UNITEDTable STATESof Contents

~~SECURITIES~~UNITED ~~AND~~STATES ~~EXCHANGE COMMISSION~~

~~Washington,~~SECURITIES ~~D.C.~~AND ~~20549~~EXCHANGE COMMISSION

~~FORM~~Washington, ~~10-Q~~D.C. 20549

~~Quarterly~~FORM ~~Report~~10-Q ~~pursuant to Section 13 or 15(d)~~

ofQuarterly ~~the~~Report ~~Securities~~pursuant ~~Exchange Act~~to ofSection ~~1934~~13 or 15(d)

~~For~~of ~~Quarter~~the ~~Ended~~Securities ~~February~~Exchange Act ~~29,~~of ~~2004~~1934

~~Commission~~For ~~File~~Quarter ~~Number~~Ended ~~0-1738~~August 31, 2004

~~GENERAL~~Commission ~~KINETICS~~File ~~INCORPORATED~~Number 0-1738

~~(Exact~~GENERAL ~~Name~~KINETICS ofINCORPORATED ~~Registrant as Specified in Its Charter)~~

Virginia		54-0594435
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

(Exact Name of Registrant as Specified in its Charter)

10688- D Crestwood Drive Manassas, VA		20109
Virginia		54-0594435
(Address of Principal Executive Offices)		(Zip Code)
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

Registrant’s Telephone Number, including Area Code 703-331-8033


10688-D Crestwood Drive, Manassas, VA		20109
(Address of Principal Executive Offices)		(Zip Code)

~~Indicate by checkmark~~Registrant’s ~~whether~~Telephone 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)Number, ~~and~~ ~~(2)~~including ~~has~~Area ~~been~~Code ~~subject~~703-331-8033 ~~to such filing requirements for the past 90 days. Yes x No ¨~~

Indicate by checkmark whether the Registrant is(1) anhas ~~accelerated~~filed ~~filer~~all ~~(as~~reports ~~defined~~required into ~~Rule 12b-2~~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 ~~Yes~~(2) ¨has Nobeen xsubject to such filing requirements for the past 90 days.

~~The~~Yes x ~~number~~No of¨ ~~shares of the Registrant’s Common Stock outstanding as of April 4, 2003 7,118,925 Shares~~

~~INDEX~~Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

		Page No.
Cautionary Statement Regarding Forward Looking Statements		3
Part I - Financial Information
Item 1 - Financial Statements
Condensed Balance Sheets - February 29, 2004 and May 31, 2003		5
Condensed Statements of Operations - Three months and Nine months Ended February 29, 2004 and February 28, 2003		6
Condensed Statements of Cash Flows - Nine months Ended February 29, 2004 and February 28, 2003		7
Notes to Condensed Financial Statements		8
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3 - Quantitative and Qualitative Disclosures About Market Risk		17
Item 4 - Controls and Procedures		17
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K		19

Yes ¨ No x

2The number of shares of Registrant’s Common Stock outstanding as of October 11, 2004 7,118,925 Shares

~~CAUTIONARY~~1 ~~STATEMENT REGARDING FORWARD LOOKING STATEMENTS~~

CertainTable statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements”. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or the negatives thereof, variations thereon or similar terminology. The forward-looking statements contained in this Quarterly Report are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but may be found in other locations as well. These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. Although the Company believes that the plans and objectives reflected in or suggested by such forward-looking statements are reasonable, such plans or objectives may not be achieved. Actual results may differ from projected results due, but not limited, to unforeseen developments, including developments relating to the following: Contents

• INDEX ~~the risk that the Company may not be able to obtain and complete sufficient new orders to maintain positive cash flow;~~

• the risk that the Company may not maintain its present financing facility or obtain additional financing, if necessary, including the risk that it will not be able to repay or refinance in full the approximately $8.8 million principal amount of its outstanding convertible debentures currently scheduled to mature in August 2004;


		Page No.
Cautionary Statement		3

Part I - Financial Information

Item 1 - Financial Statements

Balance Sheets - August 31, 2004 (unaudited) and May 31, 2004		5

Statements of Operations (unaudited)- Three Months Ended August 31, 2004 and August 31, 2003		6

Statements of Cash Flows (unaudited) - Three Months Ended August 31, 2004 and August 31, 2003		7

Notes to Condensed Financial Statements		8

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		10

Item 3 - Quantitative and Qualitative Disclosures About Market Risk		16

Item 4 - Controls and Procedures		16

Part II - Other Information

Item 3 - Defaults Upon Senior Securities		17

Item 6 - Exhibits and Reports on Form 8-K		17

•2 ~~the risk that the Company may not be able to continue the necessary development of its operations, including maintaining or increasing sales and production levels, on a profitable basis;~~

•Table the risk the Company may in the future have to comply with more stringent environmental laws or regulations or more vigorous enforcement policies of regulatory agencies, and that such compliance could require substantial expenditures by the Company;Contents

• CAUTIONARY ~~the~~STATEMENT ~~risk~~REGARDING ~~that~~FORWARD ~~U.S.~~LOOKING ~~defense~~STATEMENTS ~~spending may be substantially reduced; and~~

•Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements”. In some cases, forward-looking statements can be identified by the ~~risk~~use ~~that~~of forward-looking terminology such as “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or the ~~Company~~negatives thereof, variations thereon or similar terminology. The forward-looking statements contained in this Quarterly Report are generally located in the material set forth under the headings “Business” and “Management’s ~~Common~~Discussion ~~Stock~~and ~~will~~Analysis ~~not~~of ~~continue~~Financial toCondition and Results of Operations,” but may be ~~quoted~~found onin other locations as well. These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. Although the ~~NASD~~Company ~~Over~~believes ~~The~~that ~~Counter~~the ~~Bulletin~~plans ~~Board~~and objectives reflected in or suggested by such forward-looking statements are reasonable, such plans or objectives may not be achieved. Actual results may differ from projected results due, but not limited, to unforeseen developments, including developments relating to the following:

• ~~The~~the risk that the Company ~~will~~may not ~~successfully~~be ~~renegotiate~~able ato ~~new~~obtain ~~contract~~and ~~with~~complete ~~the~~sufficient ~~labor~~new ~~union~~orders ~~when~~to ~~the~~maintain ~~current~~positive ~~contract~~cash ~~expires on May 31, 2004.~~flow;

~~You~~• ~~should read this Quarterly Report completely and with~~ the ~~understanding~~risk that ~~actual future results may be materially different from what~~ the Company ~~expects.~~may ~~All~~not ~~subsequent~~maintain ~~written~~its ~~and~~present ~~oral~~financing ~~forward-looking~~facility ~~statements attributable to the Company~~ or toobtain ~~persons~~additional ~~acting~~financing, onif ~~the Company’s behalf are expressly qualified in their entirety by the foregoing factors. These forward-looking statements speak only as of the date of the~~ necessary;

3• the risk that it will not be able to repay, restructure or refinance in full the approximately $8.8 million principal amount of its outstanding convertible debentures which matured on August 14, 2004;

~~document~~• inthe ~~which~~risk ~~they~~that ~~are~~the ~~made. The~~ Company ~~disclaims~~may ~~any~~not ~~obligation~~be orable ~~undertaking~~ to ~~provide~~continue ~~any updates or revisions to any forward-looking statement to reflect any change in~~ the ~~Company’s~~necessary ~~expectations~~development orof ~~any~~its ~~change in events~~operations, ~~conditions~~including maintaining or ~~circumstances~~increasing insales ~~which~~and ~~the~~production ~~forward-looking~~levels, ~~statement~~on isa ~~based.~~profitable basis;

~~PART~~• Ithe ~~FINANCIAL~~risk ~~INFORMATION~~the Company may in the future have to comply with more stringent environmental laws or regulations or more vigorous enforcement policies of regulatory agencies, and that such compliance could require substantial expenditures by the Company;

