SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[ ] Transitional Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended May 31, 1998
Commission File No. 0-26920
USASURANCE GROUP, INC.
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(Name of small business issuer in its charter)
Colorado 84-1298212
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7345 E. Peakview Ave.
Englewood, Colorado 80111
(303) 689-0123
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(Address, including zip code and telephone number, including area
code, of registrant's executive offices)
Securities registered under Section 12(b) of the Exchange Act:
none
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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(Title of class)
Check whether the issuer (1) 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
Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. X
---
Issuer's revenues for its most recent fiscal year: $2,123.
(Continued on Following Page)
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State the aggregate market value of the voting stock held by non-
affiliates, computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as of
a specified date within the past 60 days: As of September 14, 1998:
$10,199,860.
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: As of
September 14, 1998 there were 1,566,000 shares of the Company's
common stock issued and outstanding.
Documents Incorporated by Reference: Form 8-K dated August 25,
1998.
This Form 10-KSB consists of 37 pages.
Exhibit Index is Located at Page 36.
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TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT
USASURANCE GROUP, INC.
PAGE
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Facing Page
Index
PART I
Item 1. Description of Business........................... 4
Item 2. Description of Property........................... 8
Item 3. Legal Proceedings................................. 9
Item 4. Submission of Matters to a Vote of
Security Holders.............................. 9
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters............... 9
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 10
Item 7. Financial Statements.............................. 14
Item 8. Changes in and Disagreements on Accounting
and Financial Disclosure...................... 29
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons, Compliance with
Section 16(a) of the Exchange Act............. 29
Item 10. Executive Compensation............................ 31
Item 11. Security Ownership of Certain Beneficial
Owners and Management......................... 32
Item 12. Certain Relationships and Related
Transactions.................................. 33
PART IV
Item 13. Exhibits and Reports of Form 8-K.................. 33
SIGNATURES................................................... 35
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
USAsurance Group, Inc. (the "Company"), is a company
incorporated pursuant to the laws of the State of Colorado on
January 15, 1991, for the purpose of engaging as an insurance
brokerage company. The Company did not undertake any business
activities relevant thereto and in June 1995, the Company's Board
of Directors elected to change the Company's principal business
activities to the viatical settlement industry. Viatical
settlements are made to persons who are terminally ill and who want
to sell their life insurance to obtain the benefit of the money
provided by the settlement during the remainder of their life. The
term viatical is derived from the Latin word viaticum which means
money for traveling expenses. In the business context, a viatical
settlement provides financial comfort and dignity to the terminally
ill person.
Since June 1995, the Company has purchased, for its own
account, 10 different insurance policies with a face value of
$538,294 from individuals, for an aggregate purchase price of
$489,795. During the fiscal year ended May 31, 1996, three of
these policies with a face amount of $151,100 matured and the
proceeds from these policies were paid to the Company, which
received the net aggregate amount of $39,903. During the fiscal
year ended May 31, 1997, one additional policy matured, which
provided the Company with approximately $9,000. Subsequent to the
end of the Company's most recent fiscal year, an additional policy
did mature, with the Company receiving approximately $27,000 as a
result of such maturity.
Of the policies purchased by the Company since June 1995, all
of these policies have been purchased from individuals diagnosed
with Human Immunodeficiency Virus (HIV). Subsequent to May 31,
1997 and in deference to new treatments involving combinations of
various drugs for treating HIV positive patients, the Company has
ceased further participation in the viatical settlement industry
due to extended life expectancies resulting in lower returns. The
Company is presently in the process of creating a new wholly owned
foreign subsidiary for the purpose of pursuing opportunities in the
reinsurance of program business and special groups.
Initially, management intended to create a new wholly owned
subsidiary company, Insurenational, Inc., an Aruba chartered
insurance company ("Insurenational"), in order to provide
reinsurance to insurance companies who provide coverage to small
associations or associated groups where loss experience is
available and predictable. However, when management attempted to
implement this new business plan, it became apparent that such
efforts would not be worthwhile, primarily due to a lack of
available funding, as well as what management perceived to be
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extraordinary risk of failure applicable to the reinsurance
business. The market is subject to wide swings in premiums charged
and is highly competitive. The Company was unable to find a small
insurance company to agree to engage in business with the Company
as outlined in prior reports filed by the Company with the SEC.
Additionally, domestic insurance companies large enough to do
nation-wide program business did not want to do business with a
small foreign insurance company.
As a result of management's efforts described above, during
the fiscal year ended May 31, 1998, the Company's Board of
Directors began to seek to acquire assets or shares of an entity
actively engaged in business which generates revenues, in exchange
for issuance of the Company's securities. The Company's purpose is
to seek, investigate and, if such investigation warrants, acquire
an interest in business opportunities presented to it by persons or
firms who or which desire to seek the perceived advantages of an
Exchange Act registered corporation. The Company will not restrict
its search to any specific business, industry, or geographical
location and the Company may participate in a business venture of
virtually any kind or nature. This discussion of the proposed
business is purposefully general and is not meant to be restrictive
of the Company's virtually unlimited discretion to search for and
enter into potential business opportunities. Management
anticipates that it may be able to participate in only one
potential business venture because the Company has nominal assets
and limited financial resources. See "Part II, Item 7, Financial
Statements." This lack of diversification should be considered a
substantial risk to shareholders of the Company because it will not
permit the Company to offset potential losses from one venture
against gains from another.
The Company may seek a business opportunity with entities
which have recently commenced operations, or which wish to utilize
the public marketplace in order to raise additional capital in
order to expand into new products or markets, to develop a new
product or service, or for other corporate purposes. The Company
may acquire assets and establish wholly owned subsidiaries in
various businesses or acquire existing businesses as subsidiaries.
The Company anticipates that the selection of a business
opportunity in which to participate will be complex and extremely
risky. Due to general economic conditions, rapid technological
advances being made in some industries and shortages of available
capital, management believes that there are numerous firms seeking
the perceived benefits of a publicly registered corporation. Such
perceived benefits may include facilitating or improving the terms
on which additional equity financing may be sought, providing
liquidity for incentive stock options or similar benefits to key
employees, providing liquidity (subject to restrictions of
applicable statutes), for all shareholders and other factors.
