<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
-----------
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _____________________ to _____________________.
Commission File Number 0-29627
--------------------------------------------------------------------------------
PSA, INC.
---------
(Exact name of small business issuer as specified in its charter)
District of Nevada 88-0212662
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9800 South Sepulveda Blvd.
Suite 810
Los Angeles, CA 90045
(Address of principal executive offices)
(310) 258-0500
(Issuer's telephone number)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ( X ) No ( )
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 35,136,580 shares of Common
Stock, $.001 par value, were outstanding as of September 30, 2000.
Transitional Small Business Disclosure Forms (check one):
Yes ( ) No ( X )
<PAGE>
ITEM I - FINANCIAL STATEMENTS.
PSA, INC.
INDEX TO FORM 10-QSB
SEPTEMBER 30, 2000
Page Nos.
---------
PART I - FINANCIAL INFORMATION:
CONSOLIDATED BALANCE SHEETS 1
At December 31, 1999 and September 30, 2000
CONSOLIDATED STATEMENTS OF OPERATIONS 2
For the Nine Months Ended September 30, 1999 and 2000
For the Three Months Ended September 30, 1999 and 2000
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 3-4
(DEFICIENCY)
For the Nine Months Ended September 30, 1999 and 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
For the Nine Months Ended September 30, 1999 and 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-28
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
<PAGE>
PSA, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
------
At At
December 31, September 30,
1999 2000
------------- -------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,183,289 $ 1,487,187
Marketable securities 1,685,378 745,750
Accounts receivable, net - 209,345
------------- -------------
TOTAL CURRENT ASSETS 2,868,667 2,442,282
PROPERTY AND EQUIPMENT - at cost, net of
accumulated depreciation of $4,233 - 49,159
INVESTMENT IN UNCONSOLIDATED AFFILIATE - SMA - 9,971,520
EXCESS OF COST OVER NET ASSETS OF BUSINESSES
ACQUIRED - net of accumulated amortization of
$131,514 - 732,461
CAPITALIZED SOFTWARE COSTS - 517,500
OTHER ASSETS - 208,944
------------- -------------
TOTAL ASSETS $ 2,868,667 $ 13,921,866
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 2,831,997 $ 3,446,973
Due to officers 25,191 19,033
Net current liabilities of discontinued
operations 803,813 -
------------- -------------
TOTAL CURRENT LIABILITIES 3,661,001 3,466,006
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 5, 6, 8,
9, 10 and 13)
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, par value $.001 per share;
authorized 75,000,000 shares; issued and
outstanding 30,814,919 and 35,136,580 shares
at December 31, 1999 and September 30, 2000,
respectively 30,814 35,136
Additional paid-in capital 14,056,972 30,556,321
Unearned compensation (1,335,937) (1,122,187)
Accumulated deficit (13,823,433) (18,790,806)
Accumulated other comprehensive income (loss) 279,250 (222,604)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (792,334) 10,455,860
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $ 2,868,667 $ 13,921,866
============= =============
See notes to consolidated financial statements.
1
<PAGE>
PSA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
1999 2000
------------- -------------
REVENUES - NET $ - $ 5,928,199
------------- -------------
OPERATING EXPENSES:
Cost of revenues - 5,389,797
Selling, general and administrative 1,210,063 4,680,559
Software development - 133,954
Compensatory element of stock issuances
pursuant to consulting and other agreements 940,526 -
Amortization of excess of cost over net assets
of businesses acquired - 131,514
------------- -------------
TOTAL OPERATING EXPENSES 2,150,589 10,335,824
------------- -------------
LOSS FROM OPERATIONS (2,150,589) (4,407,625)
------------- -------------
OTHER (EXPENSE) INCOME:
Costs of acquisition of Canticle Corporation - (700,000)
Issuance of common shares in settlement of
dispute with principal shareholder (3,975,000) -
Net realized gain on sale of securities - 277,368
Interest income - 139,929
Equity loss of unconsolidated affiliate - SMA - (255,845)
------------- -------------
TOTAL OTHER (EXPENSE) INCOME (3,975,000) (538,548)
------------- -------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES (6,125,589) (4,946,173)
PROVISION FOR INCOME TAXES - -
------------- -------------
LOSS FROM CONTINUING OPERATIONS (6,125,589) (4,946,173)
LOSS FROM DISCONTINUED OPERATIONS, Net of
income taxes of $-0- and $-0-, respectively (627,536) (21,200)
------------- -------------
NET LOSS $ (6,753,125) $ (4,967,373)
============= =============
BASIC AND DILUTED NET LOSS PER SHARE:
From continuing operations $ (.34) $ (.15)
From discontinued operations (.03) -
------------- -------------
NET LOSS PER SHARE $ (.37) $ (.15)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 18,105,689 34,034,071
============= =============
See notes to consolidated financial statements.