~~Item~~• 1the -risk ~~Financial~~that ~~Statements~~U.S. defense spending may be substantially reduced; and

~~The~~• ~~unaudited~~the ~~financial~~risk ~~statements~~that ~~of General Kinetics Incorporated (“GKI” or~~ the “Company”)’s ~~set~~Common ~~forth~~Stock ~~below~~will ~~have~~not ~~been~~continue ~~prepared pursuant~~ to ~~the~~be ~~rules and~~quoted ~~regulations~~on of the ~~Securities~~NASD ~~and~~Over Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. Revenues, expenses, assets and liabilities vary during the year and generally accepted accounting principles require the Company to make estimates and assumptions in preparing the interim financial statements. The ~~Company~~Counter ~~has~~Bulletin ~~made its best effort in establishing good faith estimates and assumptions~~Board. ~~However, actual results may differ. The Company believes that the disclosures made are adequate to make the information presented not misleading.~~

InYou ~~the~~should ~~opinion~~read ofthis ~~management~~Quarterly ofReport ~~the~~completely ~~Company,~~and with the ~~accompanying~~understanding ~~financial statements reflect all adjustments (consisting only of normal recurring adjustments)~~ that ~~are~~actual future ~~necessary~~results ~~for~~may abe ~~fair~~materially ~~presentation~~different offrom ~~results~~what ~~for~~ the ~~periods~~Company ~~presented~~expects. ~~These~~All ~~financial~~subsequent ~~statements~~written ~~should~~and beoral ~~read~~forward-looking instatements ~~conjunction~~attributable ~~with~~to the ~~audited~~Company ~~financial statements~~or ~~for~~to ~~the~~persons ~~fiscal~~acting ~~years~~on ~~ended May 31, 2003 and 2002 set forth in~~ the Company’s ~~annual~~behalf ~~report~~are onexpressly ~~Form~~qualified ~~10-K,~~in astheir entirety ~~amended,~~by ~~for~~ the ~~fiscal~~foregoing ~~year~~factors. ~~ended~~These ~~May~~forward-looking ~~31,~~statements ~~2003.~~

GeneralTable Kineticsof Incorporated Contents

~~Balance~~speak ~~Sheets~~only as of the date of the document in which they are made. The Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances in which the forward-looking statement is based.

~~February~~PART ~~29,~~I ~~2004~~FINANCIAL ~~and~~INFORMATION

~~May~~Item ~~31,~~1 ~~2003~~– Financial Statements

	February 29,2004			May 31, 2003
	(Unaudited)			(Audited)
Assets
Current Assets:
Cash and cash equivalents	$	74,200		$	114,000
Marketable securities		50,300			36,400
Accounts receivable, net of allowance of $22,500 and $22,900		568,500			521,600
Inventories, net		851,500			728,900
Prepaid expenses and other		40,600			41,200
Total Current Assets		1,585,100			1,442,100
Property, plant and equipment		2,968,400			2,960,400
Less: Accumulated depreciation		(2,335,700	)		(2,257,700	)
		632,700			702,700
Other Assets		10,200			11,100
Total Assets	$	2,228,000		$	2,155,900
Liablilities and Stockholders’ Deficit
Current Liabilities:
Advances from Factor	$	170,700		$	—
Current maturities of long-term debt		8,905,200			96,300
Current maturities of capital lease		21,800			20,600
Accounts payable, trade		546,500			366,300
Accrued expenses and other payables		527,700			403,400
Total Current Liabilities		10,171,900			886,600
Long-Term Liablities:
Long-term debt - less current maturities		188,300			9,023,600
Capital lease - less current maturities		44,400			60,800
Other long-term liabilities		248,100			249,900
Total Long-Term Liabilities		480,800			9,334,300
Total Liabilities		10,652,700			10,220,900
Stockholders’ Deficit:
Common Stock, $0.25 par value, 50,000,000 shares authorized, 7,645,557 shares issued, 7,118,925 shares outstanding		1,911,500			1,911,500
Additional contributed capital		7,337,300			7,337,300
Accumulated deficit		(17,223,300	)		(16,863,600	)
		(7,974,500	)		(7,614,800	)
Less: Treasury Stock, at cost (526,632 shares)		(450,200	)		(450,200	)
Total Stockholders’ Deficit		(8,424,700	)		(8,065,000	)
Total Liabilities and Stockholders’ Deficit	$	2,228,000		$	2,155,900

The unaudited financial statements of General Kinetics Incorporated (“GKI” or the “Company”) set forth below have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. Revenues, expenses, assets and liabilities vary during the year and generally accepted accounting principles require the Company to make estimates and assumptions in preparing the interim financial statements. The Company has made its best effort in establishing good faith estimates and assumptions. However, actual results may differ. The Company believes that the disclosures made are adequate to make the information presented not misleading.

~~The~~ In the opinion of management of the Company, the accompanying ~~notes~~financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are annecessary ~~integral~~for ~~part~~a fair presentation of results for the periods presented. These financial statements should be read in conjunction with the audited financial statements for the fiscal years ended May 31, 2004 and 2003 set forth in the Company’s annual report on Form 10-K, as amended, for the fiscal year ended May 31, 2004.

~~Page~~4 5

GeneralTable Kineticsof Incorporated Contents

~~Statements~~General ofKinetics ~~Operations~~Incorporated

~~(unaudited)~~ Balance Sheets

	Nine Months Ended						Three Months Ended
	February 29,2004			February 28,2003			February 29,2004			February 28,2003
Net Sales	$	4,341,200		$	5,488,800		$	1,247,400		$	1,235,700
Cost of Sales		3,695,800			4,345,100			1,250,800			1,176,700
Gross Profit		645,400			1,143,700			(3,400	)		59,000
Selling, General & Administrative		857,900			955,600			261,800			232,300
Product Research, Development & Improvement		700			3,500			700			—
Total Operating Expenses		858,600			959,100			262,500			232,300
Operating Income (Loss)		(213,200	)		184,600			(265,900	)		(173,300	)
Interest Expense		(146,500	)		(149,100	)		(49,400	)		(45,400	)
Net Income (Loss)		(359,700	)		35,500			(315,300	)		(218,700	)
Basic Earnings per Share:
Basic Earnings per Share		($0.051	)	$	0.005			($0.044	)		($0.031	)
Weighted Average Number of Common Shares Outstanding		7,118,925			7,118,925			7,118,925			7,118,925
Diluted Earnings per Share:
Diluted Earnings per Share		($0.051	)	$	0.004			($0.044	)		($0.031	)
Weighted Average Number of Common Shares and Dilutive Equivalents Outstanding		7,118,925			24,708,925			7,118,925			7,118,925

August 31, 2004 and

~~The accompanying~~May ~~notes~~31, ~~are~~2004 ~~an integral part of the financial statements.~~

Page 6


	August 31, 2004			May 31, 2004
	(Unaudited)			(Audited)
Assets
Current Assets:
Cash and cash equivalents	$	68,000		$	670,000
Marketable securities		50,100			48,100
Accounts receivable, net of allowance of $22,900		913,100			764,800
Inventories, net		867,700			677,600
Prepaid expenses and other		40,200			31,600

Total Current Assets		1,939,100			2,192,100

Property, plant and equipment		2,251,000			2,066,000
Less: Accumulated depreciation		(1,925,300	)		(1,903,700	)

		325,700			162,300
Other Assets		22,200			50,500

Total Assets	$	2,287,000		$	2,404,900

Liabilities and Stockholders’ Deficit
Current Liabilities:
Advances from Factor	$	—		$	214,200
Current maturities of long-term debt		8,835,000			8,819,900
Current maturities of capital leases		48,100			22,200
Accounts payable, trade		515,600			572,400
Accrued expenses and other payables		665,300			568,700
Deferred gain on sale of building		104,100			104,100

Total Current Liabilities		10,168,100			10,301,500

Long-Term Liabilities:
Capital leases - less current maturities		166,000			38,700
Other long-term liabilities		231,100			240,700
Deferred gain on sale of building		390,300			416,300

Total Long-Term Liabilities		787,400			695,700

Total Liabilities		10,955,500			10,997,200

Stockholders’ Deficit:
Common Stock, $0.25 par value, 50,000,000 shares authorized, 7,645,557 shares issued, 7,118,925 shares outstanding		1,911,500			1,911,500
Additional contributed capital		7,337,300			7,337,300
Accumulated deficit		(17,467,100	)		(17,390,900	)

		(8,218,300	)		(8,142,100	)
Less: Treasury Stock, at cost (526,632 shares)		(450,200	)		(450,200	)

Total Stockholders’ Deficit		(8,668,500	)		(8,592,300	)

Total Liabilities and Stockholders’ Deficit	$	2,287,000		$	2,404,900

~~General~~The accompanying ~~Kinetics~~notes ~~Incorporated~~are an integral part of the financial statements.

