fair value of each option exceeds its exercise price at the date of
grant. Accordingly, no compensation cost has been recognized for the
warrants and options issued. Had compensation cost been determined based
on the fair value of the warrants and options at the grant dates, the
Company's net loss and loss per share would have been increased to the
pro forma amounts for the years ended as indicated below.
<TABLE>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net loss
As reported $(2,140,637) $(3,408,200) $(2,559,289)
Pro forma $(2,362,514) $(3,569,838) $(2,626,320)
Loss per share
As reported $ (.31) $ (.51) $ (.39)
Pro forma $ (.34) $ (.53) $ (.40)
</TABLE>
24
<PAGE>
COMMANDER AIRCRAFT COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE H - STOCK OPTION PLANS - CONTINUED
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to grants made before 1995. The fair value of each grant is
estimated on the date of grant using the Black-Scholes options-pricing
model with the following weighted-average assumptions used for grants in
1997, 1996, and 1995, respectively: no expected dividends; expected
volatility of 64%, 60%, and 68%; risk-free interest rate of 5.9%, 6.2%,
and 5.9%; and expected lives of five years. The exercise price of all
options equaled or exceeded market price of the stock at the date of
grant.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
A summary of the status of the Company's warrants and stock option plan as
of December 31, 1997, 1996, and 1995, and changes during the years ending
on those dates is presented below.
<TABLE>
1997 1996 1995
------------------ ------------------ -----------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares Price Shares Price Shares Price
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 510,500 $4.21 463,833 $4.40 491,000 $4.12
Granted 206,850 $2.28 190,000 $3.78 246,500 $4.62
Exercised - - - - (71,333) $3.18
Forfeited (26,001) $4.73 (143,333) $4.09 (202,334) $4.30
------- -------- --------
Outstanding at end of year 691,349 $3.65 510,500 $4.21 463,833 $4.40
------- -------- --------
------- -------- --------
Options exercisable at year end 304,327 $4.37 165,504 $4.56 138,668 $4.40
Weighted average fair value of
options granted during the year $1.33 $1.91 $2.34
</TABLE>
25
<PAGE>
COMMANDER AIRCRAFT COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE H - STOCK OPTION PLANS - CONTINUED
The following table summarizes information about fixed-price warrants and
stock options outstanding at December 31, 1997:
<TABLE>
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted-
average Weighted- Weighted-
Number remaining average Number average
outstanding contractual exercise exercisable exercise
at 12/31/97 life price at 12/31/97 price
----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$1.94 to $2.75 266,850 3.41 years $2.27 20,001 $2.25
$2.76 to $4.00 63,000 2.96 years $3.33 40,999 $3.27
$4.01 to $5.25 361,499 1.98 years $4.73 243,327 $4.72
------- -------
$1.94 to $5.25 691,349 304,327
------- -------
------- -------
</TABLE>
NOTE I - LEASES
The Company leases office space, hangar space, its manufacturing
and service facility, and certain office equipment under agreements
classified as operating leases that expire at various dates through
1999. Rental expense under these leases was approximately $256,000,
$243,000, and $230,000 for the years ended December 31, 1997, 1996, and
1995, respectively. The future annual minimum lease payments under
these leases at December 31, 1997 are as follows:
<TABLE>
<S>
<C>
Year ending December 31
1998 $221,680
1999 11,715
--------
Total future minimum lease payments $233,395
--------
--------
</TABLE>
The initial term of the lease for office space, hangar space, and
its manufacturing and service facility expires in October 1998 and is
renewable subject to mutually agreeable terms with the lessee.
Management believes the lease will be renewed under the renewal option.