2
<PAGE>
PSA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
1999 2000
------------- -------------
REVENUES - NET $ - $ 2,576,001
------------- -------------
OPERATING EXPENSES:
Cost of revenues - 2,326,960
Selling, general and administrative 204,035 1,100,630
Software development - 44,134
Compensatory element of stock issuances
pursuant to consulting and other agreements - -
Amortization of excess of cost over net assets
of businesses acquired - 60,699
------------- -------------
TOTAL OPERATING EXPENSES 204,035 3,532,423
------------- -------------
LOSS FROM OPERATIONS (204,035) (956,422)
------------- -------------
OTHER (EXPENSE) INCOME:
Interest income - 23,980
Equity loss of unconsolidated affiliate - SMA - (276,393)
------------- -------------
TOTAL OTHER (EXPENSE) INCOME - (252,413)
------------- -------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES (204,035) (1,208,835)
PROVISION FOR INCOME TAXES - -
------------- -------------
LOSS FROM CONTINUING OPERATIONS (204,035) (1,208,835)
LOSS FROM DISCONTINUED OPERATIONS, Net of
income taxes of $-0- (373,687) -
------------- -------------
NET LOSS $ (577,722) $ (1,208,835)
============= =============
BASIC AND DILUTED NET LOSS PER SHARE:
From continuing operations $ (.01) $ (.03)
From discontinued operations (.01) -
------------- -------------
NET LOSS PER SHARE $ (.02) $ (.03)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 24,526,973 35,129,470
============= =============
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
PSA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<CAPTION>
Common Stock (1) Paid-in
Per Share ------------------------------ Capital
Amount Shares Amount Par Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance - December 31, 1998 2,497,330 $ 2,497 $ 4,277,905
Comprehensive income:
Net loss - - -
Other comprehensive income:
Unrealized gain on marketable
securities - - -
Total Comprehensive Income - - -
Shares issued under employment contract .250 5,700,000 5,700 1,419,300
Shares issued in settlement of claims
by Walsh Family Trust .250 15,900,000 15,900 3,959,100
Issuance of common stock .333 15,000 15 4,985
Issuance of common stock for services
rendered .211 4,710,000 4,710 990,290
Shares issued for services rendered .250 55,000 55 13,695
Shares issued for services rendered 1.047 475,295 475 497,134
Amortization of unearned compensation - - -
------------- ------------- -------------
Balance - September 30, 1999 29,352,625 $ 29,352 $ 11,162,409
============= ============= =============
Accumulated
Other
Unearned Accumulated Comprehensive
Compensation Deficit Income Total
------------- ------------- ------------- -------------
Balance - December 31, 1998 $ - $ (6,212,207) $ - $ (1,931,805)
-------------
Comprehensive income:
Net loss - (6,753,125) - (6,753,125)
Other comprehensive income:
Unrealized gain on marketable
securities - - - -
-------------
Total Comprehensive Income (6,753,125)
-------------
Shares issued under employment contract (1,425,000) - - -
Shares issued in settlement of claims by
Walsh Family Trust - - - 3,975,000
Issuance of common stock - - - 5,000
Issuance of common stock for services
rendered - - - 995,000
Shares issued for services rendered - - - 13,750
Shares issued for services rendered - - - 497,609
Amortization of unearned compensation 11,875 - - 11,875
------------- ------------- ------------- -------------
Balance - September 30, 1999 $ (1,413,125) $(12,965,332) $ - $ (3,186,696)
============= ============= ============= =============
(1) Share amounts have been restated to reflect the one-for-fifty reverse stock split effective
on September 16, 1998 and the 200% stock dividend effective on May 14, 1999.