Potentially, available business opportunities may occur in many
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different industries and at various stages of development, all of
which will make the task of comparative investigation and analysis
of such business opportunities extremely difficult and complex.
The Company has, and will continue to have, limited capital
with which to provide the owners of business opportunities with any
significant cash or other assets. However, management believes the
Company will be able to offer owners of acquisition candidates the
opportunity to acquire a controlling ownership interest in a
publicly registered company without incurring the cost and time
required to conduct an initial public offering. The owners of the
business opportunities will, however, incur significant legal and
accounting costs in connection with acquisition of a business
opportunity, including the costs of preparing Form 8-K's, 10-K's or
10-KSB's, agreements and related reports and documents. The
Securities Exchange Act of 1934 (the "34 Act"), specifically
requires that any merger or acquisition candidate comply with all
applicable reporting requirements, which include providing audited
financial statements to be included within the numerous filings
relevant to complying with the 34 Act. Nevertheless, the officers
and directors of the Company have not conducted market research and
are not aware of statistical data which would support the perceived
benefits of a merger or acquisition transaction for the owners of
a business opportunity.
The analysis of new business opportunities will be undertaken
by, or under the supervision of, the officers and directors of the
Company, none of whom is a professional business analyst.
Management intends to concentrate on identifying preliminary
prospective business opportunities which may be brought to its
attention through present associations of the Company's officers
and directors, or by the Company's shareholders. In analyzing
prospective business opportunities, management will consider such
matters as the available technical, financial and managerial
resources; working capital and other financial requirements;
history of operations, if any; prospects for the future; nature of
present and expected competition; the quality and experience of
management services which may be available and the depth of that
management; the potential for further research, development, or
exploration; specific risk factors not now foreseeable but which
then may be anticipated to impact the proposed activities of the
Company; the potential for growth or expansion; the potential for
profit; the perceived public recognition of acceptance of products,
services, or trades; name identification; and other relevant
factors. Officers and directors of the Company expect to meet
personally with management and key personnel of the business
opportunity as part of their investigation. To the extent
possible, the Company intends to utilize written reports and
personal investigation to evaluate the above factors. The Company
will not acquire or merge with any company for which audited
financial statements cannot be obtained within a reasonable period
of time after closing of the proposed transaction.
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Management of the Company, while not especially experienced in
matters relating to the new business of the Company, shall rely
upon their own efforts and, to a much lesser extent, the efforts of
the Company's shareholders, in accomplishing the business purposes
of the Company. It is not anticipated that any outside consultants
or advisors will be utilized by the Company to effectuate its
business purposes described herein. However, if the Company does
retain such an outside consultant or advisor, any cash fee earned
by such party will need to be paid by the prospective merger/
acquisition candidate, as the Company has no cash assets with which
to pay such obligation. There have been no contracts or agreements
with any outside consultants and none are anticipated in the
future.
The Company will not restrict its search for any specific kind
of firms, but may acquire a venture which is in its preliminary or
development stage, which is already in operation, or in essentially
any stage of its corporate life. It is impossible to predict at
this time the status of any business in which the Company may
become engaged, in that such business may need to seek additional
capital, may desire to have its shares publicly traded, or may seek
other perceived advantages which the Company may offer.
Subsequent Event
As a result of management's efforts described hereinabove,
effective August 22, 1998, the Company entered into a letter of
intent with 2xtreme Performance International LLC., ("2PI"), a
privately held Delaware limited liability company, whereby the
Company has agreed in principle to acquire all of the interests of
2PI, in exchange for issuance by the Company of previously unissued
"restricted" common stock. The relevant terms of the proposed
transaction provide AFEW, Inc., a privately held company which
owned a majority of the interests in 2PI, to acquire the balance of
such interests and thereafter, AFEW, Inc. would engage in a share
exchange agreement with the Company to consummate the proposed
transaction. The proposed terms of this share exchange require the
Company to issue an aggregate of 8,500,000 "restricted" common
shares, representing approximately 85% of the Company's outstanding
common stock, in exchange for all of the issued and outstanding
shares of AFEW, Inc., with AFEW, Inc. becoming a wholly owned
subsidiary of the Company.
The proposed share exchange is subject to satisfaction of
certain conditions, including completion of due diligence
activities, completion of an independent audit and approval of the
transaction by AFEW, Inc.'s shareholders. If this proposed
transaction is consummated, the present officers and directors of
the Company are expected to resign their respective positions with
the Company, to be replaced by the present management of AFEW, Inc.
If these conditions are met, it is expected that the proposed
transaction will close in October 1998. However, there are no
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assurances that the proposed transaction will close on the
aforesaid date, or that any unforeseen delay will occur.
In the event the aforesaid transaction does close, the
Company's principal business will become a marketing company,
offering nutritional supplement products which, according to 2PI,
are intended to enhance both the body and mind. 2PI commenced
business in March 1996 and is based in Dallas, Texas. Its
principal place of business consists of 40,000 square feet of
office space, warehouse space and production facilities, housing
over 160 employees.
Other Matters
In June 1995, the Company's former President, Terry Whiteside,
loaned the Company the principal sum of $42,342, which the Company
utilized to purchase its initial insurance policy with a face value
of $58,000. Repayment of this obligation was originally due in
June 1996, but the terms of this loan were amended to reflect that
the loan is now due June 30, 1999. In August 1995, Ms. Whiteside
loaned the Company the principal sum of $58,000, which was due in
August 1996. Terms of this note were also amended consistent with
the aforesaid loan. Additionally in August 1995, a minority
shareholder of the Company loaned the Company the principal sum of
$75,000. This loan is due June 30, 1999. Each of these aforesaid
loans accrue interest at the rate of 7% per annum. The Company
utilized the proceeds of these loans to purchase insurance
policies.
Employees
During the fiscal year ended May 31, 1998, the Company had no
salaried employees. However, it did have two non-salaried
employees, including its President, Thomas Chase, and one
administrator. However, during the fiscal years ended May 17, 1998
and 1997, the Company recorded approximately $2,500 in salary
expense in each year. See "Part 11, Item 7, Financial Statements"
and "Part III, Item 9, Directors, Executive Officers, Promoters and
Control Persons."
ITEM 2. DESCRIPTION OF PROPERTY
Facilities. The Company subleases its offices at 7345 E.