26
<PAGE>
COMMANDER AIRCRAFT COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE J - SIGNIFICANT CUSTOMERS
The geographic sales of the Company's new aircraft are as follows:
<TABLE>
1997 1996 1995
------------------- ------------------- --------------------
Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
United States 12 $4,583,063 9 $3,349,046 14 $4,630,246
Europe - - 3 991,683 2 651,820
Middle East - - 3 901,000 8 2,843,327
Asia - - - - 1 272,700
</TABLE>
The Company's 1997 used aircraft sold in the United States and Europe were 13
and 2, respectively, totaling $1,876,350 and $401,000, respectively. During
1996, all used aircraft were sold in the United States for a total of
$1,652,167.
During 1996, 12% and 11% of the Company's revenues represented sales to
two international customers. During 1995, 32% of the Company's revenues
represented sales to a related party (see Note K).
NOTE K - RELATED PARTY TRANSACTIONS
During 1995, the Company sold eight planes totaling approximately
$2,840,000 with a gross margin of approximately $750,000, either directly
to a director of the corporate general partner of the Company's majority
stockholder or to an Authorized Sales and Service Representative owned by
the director. These aircraft were purchased with a line of credit which,
during 1995, was increased to $5,000,000. During 1996, the Company
received cash payments of approximately $1,663,000 and extended financing
of approximately $88,000 on spare parts sold to related parties under
this line of credit. During 1997, the Company received cash payments of
approximately $845,000. The Company also received two aircraft in
exchange for credits applied to the note receivable and accrued interest
receivable of approximately $550,000. The Company extended financing of
approximately $57,000 on spare parts sold to related parties under this
line of credit. During 1997, the due date was extended to June 30, 1998.
It is management's intention to extend the due date at maturity,
therefore, the unpaid portion of $500,000 to be extended is reflected as
a long-term receivable at December 31, 1997. The line of credit bears
interest at 1% over the Morgan Guaranty of New York prime rate (9.5% at
December 31, 1997), payable quarterly, in arrears. Accrued interest
receivable under this line of credit agreement totaled $22,205 and $2,684
as of December 31, 1997 and 1996, respectively. The outstanding balance
under this line of credit was approximately $1,497,000 and $2,648,000 at
December 31, 1997 and 1996, respectively. Interest income under this
line of credit was approximately $207,000, $309,000, and $282,000 for
1997, 1996, and 1995, respectively.
The chairman of the Board of Directors of the Company is also a
stockholder, director, and the Managing Director of the corporate general
partner of the Company's majority stockholder.
27
<PAGE>
COMMANDER AIRCRAFT COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE L - INCOME TAXES
No current tax provisions have been recognized in the accompanying
statements of operations given the operating losses incurred.
Components of the net deferred tax assets at December 31 are as follows:
<TABLE>
1997 1996
------------ -----------
<S> <C> <C>
Deferred tax assets (liabilities)
Inventories $ 212,000 $ 226,000
Depreciation and amortization (181,000) (170,000)
Accrued liabilities 78,000 113,000
Net operating loss carryforwards 10,481,000 9,661,000
------------ -----------
10,590,000 9,830,000
Valuation allowance (10,590,000) (9,830,000)
------------ -----------
Total deferred tax assets $ - $ -
------------ -----------
------------ -----------
</TABLE>
The Company's net operating loss carryforwards will expire as follows:
<TABLE>
<S> <C>
December 31
2004 $ 220,657
2005 3,196,640
2006 17,434
2007 6,466,819
2008 3,982,473
2009 4,523,401
2010 2,279,486
2011 3,445,366
2012 2,070,619
-----------
Total net operating loss carryforwards $26,202,895
-----------
-----------
</TABLE>
NOTE M - COMMITMENTS AND CONTINGENCIES
The Company is subject to regulation by the FAA. The Company is subject
to inspections by the FAA and may be subjected to fines and other
penalties (including orders to cease production) for noncompliance with
FAA regulations. The Company has a Production Certificate from the FAA
which delegates to the Company the inspection of each aircraft. The sale
of the Company's product internationally is subject to regulation by
comparable agencies in foreign countries. Management believes there is
no litigation outstanding which would have a material adverse effect on
the financial position or operations of the Company.
