-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EgbPDI6WOr9Togj3Ty5CNtqthlnzJ3pna5RO90jDsxkBKJ68ztqjbHhrZIZQC1ML +q0sjD0hRlVlNkB6cU+kuA== 0000950147-99-001011.txt : 19990914 0000950147-99-001011.hdr.sgml : 19990914 ACCESSION NUMBER: 0000950147-99-001011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATES AIRCRAFT CORP CENTRAL INDEX KEY: 0000350129 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 953518487 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09974 FILM NUMBER: 99710442 BUSINESS ADDRESS: STREET 1: 3121 E. GREENWAY RD STE201 CITY: PHOENIX STATE: AZ ZIP: 85032 BUSINESS PHONE: 6027650500 MAIL ADDRESS: STREET 1: 3121 E. GREENWAY RD #201 STREET 2: STE B-6 CITY: PHOENIX STATE: AZ ZIP: 85032 10-Q 1 QTRLY REPORT FOR THE PERIOD ENDED 06/30/99 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- QUARTERLY REPORT UNDER SECTION 13 OF 15(d) of the Securities Exchange Act of 1934 ---------- For quarter ended June 30, 1999, Commission file number 0-9974 UNITED STATES AIRCRAFT CORPORATION (Exact Name of Registrant as Specified in Its Charter) DELAWARE 95-3518487 ------------------------------- ----------------------------- (State or Other Jurisdiction of (I.R.S. Employer I.D. Number) Incorporation or Organization) 3625 N. 16th Street, Suite 112, Phoenix, Arizona 85016 - ------------------------------------------------ ---------- (Address of Principal Executive Offices) (Zip Code) (602) 263-8887 ------------------------------------------------- (Registrant's Telephone No., Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of June 30, 1999. NUMBER OF SHARES CLASS ---------------- ----- 9,927,504 Class A 4,962,801 Class B UNITED STATES AIRCRAFT CORPORATION COMMISSION FILE NUMBER 0-9974 FORM 10-Q INDEX Page No. -------- PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets June 30, 1999 (Unaudited) and September 30, 1998 3 Consolidated Statements of Operations (Unaudited) for the Three and Nine Months ended June 30, 1999 and 1998 4 Consolidated Statements of Cash Flows (Unaudited) for the Three and Nine Months Ended June 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 PART II - OTHER INFORMATION 18 Item 3. DEFAULTS UPON SENIOR SECURITIES 18 Item 5. OTHER INFORMATION 18 Item 6. EXHIBITS AND REPORTS ON FORM 8-K 19 SIGNATURE 19 2 UNITED STATES AIRCRAFT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1999 AND SEPTEMBER 30, 1998 June 30, September 30, 1999 1998 ----------- ----------- ASSETS (Unaudited) Current Assets Cash $ 38,570 $ 8,070 Accounts receivable 136,662 75,902 Notes receivable 1,500 1,500 Prepaid expenses 27,553 7,844 ----------- ----------- Total current assets 204,285 93,316 Note receivable, net of current portion 25,000 25,000 Investment, Neo Vision, Inc. 103,338 Property & equipment, net of accumulated depreciation 1,737,840 47,613 Agency acquisitions, net of amortization 68,011 84,555 Goodwill, net 98,844 103,339 Course materials 12,279 13,754 Other 52,114 13,874 ----------- ----------- Total Assets 2,198,373 484,789 ----------- ----------- LIABILITIES & STOCKHOLDER'S EQUITY Current Liabilities Current portion of long-term debt 22,000 26,000 Notes payable 60,170 30,000 Convertible debentures & related accrued interest 979,523 90,041 Accounts payable 444,335 90,734 Accrued expenses 376,576 214,062 Unearned tuition 85,436 62,900 ----------- ----------- Total current liabilities 1,968,040 513,737 Long term debt, net of current portion 27,073 5,360 Minority Interest 131,356 ----------- ----------- Total liabilities 2,126,469 519,097 ----------- ----------- STOCKHOLDERS' EQUITY Capital stock Class A: $.50 par value, 10,000,000 shares authorized, 9,927,504 issued 4,963,752 4,963,752 Class B: $.001 par value, 5,000,000 shares authorized, 4,962,801 issued 4,963 4,963 Paid in capital (1,736,828) (1,838,862) Retained earnings (deficit) (3,159,983) (3,164,161) ----------- ----------- 71,904 (34,308) ----------- ----------- Total Liabilities and Stockholders' Equity $ 2,198,373 $ 484,789 ----------- ----------- The accompanying notes are an integral part of these financial statements. 3 UNITED STATES AIRCRAFT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
Three Months Ended Nine Months Ended June 30 June 30 ---------------------------- --------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ REVENUE Real Estate education $ 161,868 $ 125,268 $ 419,709 $ 343,377 Travel agency 526,889 358,153 1,159,343 1,054,770 Other -- -- 180,000 1,010 ------------ ------------ ------------ ------------ Total revenue 688,757 483,421 1,759,052 1,399,157 ------------ ------------ ------------ ------------ EXPENSES Costs of sales - travel agency 507,403 323,450 1,060,590 949,960 Personnel expenses 116,385 78,864 298,863 266,110 Facility cost 32,453 14,472 67,210 48,122 Other operating cost 35,119 38,540 102,800 90,436 General and administration 56,985 29,396 150,720 72,939 Depreciation and amortization 18,624 9,913 40,605 29,182 ------------ ------------ ------------ ------------ 766,969 494,635 1,720,788 1,456,749 ------------ ------------ ------------ ------------ Income (Loss) before interest expense (78,212) (11,214) 38,264 (57,592) Interest expense 26,724 7,042 33,597 13,433 ------------ ------------ ------------ ------------ Net Income (loss) $ (104,936) $ (18,256) $ 4,667 $ (71,025) ------------ ------------ ------------ ------------ Net income (loss) per share $ (.007) $ (.002) $ .000 $ (.006) ------------ ------------ ------------ ------------ Weighted number of shares outstanding 14,890,305 12,890,305 14,890,305 12,781,971 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these statements. 