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
PSA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<CAPTION>
Common Stock (1) Paid-in
Per Share ------------------------------ Capital
Amount Shares Amount Par Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance - December 31, 1999 30,814,919 $ 30,814 $ 14,056,972
Comprehensive income (loss):
Net loss - - -
Other comprehensive income (loss):
Unrealized loss on marketable
securities - net of reclassific-
ation adjustments - - -
Total Comprehensive Income (Loss) - - -
Shares issued for equity investment in
SMA $5.00 1,035,473 1,036 5,176,329
Shares issued for acquisition of
Canticle Corp. 8.93 56,000 56 499,944
Shares issued for acquisition of Royal
International Tours, Inc. 2.00 78,370 78 391,772
Issuance of common stock under Reg. S 3.31 3,151,818 3,152 10,431,304
Amortization of unearned compensation - - -
------------- ------------- -------------
Balance - September 30, 2000 35,136,580 $ 35,136 $ 30,556,321
============= ============= =============
Accumulated
Other
Unearned Accumulated Comprehensive
Compensation Deficit Income (Loss) Total
------------- ------------- ------------- -------------
Balance - December 31, 1999 $ (1,335,937) $(13,823,433) $ 279,250 $ (792,334)
-------------
Comprehensive income (loss):
Net loss - (4,967,373) - (4,967,373)
Other comprehensive income (loss):
Unrealized loss on marketable
securities - net of reclassific-
ation adjustments - - (501,854) (501,854)
-------------
Total Comprehensive Income (Loss) (5,469,227)
-------------
Shares issued for equity investment in
SMA - - - 5,177,365
Shares issued for acquisition of
Canticle Corp. - - - 500,000
Shares issued for acquisition of Royal
International Tours, Inc. - - - 391,850
Issuance of common stock under Reg. S - - - 10,434,456
Amortization of unearned compensation 213,750 - - 213,750
------------- ------------- ------------- -------------
Balance - September 30, 2000 $ 1,122,187 $ 18,790,806 $ (222,604) $ 10,455,860
============= ============= ============= =============
(1) Share amounts have been restated to reflect the one-for-fifty reverse stock split effective
on September 16, 1998 and the 200% stock dividend effective on May 14, 1999.
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
PSA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For the Nine Months Ended
September 30,
-----------------------------
1999 2000
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,753,125) $ (4,967,373)
Adjustments to reconcile net loss to net cash
used in operating activities from continuing
operations:
Equity loss of unconsolidated affiliate - SMA - 255,845
Loss from discontinued operations 627,536 21,200
Compensatory element of stock issuances 940,526 -
Common stock issued in settlement of claims by
Walsh Family Trust 3,975,000 -
Costs of acquisition of Canticle Corporation - 700,000
Depreciation and amortization - 4,233
Amortization of unearned compensation 11,875 213,750
Amortization of excess of cost over net assets
of businesses acquired - 131,514
Gain on sale of marketable securities - (277,368)
(Increase) decrease in assets and liabilities, net
of effects from acquisitions:
Accounts receivable, net - (209,345)
Accounts payable and accrued liabilities 689,206 539,851
Due to/from officers 18,000 (6,158)
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (490,982) (3,593,851)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (38,392)
Equity investment in unconsolidated affiliate - SMA - (5,050,000)
Expenditures for acquisitions - (612,000)
Payments for capitalized software costs - (517,500)
Purchase of marketable securities - (1,397,305)
Proceeds from sale of marketable securities - 2,112,447
Increase in other assets - (208,944)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES - (5,711,694)
------------- -------------
CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of common stock 5,000 10,434,456
------------- -------------
CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 486,254 (825,013)
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 272 303,898
CASH AND CASH EQUIVALENTS - BEGINNING 294 1,183,289
------------- -------------
CASH AND CASH EQUIVALENTS - ENDING $ 566 $ 1,487,187
============= =============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission ( the "SEC"). Certain information and
footnote disclosures normally included in the consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the consolidated financial statements reflect all adjustments (which
include only normal recurring adjustments) necessary to state fairly the
financial position and results of operations as of and for the periods
indicated. These consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements and notes thereto for the
year ended December 31, 1999, included in the Company's Form 10-KSB as filed
with the Securities and Exchange Commission.
