SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 2, 1998
USA SERVICE SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Colorado 0-2095 84-1039267
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(State or other jurisdiction (Commission File (IRS Employer
or incorporation) Number) Identification No.)
10770 Wiles Road, Coral Springs, Florida 33076
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (954) 752-4289
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(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(a) Audited Financial Statements of USA Service Systems, Inc. for
the year ended August 31, 1998.
2
<PAGE>
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USA SERVICE SYSTEMS, INC.
FINANCIAL STATEMENTS
AUGUST 31, 1998
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<PAGE>
C O N T E N T S
Page
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INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statements of Changes in Deficiency in Assets 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 13
<PAGE>
INDEPENDENT AUDITORS' REPORT
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To the Board of Directors and Stockholders
USA Service Systems, Inc.
Coral Springs, Florida
We have audited the accompanying balance sheet of USA Service Systems, Inc. as
of August 31, 1998, and the related statements of operations, changes in
deficiency in assets and cash flows for the year then ended and for the period
from inception (December 11, 1996) through August 31, 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 audits 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 USA Service Systems, Inc. as of
August 31, 1998 and the results of its operations and its cash flows for the
year then ended and for the period from inception (December 11, 1996) through
August 31, 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 operating losses and negative
cash flows from operations since inception and had a deficiency in assets at
August 31, 1998, raising substantial doubt about the Company's 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.
December 18, 1998, except for the fourth and fifth paragraphs of Note 2, to
which the date is January 31, 1999
Miami, Florida
1
<PAGE>
<TABLE>
<CAPTION>
USA SERVICE SYSTEMS, INC.
BALANCE SHEET
AUGUST 31, 1998
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<S> <C>
ASSETS
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CURRENT ASSETS
Cash $ 3,075
Accounts receivable, net of allowance for doubtful
accounts of $30,305 (Note 4) 70,023
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Total current assets 73,098
PROPERTY AND EQUIPMENT (NOTE 5) 19,694
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$ 92,792
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LIABILITIES AND DEFICIENCY IN ASSETS
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CURRENT LIABILITIES
Accounts payable $ 44,202
Accrued liabilities 15,236
Convertible debt (Note 6) 25,000
Notes payable (Note 6) 80,910
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Total current liabilities 165,348
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CONVERTIBLE DEBT (NOTE 6) 200,000
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COMMITMENTS AND CONTINGENCIES (NOTE 9)
DEFICIENCY IN ASSETS (NOTE 7)
Common stock, $.001 par value, 20,000,000 shares
authorized; 1,562,250 shares issued and outstanding 1,562
Additional paid-in-capital 141,463
Accumulated deficit ( 415,581)
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Total deficiency in assets ( 272,556)
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$ 92,792
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</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
USA SERVICE SYSTEMS, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED AUGUST 31, 1998 AND FOR THE PERIOD FROM
INCEPTION (DECEMBER 11, 1996) THROUGH AUGUST 31, 1997
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Year Ended Period Ended
August 31, 1998 August 31, 1997
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<S> <C> <C>
NET SALES $ 350,901 $ -
COST OF SALES 281,045 -
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GROSS PROFIT 69,856 -
GENERAL AND ADMINISTRATIVE EXPENSES 442,050 43,387
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NET LOSS ( $ 372,194) ( $ 43,387)
====================================================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
USA SERVICE SYSTEMS, INC.
STATEMENTS OF CHANGES IN DEFICIENCY IN ASSETS
YEAR ENDED AUGUST 31, 1998 AND FOR THE PERIOD FROM
INCEPTION (DECEMBER 11, 1996) THROUGH AUGUST 31, 1997
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Common Stock
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Shares Warrants Par Value
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<S> <C> <C> <C>
BALANCES - DECEMBER 11, 1996 (INCEPTION) - - $ -
Issuance of common stock to founding stockholders 1,500,000 - 1,500
Net loss - period from inception through August 31, 1997 - - -
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BALANCES - AUGUST 31, 1997 1,500,000 - 1,500
Issuance of common stock and warrants in connection with
equity and debt financings (Note 7) 62,250 264,500 62
Common stock and warrant equity financing issue costs (Note 7) - - -
Capital contributions represented by costs and expenses
paid by founding stockholders on behalf of the Company - - -
Net loss - year ended August 31, 1998 - -
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BALANCES, AUGUST 31, 1998 1,562,250 264,500 $ 1,562
======================================================================================================================
(RESTUBBED TABLE)
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Additional
Paid-in Accumulated
Capital Deficit Total
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BALANCES - DECEMBER 11, 1996 (INCEPTION) $ - $ - $ -
Issuance of common stock to founding stockholders 55,965 - 57,465
Net loss - period from inception through August 31, 1997 - ( 43,387) ( 43,387)
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BALANCES - AUGUST 31, 1997 55,965 ( 43,387) 14,078
Issuance of common stock and warrants in connection with
equity and debt financings (Note 7) 77,750 - 77,812
Common stock and warrant equity financing issue costs (Note 7) ( 39,952) - 39,952)
Capital contributions represented by costs and expenses
paid by founding stockholders on behalf of the Company 47,700 - 47,700
Net loss - year ended August 31, 1998 - ( 372,194) ( 372,194)
