SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                   FORM 10-Q

                   Quarterly Report under Section 13 or 15(d)

                     of the Securities Exchange Act of 1934
For Quarter Ended February 28, 1997               Commission File Number 0-1738
                                                                         ------

                         GENERAL KINETICS INCORPORATED
             (Exact Name of Registrant as Specified in its Charter)



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




14130-C Sullyfield Circle, Chantilly, VA                        20151
(Address of Principal Executive Offices)                     (Zip Code)





Registrant's Telephone Number, including Area Code     703-802-9300






               Indicate by checkmark 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
                                                ___     ___



               The number of shares of Registrant's  Common
               Stock outstanding as of April 5, 1997
                                           6,508,925 Shares


<PAGE>


                                     INDEX

<TABLE>
<CAPTION>

                                                                                                                         Page No.
<S> <C>
                  Cautionary Statement Under the Private Securities Litigation Reform Act of 1996...........................3

Part I - Financial Information

         Item I - Consolidated Financial Statements

                  Condensed Consolidated Balance Sheets -
                          February 28, 1997  and May 31, 1996...............................................................4

                         Condensed Consolidated Statements of Operations -
                         Nine Months and Three Months Ended February 28, 1997  and  February 29, 1996,
                          respectively......................................................................................5

                         Condensed Consolidated Statements of Cash Flows -
                         Nine Months and Three Months  Ended  February 28, 1997  and
                          February 29, 1996, respectively...................................................................6

                         Notes to Condensed Consolidated Financial Statements...............................................7

         Item 2 -  Management's Discussion and Analysis of Financial
                       Condition and Results of Operations..................................................................11


Part 2 - Other Information

         Item 6 - Exhibits and Reports on Form 8-K..........................................................................14
</TABLE>

                                       2


<PAGE>


CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996

Statements in this Quarterly Report on Form 10-Q under the caption "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations",  as
well  as  oral  statements  that  may be made  by the  Company  or by  officers,
directors or employees of the Company acting on the Company's  behalf,  that are
not historical fact constitute  "forward-looking  statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.  These  forward-looking  statements
involve risks and  uncertainties,  including,  but not limited to, the risk that
the Company may not be able to obtain  additional  financing if  necessary;  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;  the  risk  that the  Company  may not be able to
maintain  its  listing on the  American  Stock  Exchange;  and the risk that the
Company may not be able to continue the necessary  development of its operations
on a profitable  basis.  In addition,  the Company's  business,  operations  and
financial  condition are subject to substantial risks which are described in the
Company's reports and statements filed from time to time with the Securities and
Exchange  Commission,  including  the  Company's  annual report of Form 10-K, as
amended, for the fiscal year ended May 31, 1996, and this Report.



                         PART I  FINANCIAL INFORMATION

Item 1 - Consolidated Financial Statements

         The unaudited  consolidated  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. The Company believes that the disclosures made are adequate to make
the information presented not misleading.

         In  the  opinion  of  management  of  the  Company,   the  accompanying
consolidated  financial  statements reflect all adjustments  (consisting only of
normal  recurring  adjustments)  that are necessary for a fair  presentation  of
results for the  periods  presented.  It is  suggested  that these  consolidated
financial   statements  be  read  in  conjunction  with  the  audited  financial
statements  for the fiscal  years  ended May 31,  1996 and 1995 set forth in the
Company's annual report on Form 10-K, as amended,  for the fiscal year ended May
31, 1996.

                                       3


<PAGE>

                         General Kinetics Incorporated
                          Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                                                 February 28,             May, 31
                                                                                     1997                   1996
                                                                                     ----                   ----
                                                                                 (Unaudited)             (Audited)
                                                                                 -----------             ---------
<S> <C>
                                     Assets
Current Assets:
     Cash and cash equivalents                                                  $   1,149,300          $     364,100
     Accounts receivable, net of allowance of $168,000 and $249,700                 1,394,700              1,325,500
     Inventories                                                                      835,900              3,505,900
     Prepaid expenses and other                                                        58,300                 24,600
     Note receivable, current                                                         200,000
     Note receivable, affiliate                                                       125,000                     --
                                                                                -------------          -------------
     Total Current Assets                                                           3,763,200              5,220,100
                                                                                -------------          -------------

Property, Plant and Equipment                                                       4,916,200              6,869,300
Less:  Accumulated Depreciation                                                    (3,645,400)            (5,387,600)
                                                                                -------------          -------------
                                                                                    1,270,800              1,481,700