4 UNITED STATES AIRCRAFT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 --------- --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(104,936) $ (18,256) $ 4,667 $ (71,025) Adjustments to reconcile net to cash used by operating activities Depreciation 11,120 2,662 18,093 7,986 Amortization 7,503 7,251 22,512 21,196 Net increase (decrease) in current liabilities and (increase) decrease in accounts receivable prepaid expense and other assets 117,219 29,048 (9,691) 63,469 --------- --------- --------- --------- Net cash provided by (used by) operating activities 30,906 20,705 35,581 21,626 --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Cash provided from acquisition of Neo Vision, Inc. 439 Reduction in advance to officer 4,026 27,769 Addition to land held for development (11,384) 36,290 Disposition (acquisition) of equipment (2,157) -- (23,233) (1,183) --------- --------- --------- --------- Net cash provided by (used by) investing activities (2,157) (7,358) (22,794) (9,704) --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Increase (Decrease) in long-term debt 3,850 (3,903) 17,713 (15,884) --------- --------- --------- --------- Net cash provided by (used by) financing activities 3,850 (3,903) 17,713 (15,884) --------- --------- --------- --------- Net increase (decrease) in cash 32,599 9,444 30,500 (3,962) Cash Beginning of Period 5,971 7,021 8,070 20,427 --------- --------- --------- --------- Cash End of Period $ 38,570 $ 16,465 $ 38,570 $ 16,465 ========= ========= ========= =========
The accompanying notes are an integral part of these statements. 5 UNITED STATES AIRCRAFT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (UNAUDITED) AND SEPTEMBER 30, 1998 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. For further information, refer to the audited financial statements and footnotes thereto included in the Company's Form 10-K for the year ended September 30, 1998. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of United States Aircraft Corporation and its subsidiaries (hereinafter referred to as "the Company"). All intercompany transactions have been eliminated in consolidation. For further information concerning significant accounting policies, refer to the audited financial statements and footnotes thereto in the Company's Form 10-K for the year ended September 30, 1998. NOTE 3 - NEO VISION, INC. ACQUISITION At June 30, 1998, the Company acquired all of the outstanding shares of Neo Vision, Inc. whose principal business purpose is to provide advertising, programming and information to remote audiences using computer, video and transmission technology throughout the United States. The acquisition was closed with the exchange of 2,000,000 shares of the Company's Class A common stock for all of the outstanding shares of Neo Vision, Inc. The Exchange Agreement required that an amendment and restatement of the Company's Certificate of Incorporation be approved by the stockholders authorizing (i) the reclassification of the Company's Class A Common Stock and Class B Common Stock in a single new class of Common Stock ("New Common Stock,") pursuant to the following ratios: shares of Class A Common Stock will be reclassified into shares of New Common Stock on the basis of 10 shares of Class A Common Stock into one share of New Common Stock and 13 shares of Class B Common Stock into one share of New Common Stock; (ii) the issuance of up to 100,000,000 shares of New Common Stock: (iii) the issuance of up to 75,000,000 shares of preferred stock: (iv) the change of the name of the Company from United States Aircraft 6 NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED) Corporation to Neo Vision Corporation and (v) make certain technical amendments to the Company's Certificate of Incorporation. The Exchange Agreement provides that if the amendment and restatement of the Certificate of Incorporation is not approved by a majority of each of the Class A and Class B stockholders, then the Neo Vision stockholders can each elect to rescind their exchange of shares with the Company. Prior to March 31, 1999, the financial statements of Neo Vision, Inc. were not consolidated with the Company, until approval of the amendment and restatement of the Certificate of Incorporation is fully assured and, therefore, the investment was being accounted for pursuant to the cost method. At September 30, 1998, the investment in Neo Vision, Inc., representing the initial 2,000,000 Class A Common Stock shares issued for all of the outstanding shares of Neo Vision, Inc., has been recorded for financial reporting purposes at $22,965, which represents the portion of the total investment in Neo Vision, Inc. represented by the initial issuance of the Company's Class A shares. Upon approval of the amendment and restatement of the Certificate of Incorporation, an additional 4,577,560 shares of the new Common Stock were to be issued to the former stockholders of Neo Vision, Inc. At June 30, 1998, the Company's