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BALANCES, AUGUST 31, 1998 $ 141,463 ( $ 415,581) ( $272,556)
======================================================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
USA SERVICE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED AUGUST 31, 1998 AND FOR THE PERIOD FROM
INCEPTION (DECEMBER 11, 1996) THROUGH AUGUST 31, 1997
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Year Ended Period Ended
August 31, 1998 August 31, 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ( $ 372,194) ( $ 43,387)
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Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 3,259 -
Provision for doubtful accounts 30,305 -
Changes in operating assets and liabilities:
(Increase) in accounts receivable ( 100,328) -
Increase in accounts payable 44,202 -
Increase in accrued expenses 15,236 -
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Total adjustments ( 7,326) -
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Net cash used in operating activities ( 379,520) ( 43,387)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 8,875) -
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 355,910
Repayments of notes payable ( 50,000)
Net proceeds from issuance of common stock, warrants,
and capital contributions 85,560 43,387
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Net cash provided by financing activities 391,470 43,387
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NET INCREASE IN CASH 3,075 -
CASH, BEGINNING - -
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CASH, ENDING $ 3,075 $ -
===================================================================================================================================
Supplemental Disclosures:
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Interest paid $ 6,289 $ -
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Non-cash Investing and Financing Activities
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Furniture and fixtures contributed by a founding stockholder
of the Company $ - $ 14,078
===================================================================================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
USA SERVICE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
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NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Description of Business
USA Service Systems, Inc. (the "Company") formerly known as
Consolidated Merchandising Services, Inc. (CMSI) and Univega
Holding, Inc. was originally incorporated on December 11,
1996. From incorporation through August 31, 1997 the Company
had nominal assets, liabilities and equity and no significant
operating activity. As such, the Company was considered to be
in the development stage.
Effective September 1, 1997, the Company commenced operations
and was no longer considered to be in the development stage.
The Company provides in-store retail merchandising services to
retail stores throughout the United States and intends to
acquire and operate other entities in the same line of
business. These services include, but are not limited to, the
assembling of bicycles, exercise equipment and
ready-to-assemble furniture, principally through the use of
subcontractors.
The Company was capitalized principally through various debt
fundings aggregating approximately $355,000, an equity funding
providing for approximately $38,000, and founding shareholder
capital contributions aggregating approximately $105,000.
Revenue Recognition
The Company recognizes revenue upon completion of the repair
or assembly of the consumer product by the subcontractor.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for
major betterments and additions are charged to the asset
accounts while replacements, maintenance and repairs which do
not improve or extend the lives of the respective assets are
charged to expense currently.
Depreciation
Depreciation is computed using the straight-line method based
upon the estimated useful lives of the assets. The range of
useful lives is as follows:
Computer and office equipment 3 - 7 years
Furniture and fixtures 3 - 5 years
6
<PAGE>
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NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
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Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
respective reporting period. Actual results could differ from
those estimates.
The allowance for doubtful accounts is an estimate which is
established through charges to earnings for estimated
uncollectible amounts. Management's judgement in determining
the adequacy of the allowance is based upon several factors
which include, but are not limited to, the nature and volume
of the accounts receivable and management's judgement with
respect to current economic conditions and their impact on the
receivable balances. It is reasonably possible the Company's
estimate of the allowance for doubtful accounts could change
in the near term.
The Company has recorded a net deferred tax asset of
approximately $154,000 at August 31, 1998 which is offset by a
valuation allowance of the same amount. Realization of the
deferred tax asset is dependent on generating sufficient
taxable income in the future. The amount of the deferred tax
asset considered realizable could change in the near term if
estimates of future taxable income are increased.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
credit risk consist principally of cash and trade receivables.
From time to time, the Company maintains balances in financial
institutions in excess of federally insured limits.
The Company performs services and extends credit based on an
evaluation of the customers' financial condition without
requiring collateral. Exposure to losses on receivables is
expected to vary by customer due to the financial condition of
each customer. The Company monitors exposure to credit losses
and maintains allowances for anticipated losses considered
necessary under the circumstances.
Income Taxes
The Company uses the liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between financial
statement and tax bases of assets and liabilities measured by
the enacted tax rates in effect when these differences are
expected to reverse. Valuation allowances are established
when, at management's determination it is more likely than not
that some or all of the asset will not be realized.