Note Receivable, less current portion                                                 550,000                     --
Other Assets, principally capitalized software of
     $206,100 at May 31, 1996                                                          14,600                324,000
                                                                                -------------          -------------

     Total Assets                                                               $   5,598,600          $   7,025,800
                                                                                =============          =============

                     Liablilities and Stockholders' Deficit

Current Liabilities:
     Advances from factor                                                       $          --          $     146,500
     Current maturities of long-term debt                                             186,700                244,800
     Accounts payable, trade                                                          745,200              1,541,600
     Accrued expenses and other payables                                              815,300              1,224,400
                                                                                -------------          -------------
     Total Current Liabilities                                                      1,747,200              3,157,300
                                                                                -------------          -------------

Long-Term debt - less current maturities (including
     $9,015,200 and $8,966,700 due to controlling shareholder)                      9,764,500              9,800,100
Other long-term liabilities                                                           263,000                292,300
                                                                                -------------          -------------
     Total Long-Term Liabilities                                                   10,027,500             10,092,400
                                                                                -------------          -------------

     Total Liabilities                                                             11,774,700             13,249,700
                                                                                -------------          -------------

Stockholders' Deficit:
     Common Stock, $0.25 par value, 50,000,000                                      1,759,000              1,759,000
         shares authorized, 7,035,557 shares issued, 6,508,925
         shares outstanding
     Additional Contributed Capital                                                 7,186,900              7,186,900
     Accumulated Deficit                                                          (14,671,800)           (14,719,600)
                                                                                -------------          -------------
                                                                                   (5,725,900)            (5,773,700)
     Less:
               Treasury Stock, at cost (526,632 shares)                              (450,200)              (450,200)
                                                                                -------------          -------------
     Total Stockholders' Deficit                                                   (6,176,100)            (6,223,900)
                                                                                -------------          -------------

     Total Liabilities and Stockholders' Deficit                                $   5,598,600          $   7,025,800
                                                                                =============          =============
</TABLE>

The accompanying notes are an integral part of the above statements.


                                     Page 4

<PAGE>

                         General Kinetics Incorporated
                     Consolidated Statements of Operations


<TABLE>
<CAPTION>

                                                               Nine Months Ended                    Three Months Ended
                                                          February 28,     February 29,        February 28,     February 29,
                                                              1997             1996                1997              1996
                                                              ----             ----                ----              ----
<S> <C>
Net Sales                                                 $ 6,204,200      $ 5,942,500          $ 1,477,300      $   964,900
Cost of Sales                                               4,483,700        4,927,900            1,055,400          916,300
                                                          -----------      -----------          -----------      -----------
Gross Profit                                                1,720,500        1,014,600              421,900           48,600
                                                          -----------      -----------          -----------      -----------

Selling, General & Administrative                           1,198,700        1,398,800              333,100          490,700

Product Research, Development & Improvement                    81,400          (13,900)              14,800               --
                                                          -----------      -----------          -----------      -----------

Total Operating Expenses                                    1,280,100        1,384,900              347,900          490,700
                                                          -----------      -----------          -----------      -----------

Operating Income (Loss)                                       440,400         (370,300)              74,000         (442,100)

Interest Expense                                              268,900          263,400               66,900           76,800
                                                          -----------      -----------          -----------      -----------

Income (loss) from continuing operations                      171,500         (633,700)               7,100         (518,900)

Gain on sale of division                                      117,000                               117,000

Income(loss) from discontinued operations                    (240,700)         167,300                   --           91,400
                                                          -----------      -----------          -----------      -----------

Net income/(loss)                                         $    47,800      $  (466,400)         $   124,100      $  (427,500)
                                                          ===========      ===========          ===========      ===========

Earnings per share
  Primary
     Income (loss) from continuing operations                    0.01            (0.10)                0.00            (0.08)
     Income (loss) from discontinued operations                 (0.01)            0.03                 0.01             0.01
                                                          -----------      -----------          -----------      -----------
   Net income/(loss) per share                            $      0.00      $     (0.07)         $      0.01      $     (0.07)
                                                          ===========      ===========          ===========      ===========

Weighted Average Number of Common Shares
  and Dilutive Equivalents Outstanding                     25,508,925        6,508,925           25,508,925        6,508,925
                                                          ===========      ===========          ===========      ===========
</TABLE>

The accompanying notes are an integral part of the above statements.