28
<PAGE>
COMMANDER AIRCRAFT COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE M - COMMITMENTS AND CONTINGENCIES - CONTINUED
The Company faces the inherent business risk of exposure to product liability
claims. In 1988, the Company agreed to indemnify a former manufacturer of
the Commander single engine aircraft against claims asserted against the
manufacturer with respect to aircraft built from 1972 to 1979. In 1994,
Congress enacted the General Aviation Revitalization Act, which established
an eighteen-year statute of repose for general aviation aircraft
manufacturers. This legislation prohibits product liability suits against
manufacturers when the aircraft involved in an accident is more than eighteen
years old. This action effectively eliminated all potential liability for the
Company with respect to aircraft produced in the 1970s as of December 31,
1997. The Company's product liability insurance policy with coverage of $10
million per occurrence and $10 million annually in the aggregate with a
deductible of $200,000 per occurrence and annually in the aggregate expired
March 1, 1995. Subsequent to March 1, 1995, the Company is not insured for
product liability claims.
NOTE N - EMPLOYEE BENEFIT PLANS
The Company has a profit sharing 401(k) plan covering substantially all
employees. Eligible employees may contribute up to 15% of their
compensation. The Company contributes an amount equal to at least 25% of
each employee's contributions not in excess of 10% of compensation. However,
additional contributions may be made at the Company's discretion. Expense
under the plan was $43,550, $45,304, and $40,210 for 1997, 1996, and 1995,
respectively.
The Company has a contributory health care benefit plan covering
substantially all employees and eligible dependents. The plan provides for
covered major medical expense benefits subject to certain deductibles,
coinsurance provisions, and lifetime maximums. Employee and Company
contributions are determined by the Company from time to time based on the
amounts of claims and other expenses incurred. The plan has certain
stop-loss coverage under an insurance policy that provides for payments of
covered benefits in excess of $25,000 per year per covered person. The
policy also provides an aggregate monthly stop-loss for the plan based on
number of covered persons. Expense under the plan was approximately $142,000,
$125,000, and $161,000 for 1997, 1996, and 1995, respectively.
NOTE O - MANAGEMENT PLANS
The Company has experienced recurring losses and net cash outflows from
operations since its inception. Since inception, the Company has financed its
cash needs with debt, private investor capital, proceeds from an initial
public offering, and proceeds from subsequent stock issuances. During 1997,
the Company implemented plans to improve its liquidity and capital and its
operational performance.
Management believes the reduction in net loss and the net cash used in
operating activities is attributable to the plans implemented in late 1996
and 1997 to provide new operating revenues for the Company. The Company
created the Aviation Services Division ("ASD") to sell pre-owned aircraft,
provide commissions from aircraft brokerage services, and market
refurbishment capabilities. During 1997, the Company expanded its efforts to
purchase pre-owned aircraft, accept aircraft on trade for new units, and, in
most cases, refurbish and resell the aircraft at a reasonable profit.
Revenue from sales of pre-owned aircraft increased by 38% in 1997 and
revenues from refurbishment and service increased over 12%. Management
expects this trend to continue in 1998 as booked orders for both new and
pre-owned aircraft for the first quarter are showing substantial improvement
over the same period in 1997. The Company will pursue additional
opportunities to take advantage of its factory facilities to offer upgrades
to existing aircraft owners for new paint, interior, and equipment.
29
<PAGE>
COMMANDER AIRCRAFT COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE O - MANAGEMENT PLANS - CONTINUED
The Company introduced a new de-icing option for which it expects to
receive certification during March 1998 from the FAA, allowing aircraft
so equipped to operate in known icing conditions similar to larger, more
expensive aircraft. Sales of this optional equipment not only provide
additional revenues and earnings, but also increase the value of the
aircraft relative to its competition. A number of other improvements and
new options will be offered on 1998 models.