Peakview Ave., Englewood, Colorado 80111, a building owned jointly
by unaffiliated parties. Beginning in December, 1996, the Company
began to pay rent in the sum of $1,000 per month pursuant to an
oral lease arrangement, on a month-to-month basis. Because of the
Company's limited financial resources, the requirement that the
Company continue to pay rent abated in October 1997. The Company's
offices consist of approximately 1,200 square feet of executive
office space and secretarial area. Management believes that this
space will meet the Company's needs until the proposed share
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exchange between the Company and AFEW, Inc. described hereinabove
in Item 1 is consummated. In the event this transaction is not
consummated, it is anticipated that the existing arrangements will
be maintained.
Other Property. The Company owns no other property.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings which are pending or
have been threatened against the Company of which management is
aware.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
(a) Market Information. The following table sets forth the
range of high and low bid prices as reported on the OTC Bulletin
Board operated by the NASD commencing March 1, 1996 (the date the
Company's Common Stock commenced trading).
Quarter Ended Bid Price
Low High
_____ _____
May 31, 1996 $5.00 $6.00
August 31, 1996 4.00 6.00
November 30, 1996 2.00 4.50
February 28, 1997 .50 2.00
May 31, 1997 .50 2.75
August 31, 1997 .50 1.25
November 30, 1997 1.00 2.50
February 28, 1998 2.00 2.00
May 31, 1998 2.00 2.00
(b) Holders. There are 29 holders of the Company's Common
Stock, not including those shareholders holding their securities in
"street name".
(c) Dividends. The Company has not paid any dividends on its
Common Stock. The Company does not foresee that the Company will
have the ability to pay a dividend on its Common Stock in the
fiscal year ended May 31, 1999, unless the proposed share exchange
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between the Company and AFEW, Inc. is successfully consummated, of
which there is no assurance. However, even if this transaction is
so consummated, it is still unlikely that the Company will pay any
dividend in the fiscal year ending May 31, 1999.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
the Company's audited financial statements and notes thereto
included herein. In connection with, and because it desires to
take advantage of, the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company cautions
readers regarding certain forward looking statements in the
following discussion and elsewhere in this report and in any other
statement made by, or on the behalf of the Company, whether or not
in future filings with the Securities and Exchange Commission.
Forward looking statements are statements not based on historical
information and which relate to future operations, strategies,
financial results or other developments. Forward looking
statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are
beyond the Company's control and many of which, with respect to
future business decisions, are subject to change. These
uncertainties and contingencies can affect actual results and could
cause actual results to differ materially from those expressed in
any forward looking statements made by, or on behalf of, the
Company. The Company disclaims any obligation to update forward
looking statements.
Statement of Financial Accounting Standards 130 Reporting
Comprehensive Income and Statement of Financial Accounting
Standards 131 Disclosures About Segments of an Enterprise and
Related Information were recently issued. Statement 130
establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners.
Among other disclosures, Statement 130 requires that all components
of comprehensive income shall be classified based on their nature
and shall be reported in the financial statements in the period in
which they are recognized. A total amount for comprehensive income
shall be displayed in the financial statements where the components
of other comprehensive income are reported. Statement 131
supersedes Statement of Financial Accounting Standards 14 Financial
Reporting for Segments of a Business Enterprise. Statement 131
establishes standards on the way that public companies report
financial information about operating segments in annual financial
statements and requires reporting of selected information about
operating segments in interim financial statements issued to the
public. It also establishes standards for disclosures regarding
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products and services, geographic areas, and major customers.
Statement 131 defines operating segments as components of a company
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Statements 130 and 131 are effective for financial statements
for periods beginning after December 15, 1997 and require
comparative information for earlier years to be restated. Because
of the recent issuance of these standards, management has been
unable to fully evaluate the impact, if any, the standards may have
on the future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of these standards. Actual results could differ
from those estimates.
Introduction
The Company was organized and has been engaged in the business
of investing in the viatical settlement industry by acquiring life
insurance policies from individuals or pools of policies from other
companies. During the fiscal year ended May 31, 1997, the industry
changed due to advances in medication that prolongs life for these
individuals and the Company has ceased further participation in the
viatical settlement business due to the extended life expectancies
resulting in lower returns. It has recently executed a letter of
intent to engage in a share exchange transaction. If this
transaction closes, of which there can be no assurance, the
Company's principal business will become a marketing company,
marketing nutritional supplement products.
Comparison of Results from Operations for the Fiscal Years Ended
May 31, 1998 and May 31, 1997
General and administrative expenses increased during the
fiscal year ended May 31, 1998, to $94,490 compared with $59,370
during the fiscal year ended May 31, 1997, an increase of
approximately 59.2%. The primarily reasons for the increase in
general and administrative expenses include an allowance of
approximately $40,000 for notes receivable, as well as increased
legal and accounting costs. This also included $2,500 in
contributed salaries and rent for fiscal year ended May 31, 1998
and $34,100 for the fiscal year ended May 31, 1997.
As discussed hereinabove, during the fiscal year ended May 31,
1997, the Company adopted a plan to cease further participation in
the viatical settlement industry. This was the Company's only
operating segment since its inception. The results of its
activities in the viatical settlement business for the current and
prior comparative periods have been restated in the Company's
audited Financial Statements included herein to present the
viatical settlement business as a discontinued operation.
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The Company, while incorporated in January 1991, did not
commence business operations until June 1995, when the discontinued
viatical settlement business plan of the Company was adopted.
Since June 1995, the Company purchased, for its own account, 10
different insurance policies with a face value of $538,294 from
individuals, for an aggregate purchase price of $489,795. During
the fiscal year ended May 31, 1998, none of these policies matured.
During the fiscal year ended May 31, 1997, one policy matured and
the Company recognized approximately $9,000 in revenues. As a
result, the Company incurred a net loss of $104,746 during fiscal
year 1998 ($.07 per share), as compared to a net loss of $58,889
for the 1997 fiscal year ($.04 per share).
Liquidity and Capital Resources
The Company's primary need for capital has been the funding of
policy purchases. Current management cannot ascertain what the
Company's primary need will be in the future, as it is anticipated
that current management will resign and be replaced with new
management from 2PI, if the proposed transaction with 2PI is
successfully consummated.