                                     Page 5

<PAGE>

                         General Kinetics Incorporated
                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                      Nine Months Ended
                                                                             February 28,         February 29,
                                                                             ------------         ------------
                                                                                 1997                 1996
                                                                                 ----                 ----
<S> <C>
Cash Flows From Operating Activities:
Net Income/(Loss)                                                         $       47,800         $   (466,400)
  Adjustments to reconcile net income
  to net cash used in operating activities:
    Depreciation and amortization                                                168,700              375,500
    Gain on disposition of discontinued operations                              (117,000)                  --
    Gain on disposal of equipment                                                     --                1,200
    ESOP compensation                                                                 --               15,500
    Amortization of bond discount                                                 48,500               48,500
  (Increase) Decrease in Assets:
    Accounts Receivable                                                         (434,700)           1,079,200
    Inventories                                                                  278,800              198,700
    Prepaid Expenses                                                             (35,200)              41,000
    Other assets - Software Development Costs                                         --             (101,000)
    Other assets                                                                  82,400              (22,800)
  Increase (Decrease) in Liabilities:
    Accounts Payable - Trade                                                    (214,400)            (829,200)
    Accrued Expenses                                                             (21,200)             199,300
    Other Long Term Liabilities                                                  (29,300)             (25,600)
                                                                          ---------------        ------------

        Net cash provided by/(used) in Operating Activites                      (225,600)             513,900
                                                                          ---------------        ------------

Cash Flows from Investing Activities:
  Acquisition of property, plant and equipment                                  (113,100)            (156,800)
  Convertible note receivable from affiliate                                    (125,000)
  Net proceeds from sale of property, plant and equipment                             --                1,000
  Net proceeds from dispostition of discontinued operations                    1,535,800                   --
                                                                          ---------------        ------------

        Net cash  provided by/(used) in Investing Activities                   1,297,700             (155,800)
                                                                          ---------------        ------------

Cash Flows from Financing Activities:
  Advances from Factor                                                         1,543,900              820,500
  Repayments of Advances from Factor                                          (1,690,400)          (1,227,500)
  Borrowings on Long Term Debt                                                        --               90,000
  Repayments on Long Term Debt                                                  (140,400)            (191,700)
                                                                          ---------------        ------------

        Net cash provided by/(used) in Financing Activities                     (286,900)            (508,700)
                                                                          ---------------        ------------

Net (decrease) increase in cash and cash equivalents                             785,200             (150,600)

Cash and Cash Equivalents:  Beginning of Period                                  364,100              212,200
                                                                          ---------------        ------------
Cash and Cash Equivalents:  End of Period                                 $    1,149,300         $     61,600
                                                                          ==============         ============

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the year for:
    Interest                                                              $      334,274         $    305,700
    Income Taxes                                                                     800                   --
Supplemental Disclosures of Non Cash Investing
  and Financing Activities:
    Reduction in paid in capital based on fair market
         value of ESOP shares                                             $           --         $    209,500
   Note received upon disposition of discontinued operations              $      750,000         $         --
</TABLE>


The accompanying notes are an integral part of the above statements.


                                     Page 6

<PAGE>


                 GENERAL KINETICS INCORPORATED AND SUBSIDIARIES

                    Notes to Condensed Financial Statements
                                  (Unaudited)



Note 1 - Basis of Presentation

         The condensed  consolidated  financial  statements at May 31, 1996, and
for the three months and nine months ended  February 28, 1997,  and February 29,
1996,  respectively,  include  the  accounts  of General  Kinetics  Incorporated
("GKI")  and its wholly  owned  subsidiary,  Food  Technology  Corporation.  All
material intercompany accounts and transactions have been eliminated.

         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  Annual  Report  has  been  omitted;  however,  such
information  reflects all  adjustments  (consisting  solely of normal  recurring
adjustments)  which are,  in the  opinion  of  management,  necessary  to a fair
presentation of the results of the interim periods.

         The results of  operations  for the three month and nine month  periods
ended  February 28, 1997,  are not  necessarily  indicative of the results to be
expected for the full year.


Note 2 - Sale of the Secure Communications Business

         As  of  December  5,  1996,  GKI  completed  the  sale  of  its  secure
communications business to Cryptek Secure Communications, LLC (the "Purchaser"),
a Delaware limited liability company, the majority of whose equity interests are
owned by affiliates of Angelo Gordon & Co., L.P.