Board of Directors believed the superior potential growth of Neo Vision, Inc., compared to the Company's then current lines of business, justified an exchange ratio where the Neo Vision, Inc. shareholders would have an approximate 80% ownership in the Company when the exchange was completed. Because the Company did not have sufficient authorized shares, the Exchange Agreement provided for the issuance of the initial 2,000,000 shares of Class A Common Stock at closing, and the issuance of the additional shares to bring their Neo Vision shareholders' interest to 80% after authorization of additional shares at a special meeting of the Company's shareholders. A preliminary proxy for the special stockholders meeting that was originally scheduled for September 24, 1998, was filed with the Securities and Exchange Commission (SEC), and contained a recommendation to the stockholders by the Company Board of Directors to vote for the amendments to the Certificate of Incorporation that would allow the issuance of the additional shares. The Company filed amendments to the proxy statement with the SEC on February 16, 1999 and subsequent to that filing, the Company's management became concerned as to whether the reasons for recommending the original exchange ratio continued to be justified. On March 8, 1999, a special meeting of the Board of Directors of the Company was held to review the current status of the proxy for the special stockholders meeting and to make a current evaluation of the Neo Vision, Inc. acquisition. The Board meeting was adjourned to allow management and the Board to further evaluate the transaction. As a result of the further evaluation, the Company Board of Directors determined that a current evaluation of the original factors does not justify an 80% ownership of the Company by the former Neo Vision, Inc. shareholders. Accordingly, the Company Board of Directors concluded that they could no longer recommend a vote to amend and restate the Company's Certificate of Incorporation that would authorize the New Common Stock to allow the completion of the exchange based on the the proposed exchange ratio. Because of announced negative 7 NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED) votes by members of the Company's Board of Directors, it was determined that the proposal to restate and amend the Company's Certificate of Incorporation would be defeated. Because of the non-approval of the New Common Stock, each of the six former Neo Vision, Inc. shareholders had a right to elect to rescind the Exchange Agreement. An election notice and form was provided to the former Neo Vision, Inc. shareholders on March 18, 1999 with the election to be made by them no later than March 31, 1999. All six of the former Neo Vision shareholders have elected not to rescind. Accordingly, the Company will continue to own 100% of the outstanding shares of Neo Vision, Inc. and in accordance with the terms of the Exchange Agreement, the Company will issue no additional shares to the former Neo Vision, Inc. shareholders. Accordingly, on March 31, 1999, the acquisition of Neo Vision, Inc. became fully assured and Neo Vision, Inc. is included in the consolidated balance sheet with the acquisition being accounted for by the purchase method. The 2,000,000 shares of Class A common stock that was originally recorded for accounting purposes at $22,965 has been re-measured and adjusted to $125,000, which represents the fair value at March 31, 1999 of the 2,000,000 Class A shares issued for the Neo Vision, Inc. acquisition. The $125,000 purchase price exceeds the book value of the net assets of Neo Vision, Inc. at the March 31, 1999 date of acquisition by $1,260,466 which has been allocated to the cost of the video wall systems software and technology. The video wall systems software and technology is being depreciated over a fifteen year period using the straight line method. Operations of Neo Vision, Inc. has been included in the consolidated statement of operations from March 31, 1999, the date of acquisition. Supplemental cash flow information related to the assets and liabilities consolidated as a result of the acquisition of Neo Vision, Inc., is as follows: Assets Accounts receivable $ 35,652 Prepaid expenses 3,097 Property and equipment 1,685,087 Other 18,786 ---------- Total $1,742,622 ========== Liabilities Notes payable 20,170 Accounts payable 233,818 Accrued expenses 26,640 Deferred income 14,638 Convertible debentures & interest 880,734 Due to USAC 310,705 Minority interest 131,356 ---------- Total $1,618,061 ========== 8 NOTE 3 - ACQUISITION - NEO VISION, INC. (CONTINUED). Class A common shares of the Company issued for acquisition $ 125,000 ---------- Cash provided from acquisition $ 439 ---------- The following unaudited pro forma consolidated statements of operations of Unites States Aircraft Corporation for the nine months ended June 30, 1999 sets forth the consolidation of United States Aircraft Corporation with Neo Vision, Inc. under the purchase method of accounting as if the acquisition was completed on October 1, 1998. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1999
