U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: August 31, 1998
Commission File Number: 0-26920
USAsurance Group, Inc.
(Exact name of small business issuer as specified in its charter)
Colorado
(State or other jurisdiction of incorporation or organization)
84-1298212
(IRS Employer Identification No.)
7345 E. Peakview Ave.
Englewood, Colorado
(Address of principal executive offices)
80111
(Zip Code)
(303) 689-0123
(Issuer's Telephone Number)
(Former name, former address and former fiscal year, if changed
since last report)
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 past 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 the registrant's only class of common stock
issued and outstanding, as of August 31, 1998, was 1,566,000
shares.
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the three month period
ended August 31, 1998, are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PLAN OF
OPERATION
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
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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 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.
Results of Operations
Comparison of Results of Operations for the three month period
ended August 31, 1998 and three month period ended August 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 were restated in the
Company's audited Financial Statements included in the Company's
annual report on Form 10-KSB for the fiscal year ended May 31,
1998, to present the viatical settlement business as a discontinued
operation.
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.
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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).
The Company had no revenues for the three month periods ended
August 31, 1998 and August 31, 1997. In the three month period
ended August 31, 1998, general and administrative expenses
decreased $16,171 (68%) from $23,923 for the three month period
ended August 31, 1997 to $7,752. This decrease was due to (i) fees
incurred during the applicable period in 1997 to a consultant
associated with a potential acquisition by the Company of a digital
pager company; (ii) the elimination of rental payments by the
Company for its principal office space, which space is provided by
a shareholder who has agreed to abate such rental payments; and
(iii) significant reduction of compensation to officers of the
Company.
The Company incurred a net loss of $(7,752) for the three
month period ended August 31, 1998, compared to a net loss of
$(23,923) for the three months ended August 31, 1997, as all losses
were attributable to general and administrative expenses incurred
by the Company.
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
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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.
For the three month period ended August 31, 1998, the Company
had a negative cash flow from operations of $1,505 compared to a
positive cash flow from operations of $47,840 at August 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
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
Because of the changes in the viatical settlement industry,
management has adopted a new business plan. 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
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an aggregate of 12,670,363 "restricted" common shares, representing
approximately 89% 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.
2PI is a multi-level marketing and direct network marketing
company. This business enterprise combines (i) the sale and
marketing of nutritional supplements; and (ii) retains independent
contractors for the purpose of selling and marketing the 2Xtreme
product line. 2Xtreme currently employs approximately 200 persons
and has 110,000 independent distributors distributing its products.
During its fiscal year ended December 31, 1997, 2Xtreme generated
approximately $35 million in revenues.
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
assurances that the proposed transaction will close on the
aforesaid date, or that any unforeseen delay will occur.
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
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
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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.
Inflation has not had and is not expected to have a
significant impact on the Company's financial position or operating
results.
The Company's common stock shares are currently traded on the
NASDAQ over the counter Bulletin Board using the trading symbol
"UASG".
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
NONE.
ITEM 5. OTHER INFORMATION - NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EX-27 Financial Data Schedule
(b) Reports on Form 8-K.
On or about August 25, 1998, the Company filed a report on
Form 8-K, advising that the Company had executed a non-binding
letter of intent to acquire all of the issued and outstanding
securities of AFEW, Inc., a Delaware corporation with its principal
place of business located in Dallas, Texas. See "Part I, Item 2,
MANAGEMENT'S DISCUSSION - Plan of Operation" above for a more
detailed description of the terms of this proposed transaction.
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<TABLE>
USAsurance Group, Inc.
Balance Sheet
- -----------------------------------------------------------------
<CAPTION>
Unaudited Audited
August May
31, 1998 31, 1997
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 498 $ 2,003
Notes Receivable (Net of $42,000
Allowance) 0 0
--------- ---------
Total Current Assets 498 2,003
--------- ---------
Property and Equipment 3,890 3,890
Less Accumulated Depreciation (1,735) (1,558)
--------- ---------
Net Property and Equipment 2,155 2,332
--------- ---------
Other Assets-Purchased Life Insurance
Company 407,776 407,776
--------- ---------
TOTAL ASSETS $ 410,429 $ 412,111
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Accounts Payable $ 10,172 $ 18,703
Interest Payable 18,079 14,608
--------- ---------
Total Current Liabilities 28,251 33,311
--------- ---------
Long-Term Debt - Related Party 117,340 103,340
Long-Term Debt - Other 75,000 75,000
--------- ---------
Total Long-Term Debt 192,340 178,340
--------- ---------
TOTAL LIABILITIES 220,591 211,651
--------- ---------
SHAREHOLDERS' EQUITY
Common Stock, $.0001 Par Value
Authorized 900,000,000 Shares;
Issued And Outstanding 1,566,000 Shares 157 157
Capital Paid In Excess Of
Par Value Of Common Stock 402,191 401,591
Preferred Stock, $.01 Par Value, Non Voting
Authorized 1,000,000 Shares;
Issued And Outstanding -0- Shares 0 0
Retained Earnings (Deficit) (212,510) (201,288)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 189,838 200,460
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 410,429 $ 412,111
========= =========
<FN>
The Accompanying Notes Are An Integral Part Of These Unaudited
Financial Statements.