NOTE 2 - BUSINESS
PSA, Inc. (the "Company") was incorporated in the state of Nevada in 1985.
Formerly known as American Telecommunications Standard International, Inc.
("ASAT"), the Company completed its merger with PSA, Inc., a California
corporation ("PSA of California"), in April 1998. In connection with the merger,
ASAT changed its name to the Company's present name.
The Company is a holding company for entities comprising its proposed
broad-based global travel and transportation services network that will include
global electronic commerce ("E-Commerce"), international tour services, video
production and post production services, air transportation, ground services and
Internet television broadcast. The Company intends to search and acquire
Internet and non- Internet companies that fit its acquisition portfolio criteria
to complement its own products and services and extend its content offering.
As of December 31, 1999, the Company owned and operated two majority-owned and
one wholly-owned subsidiaries, which are PSA Internet, Inc., Pacific States
Airline Services, Inc. ("PSAS"), and PSAZZ Air, Inc. ("PSAZZ"), respectively. In
addition, PSA Internet, Inc. owns 80% of PSAZZ.com.
In conjunction with its business plan, the Company acquired 100% of the
outstanding stock of two travel tour operators for cash and shares of its common
stock during March of 2000, and acquired a 34% equity interest of SMA Real Time
Inc. during May 2000 (see Note 5 - Acquisitions). SMA is a provider of wide
range of production and post-production services to companies that produce
commercials, television programs, music videos and feature films. As discussed
further in Note 6, on March 14, 2000, the Company completed the sale of 100% of
the issued and outstanding stock of PSAS to a member of the Board of Directors
of the Company. PSAS is an airport/airline service company providing skycap
services at various airports in the United States. The sale will enable the
Company to concentrate on its proposed on-line travel services business.
Accordingly, the Company has accounted for the operations of PSAS as a
discontinued operations.
7
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 2 - BUSINESS (Continued)
The Company has limited finances and requires additional funding in order to
accomplish its growth objectives and marketing of its products and services.
There is no assurance that the Company can reverse its operating losses or that
it can raise additional capital to allow it to expand its planned Internet
operations. There is also no assurance that even if the Company manages to
obtain adequate funding to complete any contemplated acquisition, such
acquisition will succeed in enhancing the Company's business and will not
ultimately have an adverse effect on the Company's business and operations.
The Company funded its operations during 1999 and 2000 through sales of its
common stock resulting in net proceeds to the Company of $2,901,025 in 1999 and
$10,434,456 for the nine months ended September 30, 2000. Sales of common stock
in 1999 and 2000 were sold in private transactions in reliance on various
exemptions from the registration requirements of the Securities Act. The Company
is exploring other financing alternatives, including private placements and
public offerings.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of PSA, Inc. and its
majority and wholly-owned subsidiaries (collectively the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation. Investments in 20% to 50% owned entities are accounted for under
the equity method of accounting.
Use of Estimates
----------------
The preparation of the consolidated 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 in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
-------------------------
The Company considers all short-term highly liquid investments with a maturity
of three months or less when purchased to be cash or cash equivalents.
8
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment in Marketable Securities
-----------------------------------
The Company accounts for its investments using Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in debt and Equity
Securities" ("SFAS No. 115"). This standard requires that certain debt and
equity securities be adjusted to market value at the end of each accounting
period. Unrealized market value gains and losses are charged to earnings if the
securities are traded for short-term profit. Otherwise, such unrealized gains
and losses are charged or credited to comprehensive income.
Management determines the proper classifications of investments in obligations
with fixed maturities and marketable equity securities at the time of purchase
and reevaluates such designations as of each balance sheet date. At December 31,
1999 and September 30, 2000, all securities covered by SFAS No. 115 were
designated as available for sale. Accordingly, these securities are stated at
fair value, with unrealized gains and losses reported in comprehensive income.