~~Statements~~5 ~~of Cash Flows~~

(Unaudited)Table of Contents

	Nine Months Ended
	February 29,2004			February 28,2003
Cash Flows From Operating Activities:
Net (Loss) Income	$	(359,700	)	$	35,500
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Unrealized (gain) loss on marketable securities		(13,900	)		4,800
Depreciation and amortization		78,000			102,600
Amortization of bond discount		45,300			46,400
Bad debt provision		(400	)		(600	)
(Increase) Decrease in Assets:
Accounts receivable		(46,500	)		515,500
Inventories		(122,600	)		433,700
Prepaid expenses		600			30,300
Other assets		900			44,400
Increase (Decrease) in Liabilities:
Accounts payable - Trade		180,200			(543,100	)
Accrued expenses		124,300			(194,500	)
Deferred Revenue		—			81,700
Other long term liabilities		(1,800	)		(1,800	)
Net cash (used in) provided by Operating Activites		(115,600	)		554,900
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment		(8,000	)		(33,300	)
Net cash used in Investing Activities		(8,000	)		(33,300	)
Cash Flows from Financing Activities:
Advances from Factor		853,000			55,300
Repayments of advances from Factor		(682,300	)		(55,300	)
Principal payments under capital lease		(15,200	)		(14,200	)
Repayments on long term debt		(71,700	)		(67,000	)
Net cash provided by (used in) Financing Activities		83,800			(81,200	)
Net increase (decrease) in cash and cash equivalents		(39,800	)		440,400
Cash and Cash Equivalents: Beginning of Period		114,000			185,100
Cash and Cash Equivalents: End of Period	$	74,200		$	625,500
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	30,100		$	149,100

General Kinetics Incorporated

~~The~~ ~~accompanying~~Statements ~~notes are an integral part~~ of ~~the~~Operations ~~financial statements.~~

~~Page~~(Unaudited) 7

GENERAL KINETICS INCORPORATED


	Three Months Ended
	August 31, 2004			August 31, 2003
Net Sales	$	1,721,700		$	1,622,700
Cost of Sales		1,412,700			1,297,900

Gross Profit		309,000			324,800

Selling, General & Administrative		337,500			308,600

Total Operating Expenses		337,500			308,600

Operating (Loss) Income		(28,500	)		16,200
Interest Expense		(47,700	)		(49,700	)

Net Loss		(76,200	)		(33,500	)

Basic and Diluted Loss per Share:
Basic Loss per Share		($0.01	)		($0.00	)
Weighted Average Number of Common Shares Outstanding		7,118,925			7,118,925

The ~~Notes~~accompanying tonotes ~~Condensed~~are ~~Financial~~an ~~Statements~~integral part of the financial statements.

~~(Unaudited)~~6

NoteTable 1 - Basis of Presentation Contents

~~The unaudited condensed financial statements at February 29, 2004, and for the three months and nine months ended February 29, 2004 and February 28, 2003, include the accounts of~~ General Kinetics Incorporated ~~(“GKI” or the “Company”).~~

~~The financial information included herein is unaudited. In addition, the financial information does not include all~~ ~~disclosures~~Statements required under generally accepted accounting principles in that certain note information included in the Company’s Annual Report has been omitted; however, such information reflects all adjustments which are, in the opinion of ~~management,~~ ~~necessary~~Cash toFlows ~~a fair presentation of the results of the interim periods.~~

~~The~~(Unaudited) ~~results of operations for the three-month and nine-month periods ended February 29, 2004, are not necessarily indicative of the results to be expected for the full year.~~

Note 2 - Earnings Per Share


	Three Months Ended
	August 31, 2004			August 31, 2003
Cash Flows from Operating Activities:
Net loss	$	(76,200	)	$	(33,500	)
Adjustments to reconcile net (loss) to net cash (used in) provided by operating activities:
Deferred (gain) on sale of building		(26,000	)		—
Unrealized (gain) on marketable securities		(2,000	)		(3,100	)
Depreciation and amortization		21,600			28,200
Amortization of bond discount		15,100			15,100
(Increase) Decrease in Assets:
Accounts receivable		(148,300	)		(49,800	)
Inventories		(190,100	)		217,000
Prepaid expenses and other		(8,600	)		18,600
Other assets		28,300			(9,500	)
Increase (Decrease) in Liabilities:
Accounts payable, trade		(56,800	)		59,700
Accrued expenses and other payables		96,600			42,200
Other long-term liabilities		(9,600	)		(9,600	)

Net cash (used in) provided by Operating Activities		(356,000	)		275,300

Cash Flows from Investing Activities:
Acquisition of property, plant and equipment		(22,000	)		—

Net cash used in Investing Activities		(22,000	)		—

Cash Flows from Financing Activities:
Advances from Factor		292,200			338,600
Repayments of advances from Factor		(506,400	)		(286,300	)
Principal payments under capital leases		(9,800	)		(4,900	)
Repayments on long term debt		—			(23,600	)

Net cash (used in) provided by Financing Activities		(224,000	)		23,800

Net (decrease) increase in cash and cash equivalents		(602,000	)		299,100
Cash and Cash Equivalents: Beginning of Period		670,000			114,000

Cash and Cash Equivalents: End of Period	$	68,000		$	413,100

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	9,800		$	42,100
Noncash investing and financing activity:
Purchase of property, plant and equipment via capital lease	$	163,000		$	—

~~Earnings per share is based on the weighted average number of shares of~~The ~~common~~accompanying ~~stock~~notes ~~and~~are ~~dilutive~~an ~~common~~integral ~~stock~~part ~~equivalents outstanding. Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number~~ of ~~common shares outstanding for~~ the ~~period.~~ ~~Diluted~~financial ~~earnings per share reflects the potential dilution of securities that could share in the earnings of an entity~~statements. Due to the net losses in the quarter ended February 28, 2003, and the quarter and nine months ended February 29, 2004, diluted earnings per share is the same as basic earnings per share for those periods. The following table presents a reconciliation between the weighted average shares outstanding for basic and diluted earnings per share for the nine months ended February 28, 2003:

Nine months ended Feb 28, 2003:	Income		Shares	Per Share Amount
Basic earnings per share
Income available to common shareholders	$	35,500	7,118,925	$	0.005
Effect of assumed conversion of convertible debentures		65,962	17,590,000		0.004
Dilutive earnings per share	$	101,462	24,708,925	$	0.004

8Table of Contents

~~Note~~GENERAL 3KINETICS -INCORPORATED ~~Notes~~AND ~~Payable~~SUBSIDIARIES

~~At February 29, 2004 and May 31, 2003, convertible debentures initially issued to clients of Gutzwiller & Partner, AG, now known as Rabo Investment Management~~ ~~Ltd.,~~Notes are outstanding in an aggregate principal amount of approximately $8.8 million. Such debentures mature in August 2004, are convertible into common stock at a conversion price of $0.50 per share, and bear interest at 1% per annum, which is payable annually. Shares issuable upon conversion are also subject to ~~certain~~Condensed ~~registration~~Financial ~~rights~~Statements ~~under the Securities Act of 1933, as amended.~~

On(Unaudited) March 12, 2003, Manassas Partners LLC, a Delaware limited liability company of which Larry Heimendinger, acting President and Chairman of the Board of Directors of the Company, is the managing member, purchased from third parties, at a significant discount, a portion of the Company’s $8.8 million outstanding convertible debentures in an aggregate principal amount of $5.8 million.