</TABLE>
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<PAGE>
<TABLE>
USAsurance Group, Inc.
Unaudited Statement Of Operations
- -----------------------------------------------------------------
<CAPTION>
Unaudited Unaudited
3 Month 3 Month
Period Ended Period Ended
August August
31, 1998 31, 1997
------------ ------------
<S> <C> <C>
Income: $ 0 $ 0
General & Administrative Expenses:
Compensation - Officers 600 8,250
Depreciation 177 177
Legal And Accounting 6,969 6,070
Office 6 5,539
Professional Services 0 2,500
Rent 0 518
Stock Transfer 0 200
Telephone 0 669
------------ ------------
Total 7,752 23,923
------------ ------------
Net (Loss) Before Other Income (7,752) (23,923)
============ ============
Other Income (Expense)
Interest Expense (3,471) (3,068)
------------ ------------
Total Other Income (Expense) (3,471) (3,068)
------------ ------------
Net (Loss) (11,223) (26,991)
============ ============
Basic (Loss) Per Common Share ($0.01) ($0.02)
============ ============
Weighted Average Common Shares
Outstanding 1,566,000 1,566,000
============ ============
<FN>
The Accompanying Notes Are An Integral Part Of These Unaudited
Financial Statements.
</TABLE>
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<TABLE>
USAsurance Group, Inc.
Statement Of Cash Flows
- -----------------------------------------------------------------
<CAPTION>
Unaudited Unaudited
3 Month 3 Month
Period Ended Period Ended
August August
31, 1998 30, 1997
------------ ------------
<S> <C> <C>
Net (Loss) $ (11,223) $ (26,991)
Adjustments To Reconcile Net Loss
To Net Cash Used In Operating
Activities:
Depreciation 177 177
Contributed Services And Rent 600 8,750
Changes In Operating Assets
And Liabilities:
Decrease In Receivable 0 27,000
(Increase) In Purchased Life
Insurance Policies 0 (776)
Decrease In Deposits
With Insurance Companies 0 38,476
(Decrease) In Accounts Payable (3,030) (1,865)
Increase In Interest Payable 3,471 3,069
------------ ------------
Net Flows From Operations (10,005) 47,840
Cash Flows From Investing Activities:
0 0
------------ ------------
Net Cash Flows From Investing 0 0
------------ ------------
Cash Flows From Financing Activities:
Loans Made To Other Parties 0 (15,000)
Funds Received From Loans 8,500 15,000
Payments Made on Loans 0 0
------------ ------------
Cash Flows From Financing 8,500 0
------------ ------------
Net Increase In Cash (1,505) 47,840
Cash At Beginning Of Period 2,003 729
------------ ------------
Cash At End Of Period $ 498 $ 48,569
============ ============
Summary Of Non-Cash Investing
And Financing Activities:
Reclass Trade Payable to Note Payable $ 5,500 $ 0
============ ============
<FN>
The Accompanying Notes Are An Integral Part Of These Unaudited
Financial Statements.
</TABLE>
10
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USAsurance Group, Inc.
Notes To Unaudited Financial Statements
For The Three Month Period Ended August 31, 1998
- ------------------------------------------------
Note 1 - Unaudited Financial Information
- ----------------------------------------
The unaudited financial information included for the three month
interim periods ended August 31, 1998 and August 31, 1997 were
taken from the books and records without audit. However, such
information reflects all adjustments (consisting only of normal
recurring adjustments, which are of the opinion of management,
necessary to reflect properly the results of interim periods
presented). The results of operations for the three month period
ended August 31, 1998 are not necessarily indicative of the results
expected for the fiscal year ended May 31, 1999.
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SIGNATURES
Pursuant to the requirements of Section 12 of the
Securities and Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
USAsurance Group, Inc.
(Registrant)
Dated: October 15, 1998
By:/s/ Thomas Chase
---------------------------
Thomas Chase, President
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USAsurance Group, Inc.
Exhibit Index to Quarterly Report on Form 10-QSB
For the Quarter Ended August 31, 1998
EXHIBITS Page No.
EX-27 Financial Data Schedule . . . . . . . . . . . 14
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTH PERIOD ENDED AUGUST 31, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> AUG-31-1998
<CASH> 498
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 498
<PP&E> 3,890
<DEPRECIATION> (1,735)
<TOTAL-ASSETS> 410,429
<CURRENT-LIABILITIES> 28,251
<BONDS> 0
0
0
<COMMON> 157
<OTHER-SE> 189,681
<TOTAL-LIABILITY-AND-EQUITY> 410,429
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,752
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,471
<INCOME-PRETAX> (11,223)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,223)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