United States Aircraft Corp. Pro Forma Neo Vision and Subsidiaries Neo Vision, Inc. Adjustments Corporation ----------- ----------- ----------- ----------- Revenue Real estate education $ 419,709 $ 419,709 Travel Agency 1,159,343 1,159,343 Video Wall advertising $ 209,008 209,008 Other 195,000 (195,000)(1) -- ----------- ----------- ----------- Total revenue $ 1,774,052 209,008 $ 1,788,060 ----------- ----------- ----------- Expenses Cost of sales $ 1,043,800 $ 97,824 $ 1,141,624 Personnel expenses 289,913 76,386 366,299 Facility cost 64,670 10,658 75,328 Other operating cost 99,697 260,399 360,096 General and administration 150,720 195,000 (195,000)(1) 150,720 Depreciation and amortization 33,414 34,428 63,023 (2) 130,865 ----------- ----------- ----------- Total expenses $ 1,682,214 $ 674,695 $ 2,224,932 ----------- ----------- ----------- Income (loss) before interest Expense 91,838 (465,687) (436,872) Interest expense 11,219 76,615 87,834 ----------- ----------- ----------- Net income (loss) $ 80,619 $ (542,302) $ (524,706) =========== =========== =========== Pro forma net income (loss) per share (3) $ (.04)
- ---------- (1) To eliminate intercompany management fees. (2) Pro forma depreciation of the video wall systems software and technology on the straight line method over an estimated useful life of 15 years. (3) Based on weighted average shares of 14,890,305. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS COMPARISON NINE MONTHS ENDED JUNE 1999 TO 1998 The total revenue of $1,759,052 for the nine months ended June 30, 1999 is made up of $419,709 or 24% from the real estate education segment and $1,159,343 or 66% from the travel agency segment with the remaining $180,000 or 10% consisting of the management fee charged to Neo Vision, Inc. Total revenue increased by $359,895 in 1999 compared to a $1,088,553 increase in 1998. The 1999 revenue increase consists of an increase in real estate education revenue of $76,332, a increase in travel agency sales of $104,573 and an increase in management fees and other revenues of $178,990. The net loss improved by $75,692 and consists of the following: Increase in Real Estate Education 1999 operating income over 1998 $ 30,386 Decrease in Travel Agency 1999 operating loss over 1998 $ 5,333 Loss from Neo Vision, Inc. from March 31, 1999 (date of acquisition) Through June 30, 1999 $ (38,544) Increase in consulting and other income $ 178,990 Increase in general corporate overhead $ (80,305) Increase in interest expense $ (20,164) The increase in real estate education 1999 results over 1998 consists of the following: Increase 1999 1998 (Decrease) -------- -------- -------- Revenue $419,709 $343,377 $ 76,332 -------- -------- -------- Costs and expenses Personnel expense 206,946 180,573 26,373 Facility cost 49,362 44,240 5,122 Other operating cost 70,621 57,887 12,734 Depreciation and amortization 11,176 9,459 1,717 -------- -------- -------- Total $338,105 $292,159 $ 45,946 -------- -------- -------- Operating income $ 81,604 $ 51,218 $ 30,386 ======== ======== ======== 10 The adult education division results improved by $30,386. The improvement was due to a $76,332 increase in revenues offset by a $45,946 increase in operating costs. The revenue increase is the result of additional enrollments including those at the new East campus. The operating cost increase consists of a $26,373 increase in personnel expense, including additional marketing personnel, a $5,122 increase in facility costs, a $12,734 increase in other operating costs, and a $1,717 increase in depreciation and amortization. The $5,333 decrease in the travel agency 1999 operating loss consists of the following: Increase 1999 1998 (Decrease) ----------- ----------- ----------- Sales $ 1,159,343 $ 1,054,770 $ 104,573 Cost of sales 1,043,800 949,960 93,840 ----------- ----------- ----------- Gross profit $ 115,543 $ 104,810 $ 10,733 Operating costs Personnel expense 82,966 85,537 (2,571) Facility cost 15,337 3,882 11,455 Other operating costs 29,076 32,549 (3,473) Depreciation and amortization 19,385 19,396 (11) ----------- ----------- ----------- Total $ 146,764 $ 141,364 $ 5,400 ----------- ----------- ----------- Operating loss $ (31,221) $ (36,554) $ 5,333 =========== =========== =========== Sales for the travel agency operation increased by $104,573 during the nine-month period ending June 30, 1999, as compared to the agencies' sales for the nine months ended June 30, 1998. Gross profit during the nine months ended June 30, 1999 increased by $10,733 over the comparable period ended June 30, 1998. The gross profit percentage for both periods remained at 10%. Operating costs for the nine months ended June 30, 1999 were $146,764 compared to $141,364 for the comparable period ended June 30, 1998. The $5,400 decrease in operating costs results from the reduction of travel agents to a staff level appropriate for the sales volume of the travel agency segment offset by increases in facility costs due to the opening of an additional retail branch. 