~~Pending~~Note ~~confirmation~~1 of- ~~ownership~~Basis ~~status~~ of ~~the~~Presentation Company’s convertible debentures, the Company has not effected payment of interest on the convertible debentures in the amount of $88,800 scheduled on August 14, 2003. This amount, together with interest accrued for the nine months ended February 29, 2004 is included in accrued expenses and other payables on the balance sheets.

~~Note~~The 4unaudited -condensed ~~Income~~financial ~~Taxes~~statements at August 31, 2004, and for the three months ended August 31, 2004 and August 31, 2003, respectively, include the accounts of General Kinetics Incorporated (“GKI”).

The financial information included herein is unaudited. In addition, the financial information does not include all disclosures required under generally accepted accounting principles in that certain note information included in the Company’s ~~estimated~~Annual ~~effective~~Report ~~tax~~has ~~rate~~been ~~for~~omitted; ~~fiscal~~however, ~~2004~~such isinformation ~~0%. This~~reflects ~~estimated~~all ~~effective~~adjustments ~~tax~~(consisting ~~rate~~solely isof ~~lower~~normal ~~than~~recurring adjustments) which are, in the ~~statutory~~opinion ~~rate~~of ~~due~~management, necessary to ~~the~~a ~~existence~~fair presentation of ~~net~~the ~~operating~~results ~~loss~~of ~~carryforwards~~the interim periods.

9The results of operations for the three-month period ended August 31, 2004 are not necessarily indicative of the results to be expected for the full year.

Note 52 - ~~Inventories~~Earnings Per Share

~~Inventories~~Earnings ~~consist~~per share is based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the ~~following:~~weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings. Due to the net loss in the quarters ended August 31, 2004 and August 31, 2003, diluted earnings per share is the same as basic earnings per share for those periods. Outstanding options of 545,277 shares at August 31, 2004 and 503,277 shares at August 31, 2003 have been excluded from the earnings per share calculation due to the net loss in those periods.

	February 29,2004			May 31,2003
Work in process	$	754,400		$	561,800
Finished Goods		17,100			15,400
Raw materials		378,700			450,300
Valuation reserve		(298,700	)		(298,600	)
Total	$	851,500		$	728,900

Note 3 - Notes Payable

~~Work~~At inAugust ~~process~~31, ~~inventory represents actual production costs~~2004, ~~including~~convertible ~~manufacturing~~debentures ~~overhead~~initially ~~incurred~~issued to ~~date,~~clients ~~reduced~~of byGutzwiller ~~amounts~~& ~~identified~~Partner, ~~with~~AG, ~~revenue~~now ~~recognized~~known onas ~~units~~Rabo ~~delivered.~~Investment ~~The~~Management ~~costs~~Ltd., ~~attributable~~were tooutstanding ~~units~~in an ~~delivered~~aggregate ~~are~~principal ~~based~~amount ~~on the estimated average costs~~ of ~~all~~approximately ~~units expected~~$8.8 tomillion. beSuch ~~produced~~debentures ~~under~~matured ~~multi-unit~~on ~~orders.~~August ~~Estimated~~14, ~~costs~~2004, toare ~~complete~~convertible ~~are~~into ~~based~~common onstock ~~historical~~at ~~experience~~a ~~and~~conversion ~~knowledge~~price of ~~building similar products~~$0.50 Onper ~~an on-going basis~~share, ~~the~~and ~~Company~~bear ~~evaluates~~interest ~~the~~at ~~estimates~~1% ofper ~~total~~annum, ~~costs~~which tois ~~complete~~payable ~~a multi-unit order~~annually. ~~Work~~Shares issuable inupon ~~process~~conversion isare ~~reduced~~also bysubject ~~charging~~to ~~any~~certain ~~amounts~~rights into ~~excess~~registration ofunder ~~estimated~~the ~~net~~Securities ~~realizable~~Act ~~value to cost~~ of ~~sales~~1933, as ~~soon as they become known~~amended. ~~Interim inventories are determined by application of estimated gross profit margins to sales.~~

108

GENERALTable KINETICSof INCORPORATED Contents

On March 12, 2003, Manassas Partners LLC, a Delaware limited liability company of which Larry Heimendinger, Chairman of ~~Item~~the 2Board -of ~~Management’s~~Directors ~~Discussion~~of ~~and~~the ~~Analysis~~Company, is the managing member, purchased from third parties, at a significant discount, a portion of ~~Financial~~the ~~Condition~~outstanding ~~and~~convertible ~~Results~~debentures in an aggregate principal amount of ~~Operations~~$5,800,000.

~~Three~~The ~~Months~~Company’s ~~Ended~~cash ~~February~~flow, 29capital resources, and overall financial condition will not be sufficient to repay or refinance in full the approximately $8.8 million principal amount of outstanding convertible debentures which matured on August 14, 2004. ~~Compared~~The Company has reached agreement in principle with holders of approximately $1.7 million principal amount of such debentures for the purchase of these debentures at a total price (including interest) equal to ~~Three~~3% ~~Months~~of ~~Ended~~the ~~February~~principal 28amount. At present, ~~2003~~the Company is in discussion with certain other debenture holders, but has decided on no specific plans with respect to the repayment or refinancing of the debentures. The Company is continuing to review the situation and consider its potential alternatives. There can be no assurances, however, that the Company will be able to come to agreement with the other debenture holders with respect to repayment or refinancing of the debentures.

~~Net~~Note ~~sales~~4 ~~for~~- ~~the~~Income ~~three~~Taxes months ended February 29, 2004 were approximately $1.25 million compared to net sales of approximately $1.24 million for the quarter ended February 28, 2003. The low sales figure and corresponding negligible increase were due primarily to a decrease in orders under a large blanket contract with a prime contractor to the U.S. Navy, in addition to an overall slowdown of orders from customers involved in projects related to the U.S. Navy.

The ~~gross~~Company’s ~~margin~~estimated ~~percentage~~effective ~~decreased~~tax torate ~~-0.3%~~ for ~~the~~fiscal ~~quarter~~2005 ~~ended~~is ~~February 29, 2004 from 4.8~~0% ~~for the quarter ended February 28, 2003~~. ~~The~~This ~~negative~~estimated ~~gross~~effective ~~margin~~tax ~~during the~~rate ~~third~~is ~~quarter~~lower ofthan ~~fiscal 2004 occurred because~~ the ~~low~~statutory ~~sales~~rate ~~level~~due ~~was not enough~~ to ~~support overhead expenses incurred during~~ the ~~quarter.~~existence ~~The primary reason for the decrease in gross profit margins was changes in the mix~~ of ~~jobs produced in the~~net ~~quarter~~operating ~~ended~~loss ~~February 29, 2004 as compared to the job mix in the quarter ended February 28, 2003~~carryforwards.

~~Selling,~~9 general & administrative costs were approximately $261,800 in the third quarter of fiscal 2004 as compared to approximately $232,300 in the corresponding quarter of the prior fiscal year. The increase was principally due to cost reduction measures during the third quarter of the prior fiscal year, including salary decreases, put into place by management in response to the reduced backlog and shipping levels. Certain of the cost cutting measures, including salary decreases, were discontinued by the third quarter of fiscal 2004 because of the increased backlog as the Company entered the fourth quarter of the fiscal year.