Realized gains and losses on sales of investments, as determined on a specific
identification basis, are included in the Consolidated Statement of Operations.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation and amortization is
computed using the straight line method over the estimated useful lives of five
years.
Excess of Cost Over Net Assets of Businesses Acquired
-----------------------------------------------------
The excess of the purchase price over the fair market value of net assets of
businesses acquired is being amortized using the straight-line method over 5
years.
Capitalized Software Costs
--------------------------
The Company capitalizes costs of computer software developed or obtained for
internal use. Capitalized costs primarily include the cost of a software license
purchased from a third party (Note 10). The costs will be amortized on a
straight-line basis over five years, commencing when the computer software is
ready for its intended use. As of September 30, 2000, the use of the computer
software had not commenced.
9
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-Lived Assets
-----------------
The Company periodically assesses the recoverability of long-lived assets,
including property and equipment, intangibles and excess of cost over net assets
of businesses acquired, when there are indications of potential impairment,
based on estimates of undiscounted future cash flows. The amount of impairment
is calculated by comparing anticipated discounted future cash flows with the
carrying value of the related asset. In performing this analysis, management
considers such factors as current results, trends, and future prospects, in
addition to other economic factors.
Revenue Recognition
-------------------
Income and direct expenses related to travel sales are recognized as revenue and
expenses during the month of travel.
Advertising Expenses
--------------------
Advertising expenses are charged to operations when incurred. Advertising
expense for the nine months ended September 30, 1999 and 2000 approximated
$41,497 and $295,855, respectively. Advertising expenses for the three months
ended September 30, 1999 and 2000 approximated $3,582 and $39,503, respectively.
Income Taxes
------------
The provision for income taxes is based on the elements of income and expenses
as reported in the accompanying statements of operations.
Deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amount and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
Stock-Based Compensation
------------------------
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company accounts for its stock-based compensation arrangements pursuant to APB
Opinion No. 25, "Accounting for Stock Issued to Employees". In accordance with
the provisions of SFAS No. 123, the Company discloses the proforma effects of
accounting for these arrangements using the minimum value method to determine
fair value.
10
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Split and Stock Dividend
------------------------------
On September 8, 1998, the Board of Directors authorized, and a majority vote of
the shareholders approved, a one-for-fifty reverse split of its issued and
outstanding common stock as of September 1, 1998 to be effective upon the filing
date, September 16, 1998.
On March 12, 1999, the Board of Directors declared, and a majority vote of the
shareholders approved, a stock dividend for issuance to each of the shareholders
of the common stock who was a shareholder of record on May 14, 1999, as a stock
dividend, two shares of restricted common stock for each outstanding share of
the common stock owned by each shareholder.
The accompanying consolidated financial statements, notes and other references
to share and per share data have been retroactively restated to reflect the
reverse stock split and stock dividend for all periods presented.
Loss Per Share
--------------
Basic net loss per common share has been computed based on the weighted average
number of shares of common stock outstanding during the periods presented, which
were retroactively adjusted to give recognition to the reverse stock split on
September 16, 1998 and the stock dividend on May 14, 1999.
Fair Value of Financial Instruments
-----------------------------------
The financial statements include various estimated fair value information, as
required by Statement of Financial Accounting Standards 107, "Disclosures about
Fair Value of Financial Instruments". Such information, which pertains to the
Company's financial instruments, is based on the requirements set forth in that
Statement and does not purport to represent the aggregate net fair value to the
Company.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents: The carrying amount approximates fair value because
of the short-term maturity of those instruments.
11
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments (Continued)
-----------------------------------
Investment in marketable securities: The fair value of investments in marketable
securities is based on quoted prices.
Receivables and payables: The carrying amounts approximates fair value because
of the short maturity of those instruments.
All of the Company's financial instruments are held for purposes other than
trading.
Impact of Recently Issued Accounting Standards
----------------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". The Company
is required to adopt SFAS No. 133 for the year ending December 31, 2001. SFAS
No. 133 establishes methods of accounting for derivative financial instruments
and hedging activities related to those instruments as well as other hedging
activities. Because the Company currently holds no derivative financial
instruments and does not currently engage in hedging activities, adoption of
SFAS No. 133 is expected to have no material impact on the financial condition
or results of operations.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company believes that its current
revenue recognition principles comply with SAB 101.