Since its inception, the Company has relied upon the proceeds
from the sale of common stock of $329,448 derived from a private
offering and loans from related parties of $178,340. During the
fiscal years ended May 31, 1998 and 1997, the Company did not sell
additional stock or borrow any additional funds.
In June 1995, Terry Whiteside, the Company's former President
loaned the Company the principal sum of $42,340, which the Company
utilized to purchase its initial insurance policy with a face value
of $58,000. In August 1995, Ms. Whiteside loaned the Company the
principal sum of $58,000. Additionally in August 1995, a minority
shareholder of the Company loaned the Company the principal sum of
$75,000. Each of these aforesaid loans are unsecured and all have
been amended by the mutual consent of the parties, to reflect that
these loans will be due on June 30, 1999 for the initial two loans,
with the $75,000 loan due August 31, 1999, with interest accruing
at the rate of 7% per annum on each of the loans. The Company
utilized the proceeds of these loans to purchase insurance
policies.
At May 31, 1998, the Company had a negative cash flow from
operations of $1,726 compared to a negative cash flow from
operations of $123,811 at May 31, 1997. The Company again did not
produce enough cash flow from its now discontinued operations to
cover cash outflow and, therefore, utilized existing cash
resources.
The Company's cash requirements have been and will continue to
be significant in order to finance its new business plan. The
Company will consider borrowing additional funds or selling
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additional stock if the cash requirements exceed cash reserves.
However, there can be no assurances that the Company will be able
to successfully borrow such additional funds on terms beneficial to
the Company, or at all. Additionally, there are no assurances that
the Company will be able to generate any funds from sale of its
securities.
It is not anticipated that the Company will expend any of its
present financial resources on the purchase of any significant
equipment in the future, nor is it anticipated that the number of
employees of the Company will increase to any significant degree in
the future, except in the event the Company successfully
consummates the proposed share exchange with 2PI.
Inflation
Although the operations of the Company are influenced by
general economic conditions, the Company does not believe that
inflation had a material affect on the results of its discontinued
operations during the fiscal years ended May 31, 1998 and 1997.
Plan of Operation
The Company's audited financial statements included in this
report have been prepared on a going concern basis, which
contemplates the maintenance of the Company's net capital
requirements and the realization of assets and liquidation of
liabilities in the normal course of business. The Company has
incurred recurring loses and has negative working capital. The
continuation of the Company as a going concern is dependent upon
achieving and maintaining profitable operations, maintaining its
net capital requirements and raising capital, if required.
In response to this issue, management, as indicated in "Part
I, Item 1, Description of Business," has adopted a new business
plan and a discussion of the Company's plan of operation for the
ensuing fiscal year as required by Item 303(a) of Regulation S-B is
included therein. Included in this discussion of the Company's new
business plan is discussion concerning execution of a letter of
intent relating to a proposed share exchange between the Company
and 2PI. While no assurances can be provided that this proposed
transaction will be successfully consummated, management is
optimistic that, if such transaction is consummated, the financial
condition of the Company will be significantly improved.
Trends
As described above herein, the Company's principal business
was in the viatical settlement industry, where it purchased life
insurance policies from terminally ill patients, including patients
diagnosed with AIDS. However, as treatment of AIDS patients has
allowed these patients to increase their respective life
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expectancies, this has resulted in management making the election
to change the principal business of the Company, as also described
herein.
Management is unaware of any existing trends which may have
any impact on the proposed business of the Company, either negative
or positive. Management believes that it will have more
understanding of such trends, if any, once the Company has
implemented its proposed new business plan.
Year 2000 Disclosure
Many existing computer programs use only two digits to
identify a year in the date field. These programs were designed
and developed without considering the impact of the upcoming change
in the century. If not corrected, many computer applications could
fail or create erroneous results by or at the Year 2000. As a
result, many companies will be required to undertake major projects
to address the Year 2000 issue. The Company presently owns
approximately $2,000 worth of computers. It utilizes outside
contractors for the bulk of its computer work. These consultants
have advised the Company that they have made all necessary
revisions to their software to avoid any potential problems arising
in the year 2000. However, as of the date of this report, the
Company has not addressed this issue with its potential share
exchange candidate, 2PI and management is unaware of whether 2PI
has undertaken any actions in this regard.
ITEM 7. FINANCIAL STATEMENTS
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USAsurance Group, Inc.
Financial Statements
May 31, 1998
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INDEX TO FINANCIAL STATEMENTS
PAGE
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Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet - May 31, 1998 . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations - For the Years Ended May 31, 1998 and 1997 . . F-4
Statement of Changes in Stockholders' Equity -
For the Period from June 1, 1996 through May 31, 1998 . . . . . . . F-5
Statements of Cash Flows - For the Years Ended May 31, 1998 and 1997 . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-7
F-1
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INDEPENDENT AUDITOR'S REPORT
Board of Directors
USAsurance Group, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of USAsurance Group, Inc. as of
May 31, 1998, and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended May 31, 1998 and
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USAsurance Group, Inc. as of
May 31, 1998, and the results of its operations and its cash flows for the
years ended May 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from
operations and has negative working capital that raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
s/Hein + Associates LLP
Hein + Associates LLP
Denver, Colorado
August 4, 1998
F-2
17
<PAGE>
<TABLE>
USAsurance Group, Inc.
BALANCE SHEET
MAY 31, 1998
<CAPTION>
ASSETS
------
<S> <C>
Current Assets:
Cash $ 2,003
Notes receivable, net of allowance for bad debt of $40,000 -
Other assets 2,332
-----------
Total current assets 4,335
Discontinued Operations - Purchased Life Insurance Policies 407,776
-----------
Total Assets $ 412,111
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable - trade $ 18,702
Accrued interest 14,608
Current portion of long-term debt, related party 3,000
-----------
Total current liabilities 36,310
Long-Term Debt, Related Parties 175,340
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, none outstanding -
Common stock, $.0001 par value; 900,000,000 shares
authorized, 1,566,000 shares issued and outstanding 157
Additional paid-in capital 401,591
Accumulated deficit (201,287)
-----------
Total stockholders' equity 200,461
-----------
Total Liabilities and Stockholders' Equity $ 412,111
===========
<FN>
See accompanying notes to these financial statements.
</TABLE>
F-3
18
<PAGE>
<TABLE>
USAsurance Group, Inc.