7
<PAGE>
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NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
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Impact of the "Year 2000" Computer Issue
Because computers frequently use only two digits to recognize
years, on January 1, 2000, many computer systems, as well as
equipment that uses embedded computer chips, may be unable to
distinguish between the years 1900 and 2000. If not
remediated, this problem could create system errors and
failures resulting in the disruption of normal business
operations. In the event the Company fails to identify or
correct a material Year 2000 problem, there could be
disruptions in normal business operations, which could have a
material adverse effect on the Company's results of
operations, liquidity or financial condition. Further, there
may be some third parties, such as governmental agencies,
utilities, telecommunication companies, vendors, suppliers and
customers who may not be able to continue business with the
Company due to their own year 2000 problems. There can be no
assurance that any efforts made will fully mitigate the effect
of Year 2000 issues.
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NOTE 2. CONTINUITY OF OPERATIONS
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The Company has incurred significant operating losses since
inception, of which approximately $43,000 relates to the
period prior to commencement of operations, and approximately
$372,000 subsequent thereto. Through the first quarter of the
year ending August 31, 1999, the Company continued to
experience operating losses.
The continuance of the Company is dependent upon, among other
things, obtaining sufficient additional financing to fulfill
cash flow requirements and planned acquisitions, and
ultimately, the attainment of profitable operations.
Management believes that its liquidity problem is short-term
in nature, and to this end has arranged for additional sources
of financing as follows:
Holders of $200,000 of convertible debt outstanding at
August 31, 1998, agreed to convert their debt into 250,000
shares of common stock, effective November 17, 1998 at
$0.80 per share. Although such shares are considered
outstanding on the effective date, the $200,000
consideration is classified by the Company as debt until
such time as the Company received written authorization to
convert the debt to equity.
From September 1, 1998 through January 31, 1999, 631,250
shares of common stock were sold, resulting in gross
proceeds to the Company of $505,000.
With the conversion and offering described above and expected
additional funding management is currently contemplating, the
Company expects to meet its short-term working capital needs.
8
<PAGE>
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NOTE 2. CONTINUITY OF OPERATIONS (Continued)
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Regarding attaining profitable operations, the Company's
operating plan provides for among other things, the following:
Pursuing alternatives to obtain $4,000,000 in financing to
be used for the acquisition of certain businesses the
Company is currently negotiating with.
Expanding geographic operations and the Company's revenue
base.
No assurance can be given that the Company can achieve its
operating plan or obtain additional sources of funds in the
future. The accompanying financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
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NOTE 3. ACQUISITIONS
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The Company has entered into letters of intent for the
acquisition of four entities engaged in the same type of
business as the Company. These companies are located in the
Northeast, Southeast, Midwest and Western United States and
have combined annual revenues in excess of $15,000,000.
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NOTE 4. MAJOR CUSTOMER
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The Company's major source of revenues is from one customer.
This customer accounted for 89% of net sales for the year
ended August 31, 1998, and 86% of accounts receivable at
August 31, 1998. The loss of this customer would have a
material adverse effect on the Company.
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NOTE 5. PROPERTY AND EQUIPMENT
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Property and equipment consisted of the following at August
31, 1998:
Computer and office equipment $ 8,875
Furniture and fixtures 14,078
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22,953
Less accumulated depreciation ( 3,259)
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$ 19,694
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9
<PAGE>
<TABLE>
<CAPTION>
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NOTE 6. DEBT
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<S> <C>
Notes Payable
Notes payable consisted of the following at August 31, 1998:
Unsecured 10% note payable due September 28, 1998; the note holder is to be
issued 20,000 shares of common stock upon repayment of the note. The note is
currently in default. $ 50,000
Unsecured note payable; interest at 18%; principal and interest due October 7,
1999. Repaid on October 7, 1998. 25,910
Unsecured note payable to officer; interest at 10%; principal and interest due
March 31, 1999 5,000
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$ 80,910
======================================================================================================
</TABLE>
Convertible Debt
Convertible debt consisted of notes payable with interest at
10% per annum due quarterly, principal and unpaid interest due
on dates ranging from December 16, 1998 through July 27, 1999.
Principal on the notes is convertible into the Company's common
stock at $.80 per share. Quarterly interest payments were not
made in accordance with the terms of certain notes and
accordingly, approximately $11,000 of unpaid interest is
included in accrued liabilities at August 31, 1998. Subsequent
to August 31, 1998, holders of $200,000 of convertible debt
agreed to convert their notes into common stock (see Note 2).
In connection therewith, the converted notes were classified as
long-term obligations at August 31, 1998.
Interest expense on all debt amounted to $18,900 for the year
ended August 31, 1998.
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NOTE 7. COMMON STOCK
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As of August 31, 1998, the Company had not issued stock
certificates and warrants issuable in connection with stock
and warrant sales and founding stockholder shares due,
however, as the Company is obligated to issue these shares and
warrants, for financial reporting purposes, all are deemed to
be issued and outstanding.