In addition to the above actions to increase revenue, the Company has
made efforts to reduce costs and cash requirements by optimizing its
production schedule using just-in-time scheduling, thereby decreasing
inventories to their lowest levels since production commenced in 1991.
Management has reduced the costs incurred to advertise new aircraft by
focusing the advertising efforts at a specific customer profile. Further
reducing selling expenses, the Company completed a consolidation of sales
territories which significantly lowered the fixed costs of sales and
marketing without reducing the number of direct contacts with qualified
customers.
The Company's liquidity was improved with the sale of 360,000 shares of
common stock to its majority shareholder and affiliates for $3,600,000.
The Company used approximately $1,500,000 of the $3,600,000 proceeds to
repay 10% demand notes and other debt. The balance of the proceeds is
still on hand to be used to continue expansion of the ASD. The Company
also believes the note receivable from related party which was reduced by
approximately $1,100,000 in 1997 will also provide significant cash
sources during 1998. Because of the increase in liquidity and other
improvements to operations, management believes that the Company will not
require additional borrowings during 1998 to fund operations. Although
the majority shareholder, who has invested over $26 million in the
Company, will probably continue to fund cash needs of the Company if
required, there can be no assurance that this funding will continue.
The Company's ability to continue as a going concern is contingent upon
its ability to maintain adequate financing and attain profitable
operations. The financial statements do not include any adjustments
relating to the recoverability or classification of asset amounts or the
amount and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. Although
management believes that it has made significant progress in 1997 by
widening its product line to include the ASD, improving its products,
decreasing sales and marketing expenses, and reducing debt and related
interest expense and it is reasonable to expect the Company to improve
revenues, reduce costs, and improve operating results and cash flow in
1998, there can be no assurance that these results can be achieved.
30
<PAGE>
COMMANDER AIRCRAFT COMPANY
COMMANDER AIRCRAFT COMPANY
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
<TABLE>
Three Months Ended
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net Sales $1,074,409 $1,984,776 $2,970,196 $2,032,988
Net loss $ (789,952) $ (559,867) $ (393,107) $ (397,711)
Loss per share $(0.12) $(0.08) $(0.06) $(0.06)
Weighted average shares outstanding 6,851,659 6,920,548 6,920,548 7,221,852
</TABLE>
<TABLE>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net Sales $1,462,930 $2,854,804 $2,131,648 $1,508,756
Net loss $ (994,449) $ (899,650) $ (698,280) $ (815,821)
Loss per share $(0.15) $(0.13) $(0.10) $(0.12)
Weighted average shares outstanding 6,720,548 6,720,548 6,720,548 6,720,548
</TABLE>
Quarterly and year to date computation of per share amounts are made
independently. Therefore, the sum of quarterly per share amounts may not
agree with per share amounts for the year.
31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no Form 8-K filings in fiscal year ended December 31, 1997 and there
were no changes in or disagreements with accountants on accounting and
financial disclosure in 1997.
PART III
Certain information required by Part III is omitted from this report in that
registrant will file a definitive proxy statement pursuant to Regulation 14A
for its 1998 Annual Meeting of Shareholders, and the information included
therein is incorporated by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Registrant required by this item is
incorporated herein by reference form the Company's 1998 Proxy Statement under
the caption "Election of Directors - Nominees".