STATEMENTS OF OPERATIONS
<CAPTION>
For the Years Ended
May 31,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
General and Administrative Expenses $ 94,490 $ 59,370
Other Income (Expense):
Miscellaneous income 2,123 96
Interest expense (12,379) (12,024)
--------- ---------
Other, net (10,256) (11,928)
--------- ---------
Loss Before Taxes and Discontinued Operations (104,746) (71,298)
Income Tax Benefit (Expense):
Current - 3,000
Deferred - 4,800
--------- ---------
- 7,800
--------- ---------
Loss Before Discontinued Operations (104,746) (63,498)
Discontinued Operations -
Income from discontinued operations,
net of income tax expense of $2,500
for the year ended May 31, 1997 - 4,609
--------- ---------
Net Loss $(104,746) $ (58,889)
========= =========
Net loss per common share:
Before discontinued operations $ (0.07) $ (.04)
Discontinued operations - -
--------- ---------
Net loss per common share $ (0.07) $ (.04)
========= =========
Weighted Average Common Shares Outstanding 1,566,000 1,566,000
========= =========
<FN>
See accompanying notes to these financial statements.
</TABLE>
F-4
19
<PAGE>
<TABLE>
USAsurance Group, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 1, 1996 THROUGH MAY 31, 1998
<CAPTION>
Common Stock Additional
-------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances, June 1, 1996 1,566,000 $ 157 $ 364,991 $ (37,652) $ 327,496
Contributed services
and rent - - 34,100 - 34,100
Net loss - - - (58,889) (58,889)
--------- --------- ---------- ---------- ----------
Balances, May 31, 1997 1,566,000 157 399,091 (96,541) 302,707
Contributed services - - 2,500 - 2,500
Net loss - - - (104,746) (104,746)
--------- --------- ---------- ---------- ----------
Balances, May 31, 1998 1,566,000 $ 157 $ 401,591 $ (201,287) $ 200,461
========= ========= ========== ========== ==========
<FN>
See accompanying notes to these financial statements.
</TABLE>
F-5
20
<PAGE>
<TABLE>
USAsurance Group, Inc.
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended
May 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (104,746) $ (58,889)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation 708 -
Contributed services and rent 2,500 34,100
Earned discount on purchased
life insurance policies - (9,109)
Deferred tax expense - (4,800)
Changes in operating assets
and liabilities:
Purchased life insurance
policies and premiums (776) (77,486)
Collections on matured life
insurance policies - 59,000
Matured policies receivable 27,000 (27,000)
Deposits 38,476 (38,476)
Other assets 15,000 (3,610)
Accounts payable and
accrued expenses 14,733 2,435
Accrued interest payable 5,379 24
----------- ------------
Net cash provided by (used in)
operating activities (1,726) (123,811)
Cash Flows from Financing Activities -
Proceeds from issuance of notes payable 3,000 -
Increase (Decrease) in Cash 1,274 (123,811)
Cash, at beginning of year 729 124,540
----------- ------------
Cash, at end of year $ 2,003 $ 729
=========== ============
<FN>
See accompanying notes to these financial statements.
</TABLE>
F-6
21
<PAGE>
USAsurance Group, Inc.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
------------------------------------------
Organization and Nature of Operations - USAsurance Group, Inc. (the
Company) was incorporated as a Colorado Corporation in 1991 and
commenced business in June 1995. The Company's principal investments
are currently in the viatical settlement industry. Viatical settlements
are made to persons who are terminally ill and who want to sell their
life insurance to obtain the benefit of the money provided by the
settlement during the remainder of their life. The Company has ceased
further participation in the viatical settlement business due to
extended life expectancies resulting in lower returns. Revenues
applicable to the discontinued viatical settlement segment were $-0-
and $9,109 for the years ended May 31, 1998 and 1997, respectively.
Management of the Company does not expect to recognize any significant
gain or loss from the discontinuance of the viatical settlement segment.
The Company is currently pursuing potential merge opportunities with
other unaffiliated companies (see note 9).
Purchased Life Insurance Policies - The Company recognizes income
(earned discount) on each purchased policy by accruing, over the
period between the acquisition date of the policy and the Company's
estimated date of collection of the face value of the policy (the
Accrual Period), the difference (the unearned discount) between,
(a) the death benefit payable (face value) under the policy less
the amount of fees, if any, payable to a referral source upon
collection of the face value, and (b) the carrying value of the
policy. The carrying value of each policy is reflected on the
Company's balance sheet under "purchased life insurance policies"
and consists of the purchase price, other capitalized costs, and
the earned discount on the policy accrued to the balance sheet date.
The Company capitalizes as incurred the following costs of a purchased
policy (not to exceed the face amount of the policy): (i) the purchase
price paid for the policy, (ii) policy premiums, if any, paid by the
Company, (iii) amounts, if any, paid to referral sources upon acquisition
of the policy, and (iv) amounts paid to the Company retained physicians
or other medical consultants who estimated the insured's life expectancy.
The carrying value of a policy will change over time, and is adjusted
quarterly to reflect the earned discounts accrued on the policy, amounts
paid for any additional future increases in coverage, any additional
premium payments and any premium refunds, if the policy becomes covered
by premium waiver provisions. The length of the Accrual Period is
determined by the Company based upon its estimate of the date on which
it will collect the face value of the policy. This estimate is based
upon the Company's estimate of the life expectancy of the insured, after
review of the medical records of the insured by one or more Consultants,
and also takes into account the historical accuracy of the life
expectancies estimated by the Company's Consultants and the typical
period (collection period) between the date of the insured's death and
the date on which the Company collects the face value of the policy.
The unearned discount is accrued over the accrual period using the
straight-line method. Under the straight-line method, the unearned
discount is earned evenly throughout the accrual period and the unearned
discount will be fully accrued as earned discount by the end of the
accrual period. As of May 31, 1998, substantially all unearned discounts
have been previously recorded as revenue.
Prior to the discontinuance of the viatical settlement business, the
Company purchased both group and individual policies that included term,
whole life, and universal life insurance. Upon maturity of the
F-7
22
<PAGE>
USAsurance Group, Inc.
NOTES TO FINANCIAL STATEMENTS
policies the Company will then receive the face amount of the policy in
the form of a cashiers check made out to the Company usually within 30
days.