ForTable the three months ended February 29, 2004, the Company had an operating loss of $265,900 compared to an operating loss of $173,300 for the comparable quarter of the prior fiscal year. The increase was due primarily to the decrease in gross profit margins and increases in selling, general, and administrative costs described above. Contents

~~Interest~~ Item ~~expense~~2 ~~was~~- ~~$49,400~~Management’s inDiscussion ~~the~~and ~~third~~Analysis ~~quarter~~ of ~~fiscal~~Financial ~~2004~~Condition ~~compared~~and toResults ~~$45,400 in the third quarter~~ of ~~fiscal~~Operations ~~2003. The increase was due to an increase in the factoring of accounts receivable in the quarter ended February 29, 2004 as compared to the quarter ended February 28, 2003.~~

11Three Months Ended August 31, 2004, Compared to Three Months Ended August 31, 2003

~~The~~Net ~~Company’s~~sales ~~estimated~~for ~~effective~~the ~~tax~~quarter ~~rate~~ended ~~for~~August ~~fiscal~~31, 2004 iswere 0%approximately $1.7 ~~This~~million ~~estimated~~compared ~~effective~~to ~~tax~~net ~~rate~~sales isof ~~lower~~approximately ~~than~~ $1.6 million for the quarter ~~statutory~~ended ~~rate~~August 31, 2003. Net sales increased due to an increase in demand in the ~~existence~~first quarter of ~~net~~fiscal ~~operating~~2005 ~~loss~~as ~~carryforwards~~compared to the first quarter of the prior fiscal year.

~~Nine~~The ~~Months~~gross ~~Ended~~margin ~~February~~percentage 29decreased from 20.0% for the quarter ended August 31, 2003 to 17.9% for the quarter ended August 31, 2004. ~~Compared~~The primary reasons for the decrease in the gross profit percentage were the mix of jobs for the quarter ended August 31, 2004 as compared to ~~Nine~~the ~~Months~~corresponding ~~Ended~~quarter ~~February~~of 28the prior fiscal year. The Company operates as a job shop, ~~2003~~making a mix of build-to-print cabinets and parts, standard cabinets, and special orders, all with variable quantities depending on the current contracts. Therefore, the mix of orders and margins associated with those orders can vary significantly between quarters. The Company continues to address production planning through plant supervision and regular updating of scheduling and planning procedures. The Company is trying to stabilize the level of shipments at a profitable level through these changes. During the first quarter of fiscal 2005, the Company acquired a new vertical machining center under a capital lease which the Company expects to use to increase the production of parts made in house in the machine shop.

~~Net~~Selling, ~~sales~~general ~~for~~& ~~the~~administrative ~~nine~~costs ~~months~~were ~~ended~~approximately ~~February 29~~$337,500 ~~2004~~for ~~were~~the ~~approximately~~quarter ~~$4.3~~ended August ~~million~~31, 2004 as compared to ~~net sales of~~ approximately $~~5.5~~308,600 ~~million~~ for the ~~nine~~quarter ~~months~~ ended ~~February~~ 28August 31, 2003. The ~~decrease~~lower cost in ~~sales~~the prior year was principally due ~~primarily~~ to acost ~~decrease~~reduction inmeasures ~~orders~~during ~~under~~the afirst ~~large~~quarter ~~blanket~~of ~~contract~~that ~~with~~year, aincluding ~~prime~~salary ~~contractor~~decreases tothat ~~the~~were put ~~U.S.~~into ~~Navy,~~place by management in ~~addition~~response to anthe ~~overall~~reduced ~~slowdown~~backlog ofand ~~orders~~shipping ~~from customers involved in projects related to the U~~levels.S. ~~Navy.~~

~~The~~For ~~gross margin percentage decreased from 20.8% for~~ the ~~nine months~~quarter ended ~~February~~August 2831, ~~2003~~2004, tothe ~~14.9%~~Company ~~for~~had ~~the~~an ~~nine~~operating ~~months~~loss ~~ended~~of ~~February 29~~$28,500 ~~2004.~~compared ~~The~~to ~~primary~~operating ~~reasons~~income ~~for the decrease in the gross profit percentage were the mix~~ of ~~jobs~~$16,200 for the ~~current~~corresponding ~~fiscal~~quarter ~~year as compared to the same nine months~~ of the prior ~~fiscal~~ year. The ~~Company~~decrease ~~continues~~in tooperating ~~address~~income ~~production~~was ~~issues~~due ~~through~~principally ~~plant supervision and regular updating of scheduling and planning procedures. The Company is trying~~ to ~~stabilize~~ the decrease ~~level~~in ofgross ~~shipments~~margins atand aincrease ~~profitable~~in ~~level~~selling, ~~through~~general ~~these changes~~& ~~and~~administrative acosts ~~focused~~discussed ~~sales effort~~above.

~~Selling,~~Interest ~~general~~expense &decreased ~~administrative costs~~from ~~were approximately~~ $~~857~~49,~~900~~700 in the first ~~nine~~quarter ~~months~~ of fiscal 2004 ~~as compared~~ to ~~approximately~~ $~~955~~47,~~600~~700 in the first ~~nine~~quarter ~~months~~ of ~~the prior~~ fiscal ~~year~~2005. The ~~reduction~~decrease was ~~principally~~ due to ~~cost~~a ~~reduction~~decrease ~~measures~~in ~~during~~mortgage ~~the~~interest ~~first~~expense ~~two quarters~~compared ofto ~~fiscal~~the ~~2004,~~corresponding quarter ~~including~~of ~~salary~~the ~~decreases,~~prior ~~put~~fiscal ~~into~~year ~~place~~because byof ~~management~~the insale ~~response~~of tothe ~~reduced~~Company’s ~~backlog~~building ~~and~~in ~~shipping~~Johnstown, ~~levels~~Pennsylvania.

~~For~~10 the nine months ended February 29, 2004, the Company had an operating loss of $213,200 compared to an operating income of $184,600 for the comparable nine months of the prior fiscal year. The decrease was due primarily to the decrease in sales and in gross profit margins described above.

InterestTable expense was $146,500 in the first nine months of fiscal 2004 compared to $149,100 in the first nine months of fiscal 2003. Contents

12The Company’s estimated effective tax rate for fiscal 2005 is 0%. This estimated effective tax rate is lower than the statutory rate due to the existence of net operating loss carryforwards.

~~Liquidity~~11 ~~and Capital Resources~~

TheTable Company relies upon internally generated funds and accounts receivable factoring to finance its operations. In addition to a net loss of $359,700 for the first nine months of fiscal 2004, during fiscal years 2003 and 2002 the Company incurred net losses of approximately $131,400 and $835,400, respectively. In order to generate the working capital required for operations, the Company must continue to generate orders, increase its gross margins, and effectively manage operating expenses during fiscal 2004. Contents

~~The~~Liquidity ~~Company must continue to market electronic enclosure products to government~~ and ~~commercial~~Capital ~~markets,~~Resources enter into contracts which the Company can complete with favorable profit margins, ship the orders in a timely manner, and control operating costs in order to recover from the Company’s liquidity problems and seek to operate profitably for the remainder of fiscal 2004.

The ~~decrease~~Company inrelies ~~sales~~upon ininternally ~~the~~generated ~~first~~funds ~~nine~~and ~~months~~accounts ofreceivable ~~fiscal~~factoring ~~2004~~to asfinance ~~compared~~its tooperations. During the ~~first~~quarter ~~nine~~ended ~~months~~August of31, 2004 and fiscal years 2004 and 2003, isthe ~~primarily~~Company ~~due~~incurred net losses of approximately $76,200, $527,300 and $131,400, respectively. In order to angenerate ~~overall~~the ~~slowdown~~working ofcapital ~~orders~~required ~~from~~for ~~customers~~operations, ~~involved~~the inCompany ~~projects~~must ~~related~~continue to generate orders, increase its gross margins, and effectively manage operating expenses during the ~~U.S.~~remainder ~~Navy~~of fiscal 2005.