In January 2000, the Emerging Issues Task Force of the FASB reached consensus on
Issue 99-17, "Accounting for Advertising Barter Transactions". ("EITF 99-17").
EITF 99-17 establishes accounting and reporting standards for barter
transactions which involve nonmonetary exchanges of advertising. It requires
that an entity recognize revenue and expenses from advertising barter
transactions at the fair value of the advertising surrendered only when an
entity has a historical practice of receiving cash for similar transactions. The
Company does not believe that the adoption of EITF 99-17 will have a material
impact on its financial condition or results of operations.
12
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impact of Recently Issued Accounting Standards (Continued)
----------------------------------------------
In March 2000, the Emerging Issues Task Force of the FASB reached consensus on
Issue 00-2, "Accounting for Website Development Costs". ("EITF 00-2"). EITF 00-2
establishes how an entity should account for costs incurred to develop a
website. It requires that an entity capitalize costs during the web application
and infrastructure and graphics development stages of development. The consensus
is effective for all costs incurred beginning after June 30, 2000, although
earlier adoption is encouraged. The Company is currently evaluating the adoption
of EITF 00-2 and its potential impact on its financial condition or results of
operations.
NOTE 4 - MARKETABLE SECURITIES
Marketable securities consist of the following:
<TABLE>
<CAPTION>
At December 31, 1999 At September 30, 2000
------------------------------------------ ------------------------------------------
Unrealized Fair Unrealized Fair
Holdings Market Holdings Market
Cost Gain (Loss) Value Cost Gain (Loss) Value
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Equity securities $ 1,406,128 $ 279,250 $ 1,685,378 $ 968,353 $ (222,603) $ 745,750
============ ============ ============ ============ ============ ============
</TABLE>
No deferred taxes have been provided for unrealized holding gains. The equity
securities are maintained in an account at LGT Bank, located in Zurich,
Switzerland.
NOTE 5 - ACQUISITIONS
Canticle Corporation
--------------------
Pursuant to an Agreement and Plan of Reorganization, effective February 18,
2000, the Company acquired all the outstanding shares of common stock of
Canticle Corporation ("Canticle"), a Delaware corporation, from the shareholders
thereof, in an exchange for $200,000 in cash and 56,000 shares of common stock
of the Company valued at $500,000. As a result of this transaction, Canticle has
become a wholly-owned subsidiary of PSA effective on February 18, 2000. The
acquisition is intended to qualify as a reorganization within the meaning of
Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
13
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 5 - ACQUISITIONS (Continued)
Canticle Corporation (Continued)
--------------------
Canticle had no operating history nor any revenues or earnings from operations.
Canticle had no significant assets and no financial resources. In evaluating
Canticle as a candidate for the proposed acquisition, the Company placed a
primary emphasis on Canticle's status as a reporting company under Section 12(g)
of the Securities Exchange Act of 1934, as amended, and Canticle's facilitation
of the Company becoming a reporting company under the Act. Accordingly, the cost
of the acquisition, $700,000, has been charged to operations during the nine
months ended September 30, 2000.
Royal International Tours, Inc.
-------------------------------
On March 14, 2000, the Company completed the acquisition of 100% of the issued
and outstanding stock of Royal International Tours, Inc. ("Royal"), a travel
tour operator, specializing in tours for European visitors to the United States.
Royal's office is located in Los Angeles, California. Pursuant to the terms of
the Acquisition Agreement, the former shareholders of Royal received 78,370
shares of restricted common stock of the Company valued at $391,850 and cash of
$382,000.
The acquisition was accounted for as a purchase, under which the purchase price
was allocated to the acquired assets and assumed liabilities based upon fair
values at the date of the acquisition. The excess of the purchase price over the
fair value of the net assets acquired amounted to $833,975 and is being
amortized on a straight-line basis over 5 years. The accompanying consolidated
financial statements include the operations of Royal from the date of
acquisition, March 14, 2000.