In July 1996, the International AIDS conference reported there were a
number of studies which indicated that treatments involving various
drugs were substantially reducing and perhaps eradicating the levels
of Human Immunodiffiency Virus (HIV) detectable in the blood of persons
previously diagnosed with HIV and AIDS. All of the Company's historical
purchases have involved policies insuring the lives of individuals with
HIV or AIDS. The Company continues to analyze the effect of such
research results on its business and in particular, purchases by the
Company of policies, the timing of collections on owned policies.
Income Taxes - The Company accounts for income taxes in accordance with
the provision of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS No. 109). Under the asset and
liability method prescribed by SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis
(temporary differences). Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date of the tax change.
Under SFAS No. 109, deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carryforwards,
and then a valuation allowance is established to reduce that deferred
tax asset if it is "more likely than not" that the related tax benefits
will not be realized.
Concentration of Credit Risk - Financial instruments that subject the
Company to concentration of credit risk consist primarily of notes
receivable and receivables from insurance companies which are the
obligors under insurance policies purchased by the Company. As of May
31, 1998, the Company had seven purchased life insurance policies with
individual insurers with aggregate face values that individually
represented greater than 5% of the total purchased life insurance
policies. The notes receivable are with two entities.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments are determined at discrete points in time based
on relevant market information. These estimates involve uncertainties
and cannot be determined with precision. The carrying amounts of notes
receivable, notes payable, account payable and accrued liabilities
approximate fair value. The fair value of notes payable to related
parties is estimated at less than the face value due to the low interest
rate relative to the financial condition of the Company. Fair value
is not readily determininable due to the related party nature of the
advances and the inability of the Company to obtain third party
financing. The carrying amount of purchased life insurance policies
are in excess of fair value as the total of all policies are carried at
approximately their maturity value, however, the contracts have not yet
matured. Fair value on these policies are currently not determinable as
the maturity date of the policies cannot be predicted with any degree of
certainty.
F-8
23
<PAGE>
USAsurance Group, Inc.
NOTES TO FINANCIAL STATEMENTS
Use of Estimates - The preparation of the Company's financial
statements in conformity with generally accepted accounting principles
requires the Company's management to make estimates and assumptions that
affect the amounts reported in these financial statements and
accompanying notes.
New Pronouncement - SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," was issued in June 1998. This statement
establishes accounting and reporting standards for derivative instruments
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This
statement is effective for the Company's financial statements for the
year ended December 31, 2000 and the adoption of this standard is not
expected to have a material effect on the Company's financial statements.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," was issued in February 1998. This statement
revises the disclosure requirement for pensions and other postretirement
benefits. This statement is effective for the Company's financial
statements for the year ended December 31, 1998 and the adoption of this
standard is not expected to have a material effect on the Company's
financial statements.
Statement of Financial Accounting Standards 130 Reporting Comprehensive
Income and Statement of Financial Accounting Standards 131 Disclosures
About Segments of an Enterprise and Related Information were recently
issued. Statement 130 establishes standards for reporting and display
of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, Statement 130 requires that all components of
comprehensive income shall be classified based on their nature and shall
be reported in the financial statements in the period in which they are
recognized. A total amount for comprehensive income shall be displayed
in the financial statements where the components of other comprehensive
income are reported. Statement 131 supersedes Statement of Financial
Accounting Standards 14 Financial Reporting for Segments of a Business
Enterprise. Statement 131 establishes standards on the way that public
companies report financial information about operating segments in
annual financial statements and requires reporting of selected
information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas, and major customers.
Statement 131 defines operating segments as components of a company
about which separate financial information is available that is
evaluated regularly by the chief operating decisionmaker in deciding how
to allocate resources and in assessing performance.
Statements 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Because of the recent
issuance of these standards, management has been unable to fully
evaluate the impact, if any, the standards may have on the future
financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these
standards. Actual results could differ from those estimates.
F-9
24
<PAGE>
USAsurance Group, Inc.
NOTES TO FINANCIAL STATEMENTS
2. Continued Operations:
--------------------
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the maintenance of the Company's net
capital requirements and the realization of assets and liquidation of
liabilities in the normal course of business. The Company has incurred
recurring losses and has negative working capital. The continuation of
the Company as a going concern is dependent upon achieving and
maintaining profitable operations, maintaining its net capital
requirements and raising capital, if required. Management of the
Company has signed a letter of intent to merge with another
company, as discussed in Note 9, however, no assurances can be
provided that management will be ultimately successful in completing
this merger.
3. Purchased Life Insurance Policies:
----------------------------------
Purchased life insurance policies consist of the following as of May 31,
1998:
Capitalized costs of purchased life insurance policies $ 379,576
Earned discount 28,200
---------
Purchased life insurance policies $ 407,776
=========
Included in the above table are life insurance policies totaling $137,000
which were purchased by the Company at the face amount of the policies
and as such, have generated no revenues for the Company. Management of
the Company believes that all of the purchased life insurance policies
as of May 31, 1998 will mature within two years.
4. Stockholders' Equity:
--------------------
The Company has the authority to issue 1,000,000 shares of preferred
stock. The Board of Directors has the authority to issue such preferred
shares in series and determine the rights and preferences of the shares
as may be determined by the Board of Directors.
During the years ended May 31, 1998 and 1997, the Company's management
contributed $2,500 and $33,000, respectively, of office space, both of
which have been recorded as a contribution to equity and as general and
administrative expenses.
F-10
25
<PAGE>
USAsurance Group, Inc.
NOTES TO FINANCIAL STATEMENTS
5. Notes Receivable:
----------------
Notes receivable consist of the following as of May 31, 1998:
Note receivable, 12%, due April 3, 1998. Note is unsecured. $ 25,000
Note receivable, 12%, payable on demand. Note is unsecured. 15,000
---------
40,000
Less allowance for bad debt. (40,000)
---------
Net notes receivable $ -
=========
These notes arose from advances to possible merger candidates. Both
these potential mergers have been abandoned and the advance amount fully
reserved. The Company, however, intends to actively pursue collection
of the outstanding balance.