11 Neo Vision, Inc. had an operating loss of $450,687 during the nine months ended June 30, 1999 with a operating loss of $38,544 during the three months from the date of acquisition through June 30, 1999. The Neo Vision ,Inc loss is summarized as follows: Nine Months Six Months Three Months Ended Ended Ended June 30, 1999 March 31, 1998 June 30, 1999 --------- --------- --------- Sales $ 209,008 $ 209,008 $ Cost of sales 97,824 81,035 16,789 --------- --------- --------- Gross profit $ 111,184 $ 127,973 $ (16,789) Operating costs Personnel expense 76,386 67,436 8,950 Facility cost 10,658 8,147 2,511 Other operating costs 260,399 257,296 3,103 Management fees 180,000 180,000 Depreciation and amortization 34,428 27,237 7,191 --------- --------- --------- Total $ 561,871 $ 540,116 $ 21,755 --------- --------- --------- Operating loss $(450,687) $(412,143) $ 38,544 ========= ========= ========= During the three months ended June 30, 1999, there were no advertising sales for the Neo Vision, Inc. subsidiary while the management and sales force was reorganized and the new "Mall TV" program was instituted. Mall TV is a audio video program produced by Neo Vision to be transmitted, using the Neo Vision technology, to malls that have its audio video system. The "Mall TV" program commenced operations in August 1999 at the existing Las Vegas Nevada mall location and advertising sales efforts by the new sales staff also started in August 1999. Advertising sales potential at the Las Vegas mall location is expected to be approximately $45,000 per month. Operating costs of $21,755 during the three months ended June 30, 1999 is the fixed costs during the three month period while Neo Vision, Inc. was instituting the " Mall TV" program and reorganizing its management and sales team. Other revenue consists of the $180,000 of management fees from Neo Vision, Inc., the subsidiary acquired on June 30, 1998, that was not consolidated until March 31, 1999. The management fee exceeded other miscellaneous income for 1998 by $178,990. The management fee of $180,000 represents the $30,000 per month charge to Neo Vision, Inc. until March 31, 1999 for executive management, general and administrative expense provided by the Company. General corporate overhead increased by $72,939 primarily due to management compensation increases from the June 30, 1998 acquisition of Neo Vision, Inc. Interest expense increased by $20,164 over the nine month period ended June 30, 1998 with all of the increase resulting from the Neo Vision, Inc acquisition. 12 COMPARISON THREE MONTHS ENDED JUNE 1999 TO 1998 The total revenue of $688,757 for the three months ended June 30, 1999 is made up of $161,868 or 24% from the real estate education segment and $526,889 or 76% from the travel agency segment with no advertising revenue from Neo Vision, Inc during the three months ended June 30, 1999. Total revenue increased by $205,336 in 1999 compared to a $367,360 increase in 1998. The 1999 revenue increase consists of an increase in real estate education revenue of $36,600 and an increase in travel agency sales of $168,736. The net loss increased by $86,680 during the quarter ended June 30, 1999 and consists of the following: Increase in Real Estate Education 1999 operating income over 1998 $ 22,951 Increase in Travel Agency 1999 operating loss over 1998 $(21,290) Loss from Neo Vision, Inc. from March 31, 1999 (date of acquisition) Through June 30, 1999 $(38,544) Increase in general corporate overhead $(30,115) Increase in interest expense $(19,682) The increase in real estate education for the quarter ended June 30, 1999 results over the same quarter in 1998 consists of the following: Increase 1999 1998 (Decrease) -------- -------- -------- Revenue $161,868 $125,268 $ 36,600 -------- -------- -------- Costs and expenses Personnel expense 72,197 62,582 9,615 Facility cost 20,634 14,895 5,739 Other operating cost 19,189 20,066 (877) Depreciation and amortization 3,725 4,553 (828) -------- -------- -------- Total $115,745 $102,096 $ 13,649 -------- -------- -------- Operating income $ 46,123 $ 23,172 $ 22,951 ======== ======== ======== The adult education division results improved by $22,951. The improvement was due to a $36,600 increase in revenues offset by a $13,649 increase in operating costs. The revenue increase is the result of additional enrollments including those at the new East campus. The operating cost increase consists of a $9,615 increase in personnel expense, including additional marketing personnel, a $5,739 decrease in facility costs, a $877 decrease in other operating costs, and a $828 decrease in depreciation and amortization. 13 The $21,290 increase in the travel agency operating loss during the quarter ended June 30, 1999 consists of the following: INCREASE 1999 1998 (DECREASE) --------- --------- --------- Sales $ 526,888 $ 358,153 $ 168,735 Cost of sales 490,613 323,450 167,163 --------- --------- --------- Gross profit $ 36,275 $ 34,703 $ 1,572 Operating costs Personnel expense 35,237 16,282 18,955 Facility cost 9,309 (422) 9,731 Other operating costs 12,828 18,474 (5,646) Depreciation and amortization 6,757 6,935 (178) --------- --------- --------- Total $ 64,131 $ 41,269 $ 22,862 --------- --------- --------- Operating loss $ (27,856) $ (6,566) $ 21,290 ========= ========= ========= Sales for the travel agency operation increased by $168,735 during the three-month period ending June 30, 1999, as compared to the agencies' sales for the three months ended June 30, 1998. Gross profit during the three months ended June 30, 1999 increased by $1,572 over the comparable period ended June 30, 1998. The gross profit percentage decreased to 7 1/2% primarily due to the increase in the portion of sales attributable to airline ticket sales. Operating costs for the three months ended June 30, 1999 were $64,131 compared to $41,269 for the comparable period ended June 30, 1998. The $22,862 increase in operating costs results primarily from the opening of a new retail branch. The Neo Vision, Inc. operating loss of $38,544 is analyzed in the comparison of the operating results for the nine months ended June 30, 1999. General corporate overhead increased by $30,115 primarily due to management compensation increases from the June 30, 1998 acquisition of Neo Vision, Inc. Interest expense increased by $19,682 over the three month period ended June 30, 1998 with all of the increase resulting from the Neo Vision, Inc acquisition. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Prior to March 31, 1999, the financial statements of Neo Vision, Inc. were not consolidated with the Company until the amendment and restatement of the Certificate of Incorporation was fully assured. In March 1999, the Company's Board of Directors determined that the proposal to restate and amend the Company's Certificate of Incorporation would be defeated. Pursuant to the June 30, 1998 Exchange Agreement, each of the six former Neo Vision, Inc. shareholders had a right to elect to rescind the Exchange Agreement. All six of the former Neo Vision shareholders have elected not to rescind. The Company will continue to own 100% of the outstanding shares of Neo Vision, Inc. and in accordance with the Exchange Agreement, the Company will issue no additional shares to the former Neo Vision, Inc. shareholders. 14 As a result, on March 31, 1999, the acquisition of Neo Vision, Inc. became fully assured and Neo Vision, Inc. has been included in the Company's March 31, 1999 consolidated balance sheet with the acquisition being accounted for by the purchase method. For additional information regarding the acquisition of Neo Vision, Inc., see Note 3 of the June 30, 1999 consolidated financial statements included elsewhere in this report. The working capital deficit increased by $1,343,354 from September 30, 1998 to $1,763,755. Current assets increased by $110,969 from September 30, 1998 to $204,285. The increase consists of a $30,500 increase in cash, a $60,760 increase in accounts receivable, and a $19,709 increase in prepaid expenses, which relates primarily to advance payments of costs and expenses that will benefit future periods and will be charged to expenses over the remainder of this fiscal year. Current liabilities increased by $1,454,303 from September 30, 1998 to $1,968,040 at June 30, 1999. The increase consists of a $5,327 increase in the accrued interest related to the Company's convertible debentures, a $884,155 increase related to the Neo Vision, Inc. convertible debentures, a $353,601 increase in accounts payable, including $224,500 applicable to Neo Vision, Inc., a $162,514 increase in accrued expenses which consists primarily of increases in the accrued expense related to Neo Vision, Inc. Unearned tuition increased by $22,536. The long term note receivable of $25,000 at June 30, 1999 is related to the sale of Hansen and Associates, Inc. At June 30, 1999, property and equipment increased by $1,690,227 as a result of equipment additions of $1,708,320 offset by depreciation of $18,093. The equipment additions during the period ended June 30, 1999 consist of $7,229 in additions by the Company for the travel segment and $1,701,091 related to the Neo Vision, Inc. acquisition, which has been consolidated as of March 31, 1999, consisting of the following: Video software and systems $ 1,260,466 Video walls equipment 336,928 Central Office computerized transmission center equipment 93,166 Office furniture and equipment 10,531 ----------- $ 1,701,091 =========== Goodwill decreased by $4,495 for amortization in the nine months ended June 30, 1999. Course materials decreased by $1,475 due to amortization in the nine months ended June 30, 1999. Other assets increased by $38,240 during the nine months ended June 30, 1999. The Company has formed RVP-LLC, an Arizona limited liability company for the purpose of owning recreational vehicle parks that will be leased to and operated by the Company; however the RV Park operation will not be launched until the project is capitalized. The project is to be capitalized from 15 consulting fees for the RV park consulting services provided. However, for financial reporting purposes the consulting fee revenue will not be recognized until it is received, since there is insufficient evidence to assure its realization. Management believes the consulting fee, which is expected to be a one-time occurrence, will be collected before December 31, 1999. The costs related to earning the consulting fee consisted primarily of executive compensation and travel all of which has been expensed as incurred and included in general and administrative expense. At June 30, 1999 the members equity of RVP-LLC has not been recognized until the capital contributions are received. The July 1997 and August 1997 purchase price of the travel agencies exceeded the identifiable tangible assets of the agencies by $110,288 and relates primarily to the value of the income production of the approximately 175 Home Based Travel