         In the  transaction  GKI  received  $1.75  million in cash,  a $750,000
secured  promissory  note payable over three years (bearing  interest at 1% over
the prime rate) and $1.5 million face amount of 6% convertible  preferred equity
of the  Purchaser  which must be  redeemed  by the  Purchaser  within five years
(unless previously converted). Such preferred equity interest is convertible, at
GKI's option, into 4.2% of the regular membership  interests in the Purchaser on
a diluted basis. The Purchaser also assumed certain  liabilities  related to the
secure  communications  business,  subject  to the terms and  conditions  of the
agreement  of sale.  The cash  proceeds  from the sale were offset by  estimated
disposal costs and a provision for operating  losses during the phase out period
of approximately  $214,200.  The foregoing summary is not a complete description
of the terms and  conditions of the reported  transaction;  reference is made to
the copy of the agreement  between the Purchaser and GKI attached as Exhibit 2.1
to

                                       7

<PAGE>


GKI's  Form  8-K  dated  December  20,  1996.   Such summary is qualified in all
respects by such reference.

         The  consideration  received  by  GKI  for  its  secure  communications
business was determined in arms-length  negotiations with the Purchaser.  GKI is
not aware of any material  relationship  between it or any of its  directors and
officers, or between any affiliate or the directors or officers of any affiliate
and the Purchaser, that existed at the date of the disposition.

         Operating results of the Secure Communications Division ("SCD") for the
nine months and three months ended February 28, 1997 are shown separately in the
accompanying statement of operations.  The statementS of operations for the nine
months and three months ended February 29, 1996 have been restated and operating
results of SCD are also shown separately.  Net sales of SCD for the period ended
December 5, 1996 and the nine months ended February 29, 1996 were  approximately
$1.6  million and $6.0  million,  respectively.  The net  income/(loss)  for the
division  for the  period  ended  December  5,  1996 and the nine  months  ended
February 29, 1996 were approximately ($240,700) and $167,300 respectively. These
amounts are included as a discontinued  operation in the accompanying  statement
of operations.

         Assets  and  liabilities  of the  SCD  consisted  of the  following  at
December 5 and May 31, 1996:

                                        December 5, 1996       May 31, 1996
                                        ----------------       ------------
Accounts receivable                         $  365,532           $  429,839
Inventories                                  2,391,214            2,490,382
Prepaid expenses                                 1,547                6,910
Property, plant and Equip.                     180,981              198,567
Other assets                                   201,269              304,429
                                             ---------           ----------
         Total assets                        3,140,543            3,429,667
                                             ---------           ----------
Accounts payable                               582,023              692,798
Accrued expenses                               387,936              419,163
                                             ---------           ----------
         Net assets sold                    $2,170,584           $2,317,716
                                            ==========           ==========


         The accompanying balance sheet at May 31, 1996 has not been restated.

         The Company  realized a gain of  approximately  $117,000 on the sale of
the  secure  communications  business,  net of  estimated  disposal  costs and a
provision for operating losses during the phase-out  period.  As of February 28,
1997, the Company has recorded  approximately  $10,000 in deferred closing costs
related to the sale of the secure communications business.

Note 3 - Commitments and Contingencies

   No significant changes.

                                       8

<PAGE>


Note 4 - Net Income/(Loss)Per Share

   Primary and fully  diluted net  earnings/(loss)  per share have been computed
using the weighted average number of common shares and common  equivalent shares
outstanding,  to the extent  dilutive.  Common  equivalent  shares consist of 19
million shares issuable upon conversion of Convertible  Subordinated  Debentures
issued to the Company's  majority  shareholder,  RABO  Investment  Management AG
("RABO"),  formerly Gutzwiller & Partner, AG. Outstanding stock options were not
determined  to be  dilutive,  and  therefore no effect was given to them for the
current  period.  Net income for the period was adjusted for the  elimination of
interest expense for the convertible debt, net of applicable income taxes, while
the average number of shares of common stock and common stock  equivalents  were
increased.  For the Nine months  ended  February 28, 1997 and February 29, 1996,
both  primary  and  fully  diluted  earnings/(loss)  per share  from  continuing
operations were approximately $0.01 and ($0.07), respectively.