6. Long-Term and Short-Term Debt:
-----------------------------
Notes payable as of May 31, 1998 consist of the following:
Note payable to stockholder and officer of the Company,
with interest at 7%. Principal and interest due August
1997. Subsequent to year-end, the note payable was
extended to June 1999. $ 58,000
Note payable to the stockholder and officer of the
Company, with interest at 7%. Principal and interest
due June 1997. Subsequent to year-end, the note payable
was extended to June 1999. 42,342
Note payable to stockholder, with interest at 7%.
Principal and interest due September 1997. Subsequent
to year-end, the note payable was extended to August 1999. 75,000
Note payable to related party, with interest at 5%.
Principal and interest due October 1998. 3,000
---------
Less current portion. (3,000)
---------
$ 175,342
=========
Subsequent to May 31, 1998, the Company obtained an interest-free
short-term note payable to a related party.
F-11
26
<PAGE>
USAsurance Group, Inc.
NOTES TO FINANCIAL STATEMENTS
7. Income Taxes:
------------
As of May 31, 1998, the Company has a net operating loss carryforward of
approximately $154,000 which, if not used, will expire in the years 2010
and 2012.
The amounts which give rise to the net deferred tax asset (liability) as
of May 31, 1998, are as follows:
Deferred assets (liabilities):
Net operating loss carryforward $ 58,000
Other (9,000)
---------
Net deferred tax asset (liability) 49,000
Valuation allowance (49,000)
---------
$ -
=========
The valuation allowance increased by $33,000, from $11,000 at May 31,
1997 to $49,000 at May 31, 1998.
The Company's actual effective tax rate differs from U.S. Federal
corporate income tax rate of 34% as follows for the fiscal year ended:
May 31,
-----------------
1998 1997
----- -----
Statutory rate (34%) (34%)
State income taxes (3%) (3%)
Increase in valuation allowance related to
net operating loss carryforwards and change
in temporary differences 37% 37%
-- --
-% -%
== ==
8. Related Party Transactions:
--------------------------
As of May 31, 1998, the Company had a $5,500 accounts payable to another
company which is owned by the son of an officer and major shareholder.
For the year ended May 31, 1998, the Company compensated another son of
the officer, and major shareholder of the Company $5,000 for services and
expense reimbursement.
F-12
27
<PAGE>
USAsurance Group, Inc.
NOTES TO FINANCIAL STATEMENTS
9. Subsequent Events:
-----------------
Subsequent to year-end, the Company entered into a letter of intent (LOI)
with a privately held Delaware limited liability company (DLLC), whereby
the Company has agreed in principle to acquire all of the outstanding
shares of DLLC in exchange for issuance by the Company of 8,500,000
shares previously unissued "restricted" common stock. It is the intent
of the parties hereto that the proposed reorganization of DLLC and the
Company be effected as a tax-free exchange pursuant to Section 368 of
the Internal Revenue Code of 1986, as amended. The LOI is subject to
various conditions including, among other things the preparation of a
formal merger agreement and possible approval by DLLC shareholders.
F-13
28
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
On May 31, 1996, Kiss, Leake & Associates, P.C., the Company's
independent accountant for the two fiscal years prior to May 31,
1996, resigned. The Company's financial statements for the two
fiscal years ended May 31, 1994 and 1995 were prepared by Kiss,
Leake & Associates, P.C. and contained no adverse opinion or
disclaimer of opinion, nor were qualified as to uncertainty, audit
scope, or accounting principles.
Also on May 31, 1996, the Company engaged the accounting firm
of Hein + Associates LLP as the independent public accountants to
audit the Company's fiscal year ended May 31, 1997, as well as
future financial statements, to replace the firm of Kiss, Leake &
Associates, P.C. This change in independent accountants was
approved by the Board of Directors of the Company.
There were no disagreements during the fiscal years ended May
31, 1994 and 1995 and subsequent periods with Kiss, Leake &
Associates, P.C. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope of
procedure, which disagreement(s), if not resolved to the
satisfaction of Kiss, Leake & Associates, P.C., would have caused
that firm to make reference in connection with its reports to the
subject matter of the disagreement(s) or any reportable events.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors are elected for one-year terms or until the next
annual meeting of shareholders and until their successors are duly
elected and qualified. Officers continue in office at the pleasure
of the Board of Directors.
The Directors and Officers of the Company as of the date of
this report are as follows:
Name Age Position
_______________________ ___ ___________________
Thomas J. Chase 58 President, Director
Matthew J. Kavanagh III 63 Secretary, Director
All Directors of the Company will hold office until the next
annual meeting of the shareholders and until their successors have
been elected and qualified. Officers of the Company are elected by
the Board of Directors and hold office until their death or until
they resign or are removed from office.
29
<PAGE>
There are no family relationships among the officers and
directors. There is no arrangement or understanding between the
Company (or any of its directors or officers) and any other person
pursuant to which such person was or is to be selected as a
director or officer.
In December 1997, Duane C. Peterson resigned his position as
a director of the Company for personal reasons. There were no
disagreements between Mr. Peterson and the Company's Board of
Directors. No replacement has yet been appointed to replace Mr.
Peterson, but it is anticipated that a new director will be so
appointed in the near future. It is expected that such director
will have experience in the Company's proposed new business,
described hereinabove under Item 1.
(b) Resumes:
Thomas J. Chase, President and a director. Mr. Chase has been
a director of the Company since its inception. Also, from
inception through May 31, 1997, Mr. Chase held the position of
Secretary of the Company. He was appointed President of the
Company on May 31, 1997. Since March 1988, Mr. Chase has been
President and sole owner of Tom Chase & Co., Inc., a privately held
Colorado corporation engaged as a broker of insurance and financial
services. Primarily, this company functions as a broker for
property and casualty insurance, life insurance and commercial
mortgages. Mr. Chase received a Bachelor of Science degree in
business administration from Miami University (Ohio) in 1963. He
devotes only such time as necessary to the business of the Company.
Matthew J. Kavanagh III, Secretary and a director. Mr.
Kavanagh was appointed to his positions with the Company on May 31,
1997. Since September 1982, Mr. Kavanagh has been the President of
The Amherst Group Ltd., a privately held corporation located in
Englewood, Colorado, engaged in consulting services, including
sales, marketing, franchising, real estate development and fund
raising to growth and development stage companies. Mr. Kavanagh
holds a Bachelor of Arts degree from Southern Methodist University
in Dallas, Texas. Mr. Kavanagh received a professional
certification as a Chartered Life Underwriter in 1969.