Agents who place their travel sales through FirsTravel. The original cost has been reduced by amortization of $5,514 in fiscal year 1997, $26,397 in fiscal year 1998 and $16,544 in the nine months ended June 30, 1999. Long-term debt increased by $21,713 during the nine months ended June 30, 1999. The convertible debentures of $56,450 of United States Aircraft Corporation plus the related accrued interest are classified as current liabilities as they were due on December 31, 1996. Currently, the debentures remain unpaid and the Company believes that they will eventually be retired through conversion to the Company's New Common Stock, although no assurance that such a conversion will be elected by the debenture holders. If the debenture holders do not elect to convert into the Company's New Common Stock, they could demand payment and seek enforcement through legal action; however, the Company has had no contact from the debenture holders. The report by the Company's independent certified public accountants on the Company's financial statements for the fiscal year ended September 30, 1998 states that the Company's significant operating losses raise substantial doubt about the Company's ability to continue as a going concern. The net loss for the year ended September 30, 1998 primarily results from the increase in general and administrative expenses related to increases in the management team and their compensation, which have been made to facilitate the planned expansion including the acquisition and expansion of Neo Vision, Inc. In April 1999, the Company accepted the resignation of two of its executive officers, which reduces general and administrative expenses to its historical level. Management projects that all of its operating units will operate at a sufficient profit to cover all of its general and administrative expenses during the year ended September 30, 1999. To accomplish its planned expansion and resulting profitability, management has adopted a program to expand its existing services operations plus the acquisition of other service organizations; however, the expansion program requires the resolution of its working capital deficiency and the infusion of additional capital for which the following program has been adopted. The internal sources of liquidity include the projected profitability and expansion of its adult education and travel segments, the collection of the net consulting fee, and the anticipated conversion of the convertible debentures, all of which are expected to resolve the current working capital deficiency. However, the Company intends to expand its newly acquired Neo Vision operation by the expected installation of 2 and 24 video walls in the years ended September 30, 1999 and 2000, respectively at a projected cost of $150,000 for each wall. The planned expansion will require capital from external sources of approximately $500,000 to $750,000 by December 1999. Neo Vision has engaged 16 financial advisors to assist in the funding of its capital needs for the planned expansion, including private placements. Management believes that the funding will be a convertible debt financing, equipment lease financing or the preferred stock to be authorized, and that it will be funded in time to complete the expected installation of video walls in the years ended September 30, 1999 and 2000. However, the Company does not intend to make material commitments for further capital expenditures until financing becomes available. Additionally, the Company is aggressively investigating acquisitions of adult education, travel services, or other operations that are compatible with the existing operations and that can be acquired for the Company's common stock or with debt that is retired from the cash flow from the acquired operation. No assurance can be given that the acquisitions or installation of the video walls will be completed or the private placement to obtain the required capital infusion will be successful. OUTSTANDING DEBENTURES OF THE COMPANY AND NEO VISION The Company has outstanding convertible debentures of $56,450 plus related accrued interest of $38,918 at June 30, 1999. These debentures bear interest at rates of 12% to 14% per annum and were due in December 1996. Currently, the debentures remain unpaid and are in default. The debentures are convertible, at the option of the holder, into common shares at the rate of $.75 of outstanding amount for one share of Class A Common Stock ($.75 of outstanding amount for one share of New Common Stock). (See discussion elsewhere in this Management's Discussion and Analysis.) As of June 30, 1999, Neo Vision had approximately $810,750 in outstanding convertible debentures bearing interest at rates of between 10% and 12% per annum, with total accrued interest at June 30, 1999 of $105,000. These debentures were issued in multiple series beginning in 1997 and ending in 1998. The Neo Vision debentures provide that the principal and accumulated interest are convertible to Neo Vision common stock at the rate of one share of Neo Vision common stock for each $1.00 (or $1.25 for certain debentures) of outstanding principal amount and accrued interest of debentures upon completion of a transaction that results in unrestricted securities of Neo Vision (or with respect to