1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) X Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE PERIOD ENDED MARCH 31, 1997 OR Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NUMBER: 000-02677 GAP INSTRUMENT CORPORATION New York 11-1781357 State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization 100 Horse Block Rd., Yaphank, New York 11980 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (516) 924-1700 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 May 1, 1997: Common Stock: $.000001 par value 111,290,603 - ---------------------------------- ---------------- Class Number of Shares 1 2 GAP INSTRUMENT INC. Index Page No. -------- PART I. Financial Information Item 1. Financial Statements 3 Condensed Statements of Income - Quarters Ended December 31,1996 and March 31, 1997 And March 31, and June 30, 1996 3 Condensed Balance Sheets - March 31, 1997 and June 30, 1996 4 Condensed Statements of Cash Flows - Six Months Ended March 31, 1997 And June 30, 1996 (Second Fiscal Quarter 5 Notes to Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 6 PART II. Other Information Item 1. Legal Proceedings 6 Item 6. Exhibits and Reports on Form 8-K 6 Signatures 7 2 3 PART I FINANCIAL INFORMATION ITEM 1. Condensed Financial Statements GAP INSTRUMENT INC. CONDENSED STATEMENT OF INCOME (Unaudited) Three Months Ended Six Months Ended ------------------ ---------------- December 31, March 31, March 31, June 30, 1996 1996 1997 1996 ----------- ----------- ----------- ----------- Net sales $ 92,279 $ 35,126 $ 96,543 $ 124,932 Costs and Expenses Cost of sales 28,286 25,881 54,232 43,938 Selling, general and administrative expense 79,355 30,720 137,603 74,807 ----------- ----------- ----------- ----------- Total costs and expenses 107,641 56,601 191,835 118,745 ----------- ----------- ----------- ----------- Net Income (loss) from operations (15,362) (21,475) (95,292) 6,187 Reorganization expenses - professional fees -- (6,500) ----------- ----------- Net Income (Loss) (15,362) (21,475) (95,292) (313) Accumulated deficit - beginning $(3,982,881) $(3,563,503) $(3,982,881) $(3,563,503) ----------- ----------- ----------- ----------- Accumulated deficit - end $(3,998,243) $(3,584,978) $(4,078,173) $(3,563,816) ----------- ----------- ----------- ----------- Earnings per share: Net income (loss) per share $ .00 $ .00 $ .00 $ .00 ----------- ----------- ----------- ----------- 3 4 GAP INSTRUMENT INC. CONDENSED BALANCE SHEETS (Unaudited) Second Fiscal Quarter Ended --------------------------- March 31, June 30, 1997 1996 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,542 $ 435 Accounts receivable 10,509 26,055 ----------- ----------- Total Current Assets 17,051 26,490 PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation 44,317 34,139 ----------- ----------- Total Current Assets $ 61,368 $ 60,629 ----------- ----------- LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable and accrued expenses $ 174,514 $ 19,127 Liabilities resulting from Plan of Reorganization, current maturities 37,730 47,194 Deferred revenue and customer deposits 66,963 -- Due to shareholders 114,000 66,000 ----------- ----------- Total Current Liabilities $ 393,207 $ 132,321 OTHER LIABILITIES Liabilities resulting from Plan of Reorganization, less current maturities 150,918 170,484 ----------- ----------- Total Liabilities $ 544,125 $ 302,805 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 3) SHAREHOLDERS' DEFICIT Common stock: 604,000,000 shares authorized At 6/30/96: $.00001 par value, 108,543,353 shares issued and outstanding 1,085 At 3/31/97: $.000001 par value, 111,290,603 shares issued and outstanding 111 Additional paid-in capital 3,595,305 3,341,717 Accumulated deficit (4,078,173) (3,584,978) ----------- ----------- Total Shareholders' Deficit (482,757) (242,176) ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 61,368 $ 60,629 ----------- ----------- 4 5 GAP INSTRUMENT CORP. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) FOR THE SECOND QUARTER OF THE FISCAL YEARS ENDED MARCH 31, 1997 AND JUNE 30, 1996 Second Fiscal Quarter Ended --------------------------- March 31, June 30, 1997 1996 ------------ ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(95,292) $ (313) -------- -------- Changes in assets and liabilities: Accounts receivable 61,626 35,725 Other assets -- (13,033) Deferred revenue and customer deposits 36,371 Accounts payable and accrued expenses (2,086) (11,080) -------- -------- Total adjustments 95,911 11,612 Net cash provided by operating activities 619 11,299 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Shareholder loans 13,000 10,000 Repayment of reorganization debt (28,061) -- Liabilities from Plan of Reorganization -- (19,311) -------- -------- Net cash used by financing activities (15,061) (9,311) -------- -------- NET INCREASE (DECREASE) IN CASH (14,442) 1,988 CASH - beginning 20,984 (1,553) -------- -------- CASH - end $ 6,542 $ 435 -------- -------- 5 6 GAP INSTRUMENT INC. NOTES TO CONDENSED FINANCIAL STATEMENTS 1. The condensed financial statements at March 31, 1997 are unaudited and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. All such adjustments are of a normal recurring nature. The results of operations for the interim period shown in this report is not necessarily indicative of results to be expected for the fiscal year. 2. The Company has changed its fiscal year from December 31 to September 30. The accompanying financial statements include unaudited financial statements for the second quarter of the fiscal 1997 year from October 1, 1996 to March 31, 1997, unaudited financial statements for the second quarter of the fiscal 1996 year from January 1, 1996 to June 30, 1996. 3. The Company is a party to litigation involving a former officer of the Company. Management believes that the settlement of the claim will not have a material adverse effect on the Company's financial position or results of operations. GAP INSTRUMENT CORP. ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Six Months Ended March 31, 1997 and June 30, 1996 The Company's second quarter net loss of $95,292 compares unfavorably to the second quarter of the prior nine-month fiscal 1996 year in which a net loss of $313 was reported. The decrease is due primarily to the repayment of liabilities resulting from the Plan of Reorganization. These liabilities are discussed fully in MD&A submitted with Form 10-K for the fiscal year ending September 30, 1996 and should be read in conjunction with the accompanying financials for this interim period. Net sales for the first and second quarters were $96,543 and $124,932 for March 31, 1997 and June 30, 1996, respectively. Selling, general, and administrative expenses of $137,603 and $74,807 for the same periods indicates a rise in the expense of diversifying the Company's business from strictly a military product manufacturer to a Value Added Network for the Federal Government and as an Internet Service provider (ISP) for federal contractors. As GAP Instrument Corp. continues in the diversification process, it should be noted that subscriptions for the network service are increasing as shown by the rise in deferred revenue. PART II OTHER INFORMATION ITEM 1. Legal Proceedings On September 24, 1993, the Company filed petitions for relief under chapter 11 of the federal bankruptcy laws in the United States Bankruptcy court for the Eastern district of New York, The Company operated under the Court's protection until October 5, 1995, when the Court confirmed the Company's plan of reorganization. Pursuant to plan, the Company was relieved of all long-term debt agreements. The Company's remaining liabilities were negotiated. The company recognized an extraordinary gain of $293,870, representing the difference between the carrying value of the liabilities and the amounts required to be repaid by the Company. The resulting liabilities are reflected in the balance sheet as "Liabilities Resulting from the Plan of Reorganization." The Company is a party to litigation involving a former officer of the Company. Management believes that the settlement of the claim will not have a material adverse effect on the Company's financial position or results of operations. ITEM 6. Exhibits and Reports on Form 8-K 6 7 A. Exhibits None. B. Forms 8-K The Company filed a Form 8-K dated November 8, 1996, reporting changes in registrant's certifying accountant. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: February 14, 1997 GAP INSTRUMENT INC. (Registrant) /S/ James M. Edwardson -------------------------------------- James M. Edwardson Chairman of the Board of Directors, and Chief Operating Officer 7