Travel Treasures, Inc.
----------------------
On March 15, 2000, the Company completed the acquisition of 100% of the issued
and outstanding stock of Travel Treasures, Inc. ("Travel"), a travel tour
operator. Travel is a California corporation currently located in Los Angeles,
California. Pursuant to the terms of the Acquisition Agreement, the former
shareholders of Travel received $30,000.
The acquisition was accounted for as a purchase, under which the purchase price
was allocated to the acquired assets and assumed liabilities based upon fair
values at the date of the acquisition. The excess of the purchase price over the
fair value of the net assets acquired amounted to $30,000 and is being amortized
on a straight-line basis over 5 years. The accompanying consolidated financial
statements include the operations of Travel from the date of acquisition, March
15, 2000.
14
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 5 - ACQUISITIONS (Continued)
S.M.A. Real Time Inc. ("SMA")
-----------------------------
On May 4, 2000, the Company entered into an agreement to transfer to SMA $10
million in cash and 1,958,824 shares of common stock, valued at approximately
$10 million, in exchange for 55% of SMA's Class A voting common stock and 43.75%
of SMA's Class B non-voting common stock, together representing a 50% equity
interest in SMA. The following consideration was due to SMA as follows:
$1,250,000 in cash on May 4, 2000
$3,750,000 in cash on May 16, 2000
$5,000,000 obligation due October 4, 2000
1,958,824 shares of the Company's common stock
In October of 2000, the Company's obligation to SMA of $5,000,000 was not paid.
As a result, the Company's combined interest in SMA's common share was reduced
to 34% and the $5,000,000 obligation to SMA was cancelled and the shares of PSA
common stock provided to SMA was reduced from 1,958,824 to 1,035,473. The
Company's investment in SMA has been accounted for under the equity method of
accounting commencing with May 4, 2000.
SMA provides a wide range of production and post-production services to
companies that produce commercials, television programs, music videos and
feature films. SMA's principal activities include studio videotape recording,
film to videotape transfer, computer generated visual effects and the coloring,
creation of customized virtual studio sets, editing and dubbing of various form
of emerging media, including film and video. Most of SMA's services are
performed at its headquarters in lower Manhattan, New York.
15
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 5 - ACQUISITIONS (Continued)
New York Network, LLC ("NYN") - Pending Acquisition
---------------------------------------------------
On August 25, 2000, the Company entered into a purchase agreement to acquire
100% of the membership units of NYN. Pursuant to the terms of the purchase
agreement, the former members of NYN will receive common stock equal to
$5,000,000. The number of shares of common stock to be issued in consideration
to the members will be based on the five-day average stock closing price of the
Company's common stock preceding commencement of the acquisition. The Company is
also required to provide a loan to NYN to be used for operational expenses up to
a maximum of $388,000. As of September 30, 2000, the Company advanced NYN
$95,000 and is reflected in other assets on the accompanying balance sheet.
Consummation of the acquisition is subject, among other things, to the approval
of the Federal Communications Commission ("FCC") to this transaction, the
transfer to the Company of all FCC licenses currently owned by NYN, and the
completion of a due diligence review. As of September 30, 2000, the agreement
has not been consummated.
NYN is a cellular network of ten low-power television licenses and construction
permits that are linked by a high capacity fiber optic cable. The network
currently serves as a dynamic regional market that spans Vermont, New York, New
Hampshire and Montreal, Canada. Operating under the call sign WBVT-TV, NYN is an
affiliate of the United Paramount Network.
The acquisition will be accounted for as a purchase under which the purchase
price will be allocated to the acquired assets and assumed liabilities based
upon the fair values at the date of the acquisition.
Jet Vacations International Inc. ("JET") - Pending Acquisition
--------------------------------------------------------------
On September 6, 2000, the Company entered into an acquisition agreement to
purchase 100% of the issued and outstanding stock of JET. Pursuant to the terms
of the acquisition agreement, the former shareholders of Jet will receive
242,593 shares of restricted common stock of the Company. Consummation of the
acquisition is subject to, among other things, the completion of a due diligence
review. As of Septemper 30, 2000, the agreement has not been consummated.