On December 2, 1997, the Company implemented a Stock Option
Plan (the "Plan") which provides, with prior approval by the
Board of Directors, for the issuance of options to eligible
persons at prices established by the board and set forth in
the Plan. The aggregate number of shares of common stock that
may be issued pursuant to the exercise of options is 500,000
shares. Through December 18, 1998 there have been no options
granted.
10
<PAGE>
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NOTE 7. COMMON STOCK (Continued)
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On December 15, 1997, pursuant to a Private Placement
Memorandum, the Company offered 100,000 units of CMSI for
$1.25 per unit. Each unit consisted of one share of common
stock and two Class A warrants. Each Class A warrant,
exercisable during the one year period beginning March 31,
1998, entitles the holder to purchase one share of common
stock and one Class B warrant for $1.75. Each Class B warrant,
exercisable during the same period, entitles the holder to
purchase one share of common stock for $2.50. In connection
with the offering, the Company sold 62,250 units for total
consideration of approximately $78,000. Costs associated with
this offering amounted to approximately $40,000.
On October 28, 1998, in connection with the name change to USA
Service Systems, Inc., and in anticipation of the merger
(discussed below) with Princeton Management Corporation
("Princeton"), the Company notified all warrant holders that
their warrants could be replaced with shares on a one share
for two warrant basis. The warrant replacement increased total
shares of common stock deemed issued and outstanding to
1,694,500. Also in anticipation of the merger, the Company
implemented a stock split of the outstanding shares of the
Company's common stock plus 250,000 shares known to be due
upon the conversion of certain convertible debt such that the
total number of shares deemed issued and outstanding increased
to 3,500,000.
On November 17, 1998, the Company entered into a Share
Exchange Agreement and Plan of Reorganization with Princeton,
a non-operating public shell. The Agreement provided for the
exchange of 3,750,000 restricted shares of common stock of
Princeton for all (3,500,000) of the issued and outstanding
shares of the Company. This merger was treated for accounting
purposes as a capital transaction. As the Company is the
accounting acquirer in this "reverse acquisition," the
financial statements of Princeton are considered to be a
continuation of the Company. Concurrent with this merger,
Princeton changed its name to USA Service Systems, Inc.
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NOTE 8. INCOME TAXES
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<TABLE>
<CAPTION>
The income tax benefit consisted of the following:
Years Ended
August 31, 1998 August 31, 1997
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<S> <C> <C>
Current benefit:
Federal $ - $ -
State - -
Deferred benefit:
Federal ( 130,827) ( 15,289)
State ( 6,885) ( 764)
Increase in valuation allowance 137,712 16,053
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$ - $ -
=========================================================================================================
</TABLE>
11
<PAGE>
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NOTE 8. INCOME TAXES (Continued)
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<TABLE>
<CAPTION>
At August 31, 1998, the components of deferred tax assets were
as follows:
<S> <C>
Allowance for doubtful accounts $ 11,212
Benefit of net operating loss carryforwards 142,553
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Total deferred tax assets 153,765
Less valuation allowance ( 153,765)
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Net deferred tax asset $ -
======================================================================================================
</TABLE>
The effective tax rates for the years ended August 31, 1998
and 1997 differed from the federal statutory tax rates
principally due to net increases in the valuation allowances.
As of August 31, 1998, the Company had net operating loss
carryforwards for federal income tax reporting purposes of
approximately $385,000 which expire beginning in 2017.
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NOTE 9. COMMITMENTS AND CONTINGENCIES
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Office Lease
In August 1997, the Company entered into an agreement to lease
office space in Coral Springs, Florida under a non-cancellable
operating lease. The lease expires August 31, 2000.
<TABLE>
<CAPTION>
Future minimum lease payments are as follows:
<S> <C> <C>
1999 $ 16,695
2000 17,530
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$ 34,225
======================================================================================================
</TABLE>
Rent expense amounted to $15,711 for the year ended August 31,
1998.
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NOTE 10. SUBSEQUENT EVENTS
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Consulting Agreement
On October 2, 1998, the Company entered into a Consulting
Agreement (the "Agreement") with an entity (the "Consultants")
to provide the Company with financial consulting services.
12
<PAGE>
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NOTE 10. SUBSEQUENT EVENTS (Continued)
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In connection with the November 17, 1998 merger (see Note 7)
and certain consulting services defined in the Agreement, the
Company paid the Consultants $212,500 in consideration. Total
consideration due from the Company pursuant to the Agreement
includes up to 720,000 shares of the Company's common stock
and other cash payments.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
USA SERVICE SYSTEMS, INC.
By: /s/ George Pursglove
----------------------
George Pursglove
President
DATED: April 19, 1999