Additionally, he is a licensed real estate broker and insurance
broker in the State of Colorado. Mr. Kavanagh devotes only such
time as is necessary to the business of the Company.
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's officers, directors and person who own more than 10%
of the Company's Common Stock to file reports of ownership and
changes in ownership with the Securities and Exchange Commission.
All of the aforesaid persons are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they
file. Applicable thereto, there were no changes in the securities
holdings of any person.
30
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
Remuneration
The following table reflects all forms of compensation for
services to the Company for the years ended May 31, 1998 and 1997
of the chief executive officer of the Company.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
____________________________
Annual Compensation Awards Payouts
_____________________ ____________________ _______
Securities
Other Under- All
Name Annual Restricted lying Other
and Compen- Stock Options/ LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
__________ ____ ______ _____ ______ ________ _______ _______ ______
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas J. 1998 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Chase, Pres.
& Director 1997 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
_________________________
</TABLE>
Unless the proposed share exchange between the Company and
AFEW, Inc. is successfully consummated, it is not anticipated that
any executive officer of the Company will receive compensation
exceeding $100,000 during the fiscal year ending May 31, 1999. If
such transaction is successfully consummated, present management of
the Company
The Company maintains a policy whereby the directors of the
Company may be compensated for out of pocket expenses incurred by
each of them in the performance of their relevant duties. The
Company did not reimburse any director for such expenses during the
fiscal year ended May 31, 1998.
In addition to the cash compensation set forth above, the
Company reimburses each executive officer for expenses incurred on
behalf of the Company on an out-of-pocket basis. The Company
cannot determine, without undue expense, the exact amount of such
expense reimbursement. However, the Company believes that such
reimbursements did not exceed, in the aggregate, $1,000 during
fiscal year 1998.
31
<PAGE>
There are no bonus or incentive plans in effect, nor are there
any understandings in place concerning additional compensation to
the Company's officers.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(a) and (b) Security Ownership of Certain Beneficial Owners
and Management.
The table below lists the beneficial ownership of the
Company's voting securities by each person known by the Company to
be the beneficial owner of more than 5% of such securities, as well
as beneficial ownership for each class of equity securities of the
Company beneficially owned by all directors and officers of the
Company. Unless otherwise indicated, the shareholders listed
possess sole voting and investment power with respect to the shares
shown and there are no outstanding arrangements which would result
in change of control of the Company.
Name and Amount and
Address of Nature of
Title of Beneficial Beneficial Percent of
Class Owner Ownership Class
________ ____________________ __________ __________
Common Terry Whiteside 775,000 49.5%
7345 E. Peakview Ave
Englewood, CO 80111
Common Thomas J. Chase(1) 5,000 *
7345 E. Peakview Ave.
Englewood, CO 80111
Common Matthew Kavanagh(1) 4,000 *
3140 S. Peoria, #230
Aurora, CO 80014
Common All Officers and 9,000 *
Directors as a
Group (2 persons)
_________________________
* Less than 1%
(1) Officer and/or director of the Company.
(2) The information relating to beneficial ownership of the
Company's common stock is based on information furnished by
them using the definition of "beneficial ownership" set forth
in rules promulgated by the Securities and Exchange Commission
under Section 13(d) of the Securities Exchange Act of 1934.
Except where there may be special relationships with other
32
<PAGE>
persons, including share voting or investment power, the
directors and nominees possess sole voting and investment
power with respect to the shares set forth beside their names.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In June 1995, Terry Whiteside, the Company's former President,
loaned the Company the principal sum of $42,340, which the Company
utilized to purchase its initial insurance policy with a face value
of $58,000. In August 1995, Ms. Whiteside loaned the Company the
principal sum of $58,000. Additionally in August 1995, a minority
shareholder of the Company loaned the Company the principal sum of
$75,000. Each of these aforesaid loans are unsecured and all have
been amended to reflect that the former two loans are due on June
30, 1999, the latter loan is due August 31, 1999 and all of the
loans have interest accruing at the rate of 7% per annum. The
Company utilized the proceeds of these loans to purchase insurance
policies.
Management believes that because the Company had no assets or
other collateral at the time such loans were made, no established
financial institution would have undertaken to make any loans to
the Company. Further, management believes that the terms of these
loans are more favorable to the Company than could have been
provided by any other financing entity, had such a financing entity
been amenable to undertaking such lending activities.
The Company reimburses its executive officers and directors
from time to time for out-of-pocket expenditures, including travel,
long distance telephone, photocopying and similar such costs and
expenses, paid by them on behalf of the Company. The total amount
of expense reimbursements by the Company to any executive officer
and/or director did not exceed $10,000 in the Company's fiscal year
ended May 31, 1998.
During the fiscal year ended May 31, 1997, the Company
purchased life insurance policies totalling $146,000 at the face
value of the policy from an entity which is approximately a 2%
stockholder of the Company.
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
*3.1 Certificate and Articles of Incorporation
*3.2 Bylaws
EX-27 Financial Data Schedule
33
<PAGE>
* Filed with the Securities and Exchange Commission in the Exhibits
to Form 10-SB, filed on October 3, 1995 and are incorporated by
reference herein.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
three month period ending May 31, 1998. However, on August 25,
1998, the Company did file a report on Form 8-K advising of the
execution of a letter of intent to engage in a share exchange
transaction with AFEW, Inc. The contents of this Form 8-K are
hereby incorporated herein as if set forth.
34
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on
September 14, 1998.
USASURANCE GROUP, INC.
(Registrant)
By:/s/ Thomas J. Chase
----------------------
Thomas J. Chase,
President
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities indicated on September 14, 1998.
/s/ Thomas J. Chase
- ----------------------------------
Thomas J. Chase, Director
/s/ Matthew J. Kavanagh, III
- ----------------------------------
Matthew J. Kavanagh, III, Director
35
<PAGE>
USASURANCE GROUP, INC.
Exhibit Index to Annual Report on Form 10-KSB
For the Fiscal Year Ended May 31, 1998
EXHIBITS Page No.
EX-27 Financial Data Schedule . . . . . . . . . . . 37
36
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED MAY 31, 1998, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
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0
0
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<INCOME-PRETAX> (104,746)
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