Note 5 - Notes Payable

At May 31, 1996 and February 28, 1997 convertible debentures initially issued to
RABO have an aggregate principal amount of $9.5 million,  mature in August 2004,
are convertible  into common stock at a conversion  price of 50 cents per share,
and bear interest at 1% per annum,  which is payable  annually  beginning August
1996.  Shares  issuable upon  conversion  are also subject to certain  rights to
registration under the Securities Act of 1933, as amended.


Other Real Estate Mortgage Loans

   The Company was in  violation  of certain  loan  covenants of the real estate
mortgage agreement on the Company's  Johnstown facility as of February 28, 1997,
however, the lender has agreed to waive the violations through May 31, 1997. The
debt has been  classified  as a current  liability  at February  28, 1997 in the
accompanying financial statements.

   Additionally,  as  previously  reported,  the  Company  has  entered  into  a
Forbearance  Agreement  with the  holder  of the  real  estate  mortgage  on the
Company's  Orlando facility (under which $85,900 was outstanding at February 28,
1997). Pursuant to the Forbearance  Agreement,  a redemption notice with respect
to the bonds originally issued to finance the facility,  previously delivered by
the  mortgage  holder,  was  withdrawn  and  the  Company  has  agreed  to  make
accelerated  payments of $10,000 per month in principal  and interest  until the
remaining principal is paid in full.

                                       9

<PAGE>

Note 6 - Related Party Transactions

During the three months ended February 28, 1997 the Company made loans, which it
has the option of converting into equity interests, in the amount of $125,000 to
LINK2IT L.L.C., a company formed by Messrs.  Heimendinger and McConnell, who are
directors  of the  Company.  The  Company  presently  holds  19%  of the  equity
interests in LINK2IT. Such loans consist of convertible promissory notes due one
year from the date of issuance,  bearing  interest at 9-1/4% per annum,  in form
substantially similar to the Company's outstanding convertible  debentures.  The
notes are presently convertible, at the Company's option, into additional equity
interests in LINK2IT totaling 10% of the aggregate. The Company agreed to make a
potential further investment in LINK2IT of up to $125,000, upon the satisfaction
of certain  conditions,  under the same term as the loans described  above.  See
Exhibit 10.1.


Note 7 - Recent Accounting Pronouncements

On March 3, 1997 the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards No. 128,  "Earnings per Share (SFAS 128)". SFAS
128  provides  a  different  method of  calculating  earnings  per share than is
currently  used in  accordance  with APB Opinion 15. SFAS 128  provides  for the
calculation  of Basic and Diluted  earnings per share.  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 earnings per share reflects the potential dilution of securities
that could share in the earnings of an entity, similar to existing fully diluted
earnings per share.  Using the  principles set forth in SFAS 128, Basic earnings
per share  would  have been  $0.01 and $0.02 per share for the nine  months  and
three months ended February 28, 1997, respectively,  and $(0.07) and $(0.07) for
the nine months and three months ended February 29, 1996, respectively.  Diluted
earnings per share would have been $0.00 and $0.01 per share for the nine months
and three months ended February 28, 1997, respectively,  and $(0.07) and $(0.07)
per  share for the nine  months  and  three  months  ended  February  29,  1996,
respectively.

                                       10


<PAGE>


GENERAL KINETICS INCORPORATED


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

Nine Months Ended February 28, 1997, Compared to Nine Months Ended February 29,
1996

   Net sales for  continuing  operations  for the nine months ended February 28,
1997 were approximately $6.2 million compared to net sales of approximately $5.9
million for the nine months ended February 29, 1996.  The  Electronic  Enclosure
Division's  net sales  increased  from  approximately  $5.5 million for the nine
months ended February 29, 1996 to approximately $6.0 million for the nine months
ended February 28, 1997. The increase was due primarily to an increase in demand
for the nine months  ended  February  28, 1997 as compared to the same period of
the  prior  fiscal  year.  There  was a  decrease  in sales  in Food  Technology
Corporation of approximately  $250,000 primarily due to a decrease in demand for
sorting  equipment in the Nine months ended February 28, 1997 as compared to the
corresponding period of the prior fiscal year.


   Selling,  General & Administrative  costs were  approximately $1.2 million in
the first nine months of fiscal 1997 as  compared to  approximately  $1.4 in the
first  nine  months of the prior  fiscal  year,  and  total  operating  expenses
decreased  from  approximately  $1.4 million to $1.3 million.  This decrease was
principally  due to a  decrease  in  corporate  overhead  due to the sale of the
secure communications business.