~~However,~~The ~~the~~ Company ~~has~~must ~~received~~continue ~~significant~~to ~~new~~market ~~orders~~electronic ~~during~~enclosure ~~the~~products ~~last~~to ~~several~~government ~~months,~~ and ~~the~~commercial ~~shippable~~markets, ~~backlog~~enter atinto ~~February~~contracts ~~29,~~which ~~2004~~the isCompany ~~$2.8~~can ~~million~~complete aswith ~~compared to~~favorable ~~$497~~profit margins,~~000~~ atship ~~February~~the ~~28,~~orders ~~2003.~~in ~~The~~a ~~Company~~timely ~~must~~manner, ~~produce~~ and ~~ship~~control ~~this~~operating ~~backlog~~costs ofin ~~orders~~order onto ~~schedule~~recover ~~and~~from onthe ~~budget~~Company’s toliquidity ~~generate~~problems ~~positive~~and ~~cash~~seek ~~flow~~to ~~and~~ operate profitably for the remainder of fiscal ~~2004~~2005. The Company must also maintain or increase the current level of backlog to provide positive cash flow over the next twelve month period. However, there is no assurance the Company will be successful in its efforts to obtain an adequate level of new contracts to maintain positive cash flow or profitable operations.

AsThe ofCompany ~~February~~has ~~29,~~received ~~2004,~~significant new orders during the ~~Company~~first ~~had~~quarter ~~cash~~of fiscal 2005 and ~~marketable~~the ~~securities~~last ~~totaling~~few ~~$124~~months of fiscal 2004,~~500.~~ ~~The~~and ~~Company~~the ~~has~~shippable ~~faced~~backlog ~~production~~at ~~issues~~August ~~that~~31, ~~have~~2004 ~~contributed~~is to$3.6 ~~losses~~million ~~from~~as ~~operations~~compared into ~~the~~$1.5 ~~prior~~million ~~three~~at ~~fiscal~~August ~~years~~31, 2003. The Company ~~has~~must ~~taken~~produce and isship ~~continuing~~this tobacklog ~~take~~of ~~steps~~orders toon ~~address~~schedule ~~these production issues through changes~~ and ~~additions~~on budget to ~~plant~~generate ~~supervision,~~positive cash ~~regularly~~flow ~~updating scheduling~~ and ~~planning~~operate ~~procedures,~~profitably ~~and~~in ~~adding~~fiscal ~~new production machinery~~2005. The Company ismust ~~trying~~also tomaintain ~~stabilize~~or increase the current level of ~~shipments~~backlog atto aprovide ~~profitable~~positive ~~level~~cash ~~through~~flow ~~these changes.~~over ~~During~~ the ~~first~~next ~~half~~twelve ofmonth ~~fiscal~~period. ~~2004~~However, ~~management~~there ~~implemented~~is ~~cost~~no ~~reductions,~~assurance ~~including~~the ~~salary~~Company ~~reductions,~~will be successful in ~~response~~its efforts to ~~reduced~~obtain ~~sales~~an ~~and~~adequate ~~order~~level ~~backlog.~~of ~~The~~new ~~salary~~contracts ~~reductions ended during the quarter ended February 29, 2004 in response~~ to ~~the~~ ~~increase~~maintain inpositive ~~backlog~~cash ~~and~~flow ~~production~~or ~~requirements~~profitable operations.

13As of August 31, 2004, the Company had cash and marketable securities totaling $118,100. The Company has taken and is continuing to take steps to address production planning through changes and additions to plant supervision, regularly updating scheduling and planning procedures, and adding new production machinery. The Company is trying to stabilize the level of shipments at a profitable level through these changes. During the first half of fiscal 2004, management implemented cost reductions, including salary reductions, in response to reduced sales and order backlog. The salary reductions ended during the quarter ended February 29, 2004 in response to the increase in backlog and production requirements.

Management believes that the Company can meet its operating cash requirements, excluding the repayment of the debentures referred to below, through the current fiscal year with cash on hand and borrowings from the factoring of accounts receivable if they can ~~ship~~maintain or increase the ~~scheduled~~current ~~backlog~~level onof ~~time~~backlog, and ~~within~~ship ~~budget. Meeting~~ the ~~Company’s~~scheduled ~~cash requirements through the next twelve months will also require maintaining or increasing the current order~~ backlog, ason ~~well~~time ~~as profitable production~~ and ~~shipment~~within ~~of those orders~~budget. However, there is no assurance the Company will be successful in pursuing its plans or in obtaining additional financing to meet those cash requirements. The Company must maintain or increase its current level of sales, consistently make timely shipments and produce its ~~products at adequate profit margins, or the Company will continue to face liquidity problems and may be left without sufficient cash to~~ ~~meet its ongoing requirements.~~

~~The~~12 accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has sustained operating losses in the first nine months of the current fiscal year and in fiscal years 2003, 2002 and 2001, and, in addition, the Company has significant short-term cash commitments, the funding of which is limited to cash flow from operations and the factoring of certain accounts receivable, if available. These losses and commitments, in addition to an overall slowdown of orders from customers involved in projects related to the U.S. Navy, raise significant doubt about the Company’s ability to continue as a going concern. The financial statements do not contain any adjustment that might result from the outcome of these uncertainties.

TheTable Company was formerly party to a factoring agreement with Reservoir Capital Corporation (“Reservoir”) that provided for advances (or loans) of up to 80% of specified accounts receivable. In August 2001, Link2It Corporation, a company formed by Larry Heimendinger and Richard McConnell, both of whom are directors of the Company, entered into a factoring agreement with the Company on terms substantially similar to those of the Reservoir facility, but more favorable to the Company in certain respects, including provision for advances at a rate of up to 85% of specified accounts receivable. An amended factoring agreement with Link2It Corporation, on similar terms, was entered into in April 2002. During the quarter ended August 31, 2003, the Company entered into a new factoring agreement with Key Capital Factoring (“Key”) that also provides for advances of up to 85% of specified accounts receivable. The Company expects to draw on the Key facility during fiscal 2004 as necessary to help alleviate liquidity problems, although, as discussed above, the Company will also need to control expenses, maintain the sales backlog at appropriate levels, and keep shipment levels in line with booked orders in order to meet these requirements. At February 29, 2004, there was $170,700 of outstanding advances due to Key. Contents

~~The~~ products ~~Company~~at ~~had significant~~adequate ~~amounts~~profit ~~payable~~margins, or the Company will continue to ~~trade~~face ~~creditors~~liquidity atproblems ~~February~~and ~~29,~~may ~~2004~~be left without sufficient cash to meet its ongoing requirements.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has sustained operating losses in the last three fiscal years, and the Company has significant short-term cash commitments, the funding of which is limited to cash flow from operations and the factoring of certain accounts receivable, if available. The Company is attempting to restructure or repurchase at a discount $8.8 million in convertible debentures (discussed below) which matured on August 14, 2004. These losses and commitments raise significant doubt about the Company’s ability to continue as a going concern. The financial statements do not contain any adjustment that might result from the outcome of these uncertainties.