The information regarding executive officers of the Company required by this
item appearing in the Company's 1998 Proxy Statement under the caption
"Election of Directors - Other Officers" is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appearing in the Company's 1998 Proxy
Statement under the captions "Election of Directors - Director Compensation"
and "Executive Compensation" is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appearing in the Company's 1998 Proxy
Statement under the caption "Information Concerning Solicitation and Voting -
Security Ownership of Certain Beneficial Owners and Management" is hereby
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Note E - Notes Payable Related Parties and Note K - Related Party Transactions,
of the Notes to Financial Statements for 1997 are hereby incorporated by
reference.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K:
<TABLE>
PAGE
----
<S> <C> <C>
(a) (1) The following financial statements are included in Part II Item 8:
Report of Independent Certified Public Accountants 14
Financial Statements:
Balance Sheets December 31, 1997 and 1996 15
Statements of Operations for the years ended December 31,
1997, 1996 and 1995 17
Statement of Stockholders' Equity for the years ended
1997, 1996 and 1995 18
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 19
Notes to Financial Statements 20
(2) The following financial schedule for the years 1997, 1996 and
1995 is submitted herewith:
Selected Quarterly Financial Data for the years ended
December 31, 1997 and 1996 (unaudited) 31
All other schedules are omitted because they are not applicable
or the required information has been presented in the financial
statements or notes thereto.
(3) Exhibits included are hereby incorporated by reference to the
Exhibit Index, page 34 of this report.
</TABLE>
33
<PAGE>
INDEX OF EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Amended and Restated Articles of Incorporation of Commander Aircraft
Company and all amendments to date. This exhibit is incorporated by
reference to Exhibit 3.1 of the Registrant's Form S-1 filed March 4,
1993 (Reg. No. 33-59128).
3.2 Bylaws of Commander Aircraft Company. This exhibit is incorporated by
reference to Exhibit 3.2 of the Registrant's Form S-1 filed March 4,
1993 (Reg. No. 33-591280).
4.1(a) Articles of Amended and Restated Articles of Incorporation, as
amended describing the Common Stock (included in Exhibit 3.1). This
exhibit is incorporated by reference to Exhibit 4.1(a) of the
Registrant's Form S-1 filed March 4, 1993 (Reg. No. 33-59128).
(b) Form of Commander Aircraft Company Common Stock Certificate. This
exhibit is incorporated by reference to Exhibit 4.1(b) of the
Registrant's Form S-1 filed March 4, 1993 (Reg. No. 33-59128).
10.1 Federal Aviation Administration ("FAA") Type Certificates issued to
Commander Aircraft Company (the "Company") for models 112, 114, 112TC,
112B, 112TCA 114A, and 114B. This exhibit is incorporated by reference
to Exhibit 10.1 of the Registrant's Form S-1 filed March 4, 1993
(Reg. No. 33-59128).
10.2 FAA Repair Station Air Agency Certificate issued to the Company. This
exhibit is incorporated by reference to Exhibit 10.2 of the
Registrant's Form S-1 filed March 4, 1993 (Reg. No. 33-59128).
10.3 Lease and operations Agreement between the Company and the Trustees of
the Oklahoma City Airport Trust dated August 9, 1988, as amended by the
Supplemental Agreement No. 1 dated December 18, 1991, and the
Supplemental Agreement No. 2 dated April 2, 1992. This exhibit is
incorporated by reference to Exhibit 10.19 of the Registrant's Form S-1
filed March 4, 1993 (Reg. No. 33-59128).
10.4 Textron Lycoming Finance Plan No. 1 between Textron Financial
Corporation and the Company dated June 26, 1991, as amended to the
Finance Plan No. 1 dated as of May 28, 1992, the Second Amendment dated
as of September 29, 1992, and the Third Amendment dated as of
December 10, 1992. This exhibit is incorporated by reference to Exhibit
10.29 of the Registrant's Form S-1 filed March 4, 1993
(Reg. No. 33-59128).
34
<PAGE>
INDEX OF EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.5 International Distributorship Agreement between the Company and Com-Air
Flugzeughandel Gmbh. This exhibit is incorporated by reference to
Exhibit 10.31 of the Registrant's Form S-1 filed March 4, 1993 (Reg.
No. 33-59128).
10.6 International Distributorship Agreement between the Company and Aero
Service b.v. This exhibit is incorporated by reference to Exhibit
10.32 of the Registrant's Form S-1 filed March 4, 1993
(Reg. No. 33-59128).