   For the nine months ended  February 28, 1997,  the Company  showed  operating
income of approximately  $440,400 compared to an operating loss of approximately
$370,300  for the  comparable  nine months of the prior year.  The  increase was
principally  due to an increase in gross profit  margin of over 10% in the first
three quarters of fiscal 1997 in the Electronic  Enclosure  Division as compared
to the same period in the prior fiscal year.


   There was a net loss from discontinued  operations (the Secure Communications
Division) of approximately  $240,700 on net sales of approximately  $1.6 million
from June 1, 1996 through  November 30, 1996.  During the prior fiscal year, the
Secure Communications  Division had net income of approximately  $167,300 on net
sales of approximately $6.0 million for the nine months ended February 29, 1996.
Net sales and net income for the nine months ended  February  29, 1996  included
deliveries  totaling $3.0 million on a contract to Bosch Telecom,  a supplier of
fax machines to the German  Government.  Deliveries  on the contract  with Bosch
Telecom were substantially complete at February 29, 1996.

                                       11

<PAGE>


   There  was a gain  on the  sale  of the  secure  communications  business  of
approximately $117,000 recorded in the quarter ended February 28, 1997.


Three Months Ended February 28, 1997, Compared to Three Months Ended February
29, 1996

   Net sales for  continuing  operations for the three months ended February 28,
1997 were approximately $1.5 million compared to net sales of approximately $1.0
million for the quarter  ended  February  29,  1996.  The  Electronic  Enclosure
Division's net sales increased from  approximately  $0.9 million for the quarter
ended  February 29, 1996 to  approximately  $1.4  million for the quarter  ended
February 28, 1997.  The increase was due  primarily to an increase in demand for
the three months  ended  February 28, 1997 as compared to the same period of the
prior fiscal year.

   Sales,  General &  Administrative  costs were  approximately  $333,100 in the
third quarter of fiscal 1997 as compared to approximately  $490,700 in the third
quarter  of the prior  fiscal  year.  This  decrease  was  principally  due to a
decrease  in  corporate  overhead  due to the sale of the secure  communications
business.

   For the three months ended February 28, 1997,  the Company  showed  operating
income of $74,000  compared to an operating  loss of $442,100 for the comparable
quarter of the prior year. The  improvement  was due principally to the increase
in sales and a  significant  increase  in the gross  profit  margin in the third
quarter of fiscal 1997 in the Electronic  Enclosure  Division as compared to the
corresponding period in the prior fiscal year.

  There  was a gain  on  the  sale  of the  secure  communications  business  of
approximately $117,000 recorded in the quarter ended February 28, 1997.



Liquidity and Capital Resources


         As  of  December  5,  1996,  GKI  completed  the  sale  of  its  secure
communications  business to the Purchaser  identified  above. In the transaction
GKI received $1.75 million in cash, a $750,000  secured  promissory note payable
over three years  (bearing  interest at 1% over the prime rate) and $1.5 million
face amount of 6% convertible  preferred  equity of the Purchaser  which must be
redeemed by the Purchaser within five years (unless previously converted).  Such
preferred  equity  interest is

                                       12

<PAGE>

convertible, at GKI's option,  into 4.2% of the regular membership  interests in
the Purchaser on a diluted basis. The Purchaser also assumed certain liabilities
related  to  the  secure  communications  business,  subject  to  the  terms and
conditions of the agreement of sale. The foregoing summary  is  not  a  complete
description of the terms and conditions of the reported  transaction;  reference
is made to the copy of the agreement between the Purchaser  and GKI attached  as
Exhibit  2.1  to the Form 8-K dated  December 5, 1996. Such summary is qualified
in all respects by such reference.

         As discussed above,  the Company  received  $1,750,000 in cash proceeds
from the sale of the Secure  Communications  Division.  During the three  months
ended  February 28, 1997,  the Company paid expenses  associated  with the sale,
significantly reduced accounts payable, and repaid all outstanding advances from
the accounts  receivable  factor.  As of February  28,  1997,  the Company had a
balance of $1,149,300  in cash and cash  equivalents.  Management  believes that
cash on hand and careful  management of operating  costs and cash  disbursements
should enable the Company to meet its cash requirements through May 31, 1997.