~~The~~During ~~Company~~the ~~has~~quarter ~~outstanding~~ended ~~debentures~~August ~~originally~~31, ~~issued~~2003, tothe ~~clients~~Company ofentered ~~Gutzwiller~~into &a ~~Partner,~~factoring ~~AG,~~agreement ~~now known as Rabo~~with ~~Investment~~Key ~~Management~~Capital ~~Ltd.~~Factoring (~~the~~ “~~Manager~~Key”), ~~totaling~~that ~~approximately~~provides ~~$8.8~~for ~~million.~~advances ~~The debentures mature in August 2004, are convertible into common stock at a conversion price~~ of ~~$0.50~~up ~~per~~to ~~share, and bear interest at 1~~85% ~~per~~of ~~annum~~specified ~~payable annually~~accounts receivable. InThe aCompany ~~filing~~expects ~~with~~to ~~the~~draw ~~SEC~~on ~~dated November 9, 2001,~~ the ~~Manager~~Key ~~indicated~~facility ~~that~~during itfiscal ~~may~~2005 beas ~~deemed~~necessary to behelp ~~the~~alleviate ~~beneficial~~liquidity ~~owner~~problems, ofalthough, ~~debentures~~as discussed ~~having an aggregate principal amount of $7~~above,~~885,000,~~ ~~including debentures in~~ the ~~principal~~Company ~~amount~~will ~~of $585,000~~also ~~which~~need ~~were~~to ~~purchased~~control byexpenses, ~~the~~maintain ~~Manager as to which~~ the ~~Manager~~sales ~~was~~backlog ~~the~~at ~~economic~~appropriate ~~beneficial~~levels, ~~owner~~ and ~~held~~keep ~~sole~~shipment ~~voting~~levels ~~and~~in ~~dispositive~~line ~~power,~~with ~~and~~booked ~~debentures~~orders in aorder ~~principal~~to ~~amount~~meet ofthese ~~$7,300,000~~requirements. ~~held~~The inCompany ~~client~~factored accounts ~~managed by the Manager on~~receivable ~~behalf~~during ~~of various clients who held beneficial economic ownership thereof for which~~ the ~~Manager held voting and dispositive power. On March 12~~quarter, ~~2003,~~but ~~Manassas~~there ~~Partners~~were ~~LLC,~~no aoutstanding ~~Delaware~~advances ~~limited~~due ~~liability~~to ~~company~~Key ofat ~~which~~August ~~Larry Heimendinger~~31, ~~Chairman~~2004. ~~of the~~Key ~~Board~~may ofcancel ~~Directors of~~ the ~~Company~~agreement isat ~~the~~any ~~managing~~time ~~member,~~with ~~purchased~~20 ~~from~~days ~~third~~prior ~~parties,~~notice atto ~~a significant discount, a portion of~~ the Company~~’s $8~~.8 ~~million outstanding convertible debentures in an aggregate principal amount of $5.8 million.~~

The Company ~~does~~had ~~not~~significant ~~expect~~amounts ~~that~~payable ~~its cash flow, capital resources, and overall financial condition will be sufficient~~ to ~~repay~~trade orcreditors ~~refinance~~at ~~in full the approximately $8.8 million principal amount of outstanding convertible debentures currently scheduled to mature in~~ August ~~2004. At present~~31, ~~the Company has decided on no specific plans with respect to the repayment or refinancing of the debentures, but it expects to continue to review the situation and consider its potential alternatives~~2004.

~~Analysis~~The Company has outstanding debentures originally issued to clients of ~~Cash~~Gutzwiller ~~Flows~~& Partner, AG, now known as Rabo Investment Management Ltd. (the “Manager”), totaling approximately $8.8 million. The debentures matured on August 14, 2004, are convertible into common stock at a conversion price of $0.50 per share, and bear interest at 1% per annum payable annually. In a filing with the Securities and Exchange Commission dated November 9, 2001, the Manager indicated that it may be deemed to be the beneficial owner of debentures having an aggregate principal amount of $7,885,000, including debentures in the principal amount of $585,000 which were purchased by the Manager as to which the Manager was the economic beneficial owner and held sole voting and dispositive power, and debentures in a principal amount of $7,300,000 held in client accounts managed by the Manager on behalf of various clients who held beneficial economic ownership thereof for which the Manager held voting and dispositive power.

~~Operating~~On ~~activities~~March ~~used $115~~12,~~600~~ ~~in cash in the first nine months of fiscal 2004. This reflects the net loss of $359~~2003,~~700~~ ~~offset~~Manassas byPartners ~~$108~~LLC,~~900~~ ina ~~non-cash~~Delaware ~~expenses~~limited ~~and unrealized~~liability ~~gain~~company onof ~~marketable~~which ~~securities and by $135~~Larry Heimendinger,~~200~~ inChairman ~~cash~~of ~~generated from changes in working capital items. The cash generated from changes in working capital items in~~ the ~~first~~Board ~~nine months~~ of ~~fiscal~~Directors ~~2004 includes a increase in inventories~~ of ~~$122,600~~ ~~offset by an increase in accounts payable of $180,200.~~

~~The~~13 ~~Company used $8,000 to acquire property, plant and equipment during the first three quarters of fiscal 2004.~~

FinancingTable activities provided $83,800 in the first three quarters of fiscal 2004. These activities consisted primarily of factoring accounts receivable netting to $170,700, offset by the repayment of certain long-term debt. Contents

15 the Company, is the managing member, purchased from third parties, at a significant discount, a portion of the Company’s $8.8 million outstanding convertible debentures in an aggregate principal amount of $5.8 million.

~~Inflation~~The Company’s cash flow, capital resources, and overall financial condition will not be sufficient to repay or refinance in full the approximately $8.8 million principal amount of outstanding convertible debentures which matured on August 14, 2004. The Company has reached agreement in principle with holders of approximately $1.7 million principal amount of such debentures for the purchase of these debentures at a total price (including interest) equal to 3% of the principal amount. At present, the Company is in discussion with certain other debenture holders, but has decided on no specific plans with respect to the repayment or refinancing of the debentures. The Company is continuing to review the situation and consider its potential alternatives. There can be no assurances, however, that the Company will be able to come to agreement with the other debenture holders with respect to repayment or refinancing of the debentures. No payment has otherwise been made in respect of interest on the outstanding debentures for the periods ending August 14, 2003 and 2004.

~~Management~~Analysis ~~believes that inflation did not have a material effect on the operations, financial position or cash flows~~ of ~~the~~Cash ~~Company~~Flows ~~during the first nine months of fiscal 2004.~~

~~Contractual~~Operating ~~Obligations~~activities used $356,000 in cash in the first quarter of fiscal 2005. This reflects the net loss of $76,200 and ~~Commercial~~$288,500 ~~Commitments~~in cash used from changes in working capital items offset by $8,700 in net non-cash expenses. The cash used from changes in working capital items in the first quarter of fiscal 2005 includes an increase in inventories of $190,100 and an increase in accounts receivable of $148,300.

~~The~~Investing ~~Company’s~~activities ~~commitments~~used ~~through~~$22,000 ~~February~~in 28the first quarter of fiscal 2005, ~~2009~~which ~~are~~consists ~~comprised~~primarily of the ~~following~~acquisition atof ~~February 29~~property, ~~2004~~plant ~~(in~~and ~~thousands):~~equipment.

	Through February,
	2005		2006		2007		2008		2009		Total
Convertible debentures	$	8,795	$	0	$	0	$	0	$	0	$	8,795
Other notes payable		40		0		0		0		0		40
Real estate mortgage		100		106		82		0		0		288
Capital leases		22		23		21		0		0		66
Operating leases		27		5		3		2		1		38
Total	$	8,984	$	134	$	106	$	2	$	1	$	9,227

Financing activities used $224,000 in the first quarter of fiscal 2005. These activities consisted primarily of the repayment of advances from the factoring of accounts receivable.