certain of the debentures its successor) being issued and outstanding. The Company believes that the terms of the debentures either require the conversion of the debentures into New Common Stock upon the effectiveness of a registration statement for the conversion of the debentures or if a registration statement is not filed, that the debenture holders will elect to convert their debentures pursuant to a private placement offering. Of the total outstanding Neo Vision debentures, $420,000 were due in December 1998 with the remainder due in May 1999. Neo Vision has not paid any of the past-due debentures. Neo Vision currently cannot repay such debentures. The Company has received signed agreements from substantially all of the debenture holders to convert their convertible debentures and related accrued interest into shares of the Company's New Common Stock. The Company plans to offer to exchange these debentures for shares of New Common Stock upon their authorization through a private placement. Based on the Series A and B conversion rate of $1 per share and the Series C conversion rate of $1.25 per share as adjusted for the acquisition of Neo Vision by the Company approximately 4,500,000 shares of New Common Stock would be issued if all of the debenture holders elected to convert. 17 However, no assurances can be given that the debenture holders will in fact convert their debentures into shares of New Common Stock. In the event that such debenture holders do not so convert their debentures, the Company intends to seek to refinance such debentures. However, in the event the debentures are not converted, and the Company is unable to refinance such indebtedness, then Neo Vision may be unable to continue its operations. PART II - OTHER INFORMATION ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company currently is in default on the payment of various convertible debentures in the outstanding principal amount of $56,450 and Neo Vision, Inc. is in default on the payment of its convertible debentures of approximately $810,750. The Company and Neo Vision, Inc. currently do not have the ability to pay any of its defaulted debt and no assurance can be given that the Company will have sufficient capital to pay such debts. Reference is made to Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations-Outstanding Debentures of the Company and Neo Vision for a discussion of the convertible debentures of the Company and Neo Vision, Inc. ITEM 5. OTHER INFORMATION The Board of Directors approved an amendment and restatement of its Certificate of Corporation and the Company intends to seek the approval of a majority of the Class A and Class B outstanding shares of record as of August 31, 1999 by written consent. The Company intends to obtain the shareholders consent as soon as possible and to file the amended and restated Certificate of Incorporation with the state of Delaware immediately thereafter. The amended and restated Certificate of Incorporation will: (i) authorize the issuance of 100,000,000 shares of a single new class of Common Stock, $.001 par value (the "New Common Stock"); (ii) reclassify the Company's Class A Common Stock and Class B Common Stock into shares of New Common Stock on a one for one basis; (iii) authorize the issuance of 75,000,000 shares of preferred stock; (iv) change the name of the Company to Neo Vision Corporation; and (v) make certain technical amendments set forth in the Company's First Restated Certificate of Incorporation. On September 3, 1999, the Company agreed to sell one of its two campuses to the President and Vice-President of the real estate education operation. The sales proceeds include the return of 1,200,000 Class A shares of common stock, the termination of the employment contracts with the officers including the forgiveness of any obligation of the Company to the selling officers and 23 non-compete payments to the Company of $1,750. The sale includes the sale of the name Westford College. The Company intends to expand the operation of its remaining campus through the implementation of distance learning using its technology capabilities and to adopt the name ReNewal Education Corporation for its adult education operations. The Board of Directors has authorized the Chairman to form a limited partnership to acquire the Class A shares for $120, 000 cash which approximates the recent market value of the Class A shares. 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 27 - Financial Data Schedule (b) Reports on Form 8-K The registrant filed current report on Form 8-K on April 5, 1999 with respect to the election by the six former Neo Vision, Inc. shareholders' to not rescind the Exchange Agreement. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. United States Aircraft Corporation Date: September, 13 1999 /s/ Harry V. Eastlick -------------------- ---------------------------------------- Harry V. Eastlick Chairman of the Board and Chief Financial Officer 19 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS SEP-30-1999 JUN-30-1999 38,570 0 138,662 0 0 204,285 1,834,956 97,116 2,198,373 1,968,040 158,429 0 0 4,968,715 (4,896,814) 2,198,373 1,759,052 1,759,052 1,060,590 1,720,788 0 0 33,597 4,667 0 4,667 0 0 0 4,667 0 0
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