10.7 International Dealership Agreement between the Company and Commander
Khaleej Trading Establishment. This exhibit is incorporated by
reference to Exhibit 10.28 of the Registrant's Form 10-K filed
March 30, 1994.
10.8 Form of the Company's Authorized Sales and Service Representative
Policy and Procedures Manual. This exhibit is incorporated by
reference to Exhibit 10.37 of the Registrant's Form S-1 filed
March 4, 1993 (Reg. No. 33-59128).
10.9 Form of the Company's Authorized Sales and Service Representative
Agreement. This exhibit is incorporated by reference to Exhibit
10.38 of the Registrant's Form S-1 filed March 4, 1993
(Reg. No. 33-59128).
10.10 Form of the Company's Service Center Agreement. This exhibit is
incorporated by reference to Exhibit 10.39 of the Registrant's Form S-1
filed March 4, 1993 (Reg. No. 33-59128).
10.11 The Commander Aircraft Company Profit Sharing Plan. This exhibit is
incorporated by reference to Exhibit 10.40 of the Registrant's
Form S-1 filed March 4, 1993 (Reg. No. 33-59128).
10.12 Nonstatutory Stock Option Agreement between the Company and Wirt D.
Walker, III dated January 31, 1994. This exhibit is incorporated by
reference to Exhibit 10.48 of the Registrant's Form 10-K filed
March 30, 1994.
10.13 Nonstatutory Stock Option Agreement between the Company and Mishal
Y.S. Al Sabah dated January 31, 1994. This exhibit is incorporated by
reference to Exhibit 10.49 of the Registrant's Form 10-K filed
March 30, 1994.
10.14 Form of Company's Aircraft Delivery and Acceptance Agreement. This
exhibit is incorporated by reference to Exhibit 10.63 of the
Registrant's Form S-1 filed March 4, 1993 (Reg. No. 33-59128).
35
<PAGE>
INDEX OF EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.15 Form of the Company's Aircraft Retail Warranty. This exhibit is
incorporated by reference to Exhibit 10.64 of the Registrant's Form S-1
filed March 4, 1993 (Reg. No. 33-59128).
10.16 Commander Aircraft Company 1993 Stock Option Plan. This exhibit is
incorporated by reference to Exhibit 10.53 of the Registrant's
Form 10-K filed March 28, 1996.
27 Financial Data Schedule
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto authorized on the 25th day of March, 1998.
COMMANDER AIRCRAFT COMPANY
By: WIRT D. WALKER, III
---------------------------------
Chairman of the Board
Pursuant to the requirements of the Securities and 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.
PRINCIPAL EXECUTIVE OFFICER:
President and
N. GENE CRISS Chief Executive Officer March 25, 1998
- --------------------
PRINCIPAL FINANCIAL OFFICER AND ACCOUNTING OFFICER:
STEPHEN R. BUREN Chief Financial Officer March 25, 1998
- --------------------
DIRECTORS:
WIRT D. WALKER, III Director March 25, 1998
- --------------------
MISHAL Y.S. AL SABAH Director March 25, 1998
- --------------------
37
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,022,024
<SECURITIES> 1,224,845
<RECEIVABLES> 1,395,157
<ALLOWANCES> 0
<INVENTORY> 5,610,129
<CURRENT-ASSETS> 9,455,970
<PP&E> 1,491,396
<DEPRECIATION> (777,940)
<TOTAL-ASSETS> 10,939,531
<CURRENT-LIABILITIES> 760,379
<BONDS> 0
0
0
<COMMON> 3,640,274
<OTHER-SE> 6,538,878
<TOTAL-LIABILITY-AND-EQUITY> 10,939,531
<SALES> 8,062,369
<TOTAL-REVENUES> 8,062,369
<CGS> 7,775,892
<TOTAL-COSTS> 7,775,892
<OTHER-EXPENSES> 2,649,831
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,768
<INCOME-PRETAX> (2,140,637)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,140,637)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,140,637)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