         The Company has suffered recurring losses from operations and has a net
capital  deficiency that raise  substantial doubt about the Company's ability to
continue as a going concern.  However, the operating loss for fiscal 1996 showed
significant improvement over the prior three fiscal years, and there was a small
operating  profit from  continuing  operations  in the first  three  quarters of
fiscal 1997. In the Electronic  Enclosure  Division,  productivity  improvements
along with efforts to target new contracts  with higher  profit  margins for the
Company  resulted in a  significant  improvement  in gross  profits for the 1996
fiscal year and the first three quarters of fiscal 1997 as compared to the prior
three fiscal  years.  The Company must continue to market  electronic  enclosure
products to government and commercial  markets,  and enter into contracts  which
the division can complete with  favorable  profit margins to continue to operate
profitably in fiscal 1997.  Management  believes  that it has taken  appropriate
steps to return the Company to profitability, however, there can be no assurance
that  revenues  will  increase  or that  the  Company  will be able to  generate
revenues or margins sufficient to achieve profitability in fiscal 1997.


         In June 1993,  the  Company  entered  into a factoring  agreement  with
Reservoir  Capital  Corporation  ("Reservoir")  in  which  Reservoir  agreed  to
purchase  eligible  Accounts  Receivable from the Company at an assignment price
equal  to 80%  of the  outstanding  amount  of  such  accounts  receivable.  The
factoring  agreement  with Reservoir was renewed in December 1994, and continues
on a  month-to-month  basis.  The Company does not expect to continue to draw on
this credit  facility in the short term and plans to use the  proceeds  from the
sale of the secure  communications  business to alleviate  any  short-term  cash
requirements.

                                       13

<PAGE>


         The Company  continues to be out of  compliance  with  certain  listing
requirements  of the American  Stock Exchange by virtue of recent trading prices
of its  common  stock  as well  as  stockholders'  equity  and  working  capital
deficits, historical losses and other factors. However, the Company has actively
taken  steps to  address  the  Exchange's  guidelines,  and has  discussed  with
representatives  of the  Exchange  its  situation  and  the  basis  on  which  a
termination of listing might continue to be deferred. The Exchange has agreed to
defer  consideration of termination in light of, among other things, the sale of
the secure communications  business;  however,  there can be no assurance that a
return to compliance will be accomplished or that the listing will be continued.




                          PART II   OTHER INFORMATION




Item 6 - Exhibits and Reports on Form 8-K

   (a)  The following exhibits accompany this report:

        Exhibit Number            Description of Exhibit
        --------------            ----------------------
          10.1                    Agreement between GKI and Link2It,
                                  L.L.C., dated as of January 21, 1997



   (b) Reports of Form 8-K

                None


                                       14


<PAGE>


                                   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: April  18, 1997                         /s/ Larry M. Heimendinger
     -----------------------                  -----------------------------
                                              Chairman of the Board
                                              (Principal Executive Officer)

Date: April 18, 1997                          /s/ Sandy B. Sewitch
     -----------------------                  -----------------------------
                                              Chief Financial Officer
                                              (Principal Accounting Officer and
                                              Principal Financial Officer)


                                       15


<PAGE>



Index to Exhibits



        Exhibit Number            Description of Exhibit
        --------------            ----------------------
          10.1                    Agreement between GKI and Link2It,
                                  L.L.C. dated as of January 21, 1997


                                       16


<PAGE>


                                           As of January 21, 1997


LINK2IT, L.L.C.
4256 Beck Avenue
Studio City, CA  91604

Ladies and Gentlemen:

                  This letter will confirm our agreement  regarding the basis on
which General  Kinetics  Incorporated  ("GKI") has made an investment in LINK2IT
L.L.C. ("L2") and is contemplated to make further investments in the future. The
terms  set forth  herein  are not  intended  to be  all-inclusive  and are to be
supplemented  by more detailed  further  documents,  but shall  nevertheless  be
binding on the parties as to the matters specifically addressed below.

                  The basic terms and  conditions  of our  understanding  are as
follows:

                  1.       Formation of L2.  L2 has been organized as a Delaware
limited liability company by Larry M. Heimendinger and Richard J. McConnell, who
hold all or substantially all of the membership interests therein.