~~Critical~~Noncash ~~Accounting~~investing ~~Policies~~ and financing activities consisted of the acquisition of a new vertical milling machine via a capital lease

~~The~~Inflation Company’s significant accounting policies are more fully described in Note 2 to the financial statements in our 2003 Annual Report on Form 10-K, as amended. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related notes. In preparing these financial statements, the Company has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The Company does not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below; however, application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

~~Work~~Management inbelieves ~~process~~that ~~inventory~~inflation ~~represents~~did ~~actual~~not ~~production~~have ~~costs,~~a ~~including~~material ~~manufacturing overhead~~effect ~~incurred~~on tothe ~~date~~operations, ~~reduced~~financial byposition ~~amounts~~or ~~identified~~cash ~~with~~flows ~~revenue recognized on units delivered as well as reserves for amounts in excess~~ of ~~estimated~~the ~~net~~Company ~~realizable~~during ~~value. The costs attributable to units delivered are based on~~ the ~~estimated average~~first ~~costs~~quarter of ~~all~~fiscal ~~units~~2005. ~~expected to~~

1614

beTable produced under multi-unit orders. Estimated costs to complete are based on historical experience and knowledge of building similar products. On an on-going basis, the Company evaluates the estimates of total costs to complete a multi-unit order. Work in process is reduced by charging any amounts in excess of estimated net realizable value to cost of sales as soon as they become known. Interim inventories are determined by application of estimated gross profit margins to sales. Contents

~~The~~Contractual ~~Company~~Obligations ~~provides an allowance for uncollectible receivables based on experience with customers~~ and ~~individual~~Commercial ~~review~~Commitments of any past due accounts. Although it is reasonably possible that management’s estimate could change in the near future, management is not aware of any events that would result in a change to its estimate which would be material to the Company’s financial position or its results of operations. At February 29, 2004, the Company had an allowance for doubtful accounts of $22,500.

~~Item~~The 3Company’s -commitments ~~Quantitative~~through ~~and~~August ~~Qualitative~~31, ~~Disclosures~~2009 ~~About~~are ~~Market~~comprised ~~Risk~~of the following at August 31, 2004 (in thousands):

Market Risk – The Company is exposed to market risk from adverse changes in interest rates.


	Through August 31,
	2005		2006		2007		2008		2009		Total
Convertible debentures	$	8,795	$	0	$	0	$	0	$	0	$	8,795
Other notes payable		40		0		0		0		0		40
Capital leases		60		60		45		34		15		214
Operating leases		198		183		183		181		135		880
Total	$	9,093	$	243	$	228	$	215	$	150	$	9,929

~~Interest~~Critical ~~Rate~~Accounting ~~Risks – The Company is exposed to risk from changes in interest rates as~~Policies a result of its borrowing activities. At February 29, 2004, the Company had total debt of $9.16 million, of which $0.29 million represents borrowing for its real estate mortgage, which is at a variable interest rate. Interest on that portion of the Company’s debt is directly affected by changes in the prime interest rate, and therefore fluctuations may have an impact on the Company’s financial results.

The Company’s significant accounting policies are more fully ~~Item~~described 4in Note 2 to the financial statements in our 2004 Annual Report on Form 10-K, ~~Controls~~as amended. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and ~~Procedures~~assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related notes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The Company does not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below; however, application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

~~The~~Work ~~Company maintains~~in ~~“disclosure~~process ~~controls~~inventory ~~and~~represents ~~procedures~~actual production costs,” asincluding ~~such~~manufacturing overhead ~~term~~incurred isto ~~defined~~date, ~~under~~reduced ~~Rules~~by ~~13a-15(e)~~amounts ~~and~~identified ~~15d-15(e)~~with ~~under~~revenue ~~the~~recognized ~~Securities~~on ~~Exchange~~units ~~Act~~delivered ofas ~~1934,~~well as ~~amended~~reserves ~~(the~~for ~~“Exchange~~amounts ~~Act”),~~in ~~that~~excess ~~are~~of ~~designed~~estimated tonet ~~ensure~~realizable ~~that~~value. ~~information required~~The costs attributable to beunits ~~disclosed~~delivered inare based on the ~~Company’s~~estimated average ~~reports~~costs ~~filed~~of orall ~~submitted~~units expected to be produced under ~~the~~multi-unit ~~Exchange~~orders. ~~Act~~Estimated iscosts ~~recorded,~~to ~~processed,~~complete ~~summarized~~are based on historical experience and ~~reported~~knowledge ~~within~~of ~~the~~building ~~time~~similar ~~periods~~products. ~~specified~~On inan ~~the~~on-going ~~Securities~~basis, ~~and~~the ~~Exchange~~Company ~~Commission’s~~evaluates ~~rules~~the ~~and~~estimates ~~forms~~of ~~and~~total ~~that~~costs ~~such~~to ~~information~~complete a multi-unit order. Work in process is ~~accumulated~~reduced ~~and~~by ~~communicated~~charging toany ~~the~~amounts ~~Company’s~~in ~~management,~~excess ~~including~~of ~~the~~estimated ~~Company’s~~net ~~Chief~~realizable ~~Executive~~value ~~Officer~~to ~~and~~cost ~~Chief~~of ~~Financial~~sales ~~Officer,~~as soon as ~~appropriate,~~they tobecome ~~allow~~known. ~~timely~~Interim ~~decisions~~inventories ~~regarding~~are ~~required~~determined ~~disclosure.~~by application of estimated gross profit margins to sales.

1715

AsTable of the end of the period covered by this quarterly report, the Company conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as required by Rule 13a-15 under the Exchange Act. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There has been no change in the Company’s internal control over financial reporting that has occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Contents

18The Company provides an allowance for uncollectible receivables based on experience with customers and individual review of any past due accounts. Although it is reasonably possible that management’s estimate could change in the near future, management is not aware of any events that would result in a change to its estimate which would be material to the Company’s financial position or its results of operations. At August 31, 2004, the Company had an allowance for doubtful accounts of $22,900.

~~PART~~ Item II3 ~~OTHER~~- ~~INFORMATION~~Quantitative and Qualitative Disclosures About Market Risk

~~Item~~Market 6Risk - ~~Exhibits~~The ~~and~~Company ~~Reports~~is onexposed ~~Form~~to ~~8-K~~market risk from adverse changes in interest rates.

(Interest Rate Risks - The Company is exposed to risk from changes in interest rates as a) ~~Exhibits~~result of its borrowing activities. At August 31, 2004, the Company had total debt of $9.9 million, all of which has a fixed rate of interest.

31.1		Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Item 4 - Controls and Procedures

~~(b)~~The ~~Reports~~Company maintains ondisclosure ~~Form~~controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the ~~8-K~~time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

~~None~~As of the end of the Company’s first quarter of fiscal 2005, the Company conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the Company’s first quarter of fiscal 2005. There has been no change in the Company’s internal control over financial reporting that has occurred during the Company’s first quarter of fiscal 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

1916

SIGNATURESTable of Contents

~~Pursuant~~PART toII ~~the~~OTHER ~~requirements~~INFORMATION ~~of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~

~~GENERAL KINETICS~~ ~~INCORPORATED~~Item 3 - Defaults Upon Senior Securities

~~Date:~~Information ~~April~~is ~~14,~~incorporated ~~2004~~by /reference to “Item 2, Management’s/ ~~Larry~~Discussion M.and ~~Heimendinger~~Analysis ~~Chairman~~of Financial Condition and Results of Operations” under the ~~Board~~heading ~~(Principal~~“Liquidity ~~Executive~~and ~~Officer)~~Capital Resources.”

~~Date:~~ Item ~~April~~6 ~~14,~~- ~~2004~~Exhibits ~~/s/ Sandy B. Sewitch Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)~~


31.1		Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

GENERAL KINETICS INCORPORATED



Date: October 15, 2004				/s/ Larry M. Heimendinger
				Chairman of the Board
				(Principal Executive Officer)

Date: October 15, 2004				/s/ Sandy B. Sewitch
				Chief Financial Officer
				(Principal Accounting Officer and Principal Financial Officer)

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