                  2.       Investment. a. Initial Investment. GKI has previously
advanced  certain  amounts to and/or incurred certain costs on behalf of L2.  In
consideration of any  and  all  amounts  so  advanced  and/or  costs so incurred
through January 21, 1997, and the release and assignment to L2 of such interest,
if any, as GKI might claim in any intellectual or other property or other  items
relating to L2 or its proposed products or services, GKI  shall  receive  (i)  a
common membership interest in L2 representing 10%  of  the  aggregate membership
interests and (ii) a convertible preferred membership interest in L2 with a face
amount of $112,500 convertible into 9%  of  the  total membership interests on a
fully  diluted  basis  (subject  to  adjustment under certain  circumstances  as
described  in  3.  below)  and  otherwise  having  terms  (except  as to voting)
substantially  equivalent  to  the  common interests, but having a preference in
liquidation to be mutually agreed upon in good faith.

                  b. Further  Investment and Promissory  Note. In addition,  GKI
agrees to provide make a potential further  investment in L2 as a loan which may
be converted at GKI's option,  into additional  equity interest.  That agreement
shall  take  the  form of a line of  credit  under  which  L2 may  draw up to an
aggregate of $250,000 from time to time. Of this total, an aggregate of $150,000
shall be  available  immediately.  The  promissory  note  payable  to GKI  dated
December 11, 1996 in the  principal  amount of $35,000  shall be  cancelled  and
shall be deemed to  constitute  a drawing of $35,000  under such line of credit,
leaving a balance of $115,000  presently  available.  Of that available balance,
$65,000  shall be advanced as of the date of this letter  (with such advance and
GKI's  prior loan of $35,000 to be  evidenced  by a new  promissory  note in the
combined  principal  amount of $100,000).  $50,000 shall remain  available to be
drawn as L2 may request from time to time.  Based on the satisfaction of certain
conditions, an additional $100,000 shall become available in such amounts and at
such times as are set forth in a schedule  to be  mutually  agreed  upon in good
faith.  L2's  obligation with respect to all sums so advanced shall be evidenced
in a convertible  promissory note in substantially the form delivered  herewith,
providing,  among other things,  that such note is convertible  into  additional
common membership

                                       17

<PAGE>


interests in L2 at the rate of 1% of the aggregate interests for each of $12,500
principal amount of the note so  converted (subject to  adjustment under certain
circumstances as described in 3. below).

                  3. Conversion Adjustment. It is hoped and intended that one or
more third parties will provide substantial additional investment capital for L2
on terms to be negotiated by L2 in its sole  discretion  with a view to securing
funds  necessary or  desirable  for  research,  development,  marketing,  sales,
production or other  purposes  from time to time.  Accordingly,  the  conversion
price  at  which  both  the  Note  described  in 2.b.  above  and the  preferred
membership  interest  described in 2.a. above shall be  convertible  into common
membership  interests  in L2  shall be  subject  to  adjustment,  from 1% of the
aggregate  membership  interests  for each  $12,500  principal or face amount so
converted,  to  such  lesser  percentage  as the  principal  or face  amount  so
converted  could have then  purchased at a purchase price  proportionate  to the
lowest  price  actually  paid  for   membership   interests  by  an  independent
third-party  investor  less a  discount,  for the benefit of GKI, of 15%. To the
extent, if any, that conversion of the Note or preferred membership interest has
preceded such third-party investment,  the membership interests issued upon such
conversion  shall  be  adjusted  to  equal  that  percentage  of  the  aggregate
membership  interests  which the principal or face amount  previously  converted
could have purchased at such price, less such discount.  Such interests may also
be subject to dilution  by reason of option or  ownership  rights  granted to L2
employees,  consultants or others in an amount not to exceed 5% of the aggregate
membership  interests on a fully diluted  basis,  such dilution to be shared pro
rata among membership  interests issued or issuable upon conversion and existing
membership interests.

                  4. Public Announcements. The parties hereto agree that neither
of them shall issue any press  release or otherwise  make any public  statements
with respect to the transactions  contemplated hereby, except as may be required
by law (in which case the party  required  to make such public  statement  shall
give  reasonable  advance notice thereof to the other party),  without the prior
consent of the other party, which consent shall not be unreasonably withheld.

                  If the foregoing properly sets forth our understanding, please
so  indicate  by signing a copy of this  letter of intent in the space  provided
below and returning it to us.

                                                   Very truly yours,

                                                   GENERAL KINETICS INCORPORATED



                                                   By:
                                                      __________________________


LINK2IT, L.L.C.



By:
   _____________________________



                                       18