Jet, a Florida corporation, is a wholesaler of travel products specializing in
Western European destinations.
The acquisition will be accounted for as a purchase under which the purchase
price will be accounted to the acquired assets and assumed liabilities based
upon the fair values at the date of the acquisition.
16
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 5 - ACQUISITIONS (Continued)
Execute Direct.com, Inc. ("EDC") - Pending Acquisition
------------------------------------------------------
On September 14, 2000, the Company entered into a stock sale and purchase
agreement to transfer to EDC 1,555,555 shares of common stock in exchange for
80% of the issued and outstanding shares of EDC. The Company has an option to
acquire the remaining 20% of EDC at similar terms. This option will become an
obligation upon completion of a registered secondary offering. The Company is
also required to fund operational expenses of EDC up to a maximum of $250,000.
As of September 30, 2000, the Company advanced EDC $90,000 and is reflected in
other assets on the accompanying balance sheet. Consummation of the transaction
is subject to, among other things, the completion of a due diligence review. As
of September 30, 2000, the agreement has not been consummated.
EDC, a Nevada corporation, is an on-line direct access level I and level II
trading firm with a number of operating divisions, including an investment in a
broker/dealer, a direct access trading floor, and a trading academy to instruct
level II direct access trading.
The acquisition will be accounted for as a purchase, under which the purchase
price will be allocated to the acquired assets and assumed liabilities based
upon the fair values at the date of the acquisition.
NOTE 6 - DISCONTINUED OPERATIONS
On March 14, 2000, the Company completed the sale of 100% of the issued and
outstanding stock of PSAS, a wholly-owned subsidiary of the Company. PSAS is an
airport/airline services company providing skycap services at various airports
in the United States. The purchaser of PSAS was a member of the Board of
Directors of the Company.
Pursuant to the terms of the agreement, the Company is entitled to receive
$425,000 to be paid in 17 equal quarterly installments of $25,000, commencing
with and contingent on net profits of PSAS for each subsequent quarter exceeding
$25,000. There is no assurance that the Company will receive any of these
payments, since they are contingent on PSAS becoming profitable. PSAS has
incurred operating losses, since the Company acquired it in 1998. In addition,
the Company shall provide funding to PSAS in an amount sufficient to meet PSAS'
obligations through April 30, 2000. Such funds advanced by the Company shall be
reimbursed to the Company as supplemental payments subsequent to the payment of
the $425,000 and based on the same contingent payment formula.
During April 2000, PSAS filed for Bankruptcy. Due to the uncertainty related to
the payment of the purchase price, the Company has not recognized any receivable
from the purchaser and any gain related to this sale.
17
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 6 - DISCONTINUED OPERATIONS (Continued)
The results of operations for PSAS for the respective periods presented are
reported as a component of discontinued operations in the consolidated
statements of operations. The following reflects the condensed balance sheet of
PSAS as of December 31, 1999, the summarized results of operations for the nine
months ending September 30, 1999 and for the period beginning January 1, 2000
and ending March 14, 2000:
At
December 31,
1999
------------
CURRENT ASSETS
Cash and cash equivalents $ 965
Accounts receivables, less allowance
for doubtful accounts 170,875
------------
TOTAL CURRENT ASSETS 171,840
PROPERTY AND EQUIPMENT - NET 34,796
------------
TOTAL ASSETS $ 206,636
============
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $ 839,165
Loans payable 171,284
------------
TOTAL CURRENT LIABILITIES $ 1,010,449
============
NET LIABILITIES $ (803,813)
============
18
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 6 - DISCONTINUED OPERATIONS (Continued)
Summarized results of operations of PSAS are as follows:
For the Period
For the Beginning
Nine Months January 1, 2000
Ended September 30, and Ending March 14,
1999 2000
------------------- --------------------
REVENUE $ 1,177,503 $ 397,733
============ ===========
OPERATING EXPENSES $(1,805,039) $ 418,933
============ ===========
LOSS FROM DISCONTINUED
OPERATIONS $ (627,536) $ (21,200)
============ ===========
NOTE 7 - OTHER ASSETS
In connection with certain acquisitions discussed in Note 5, the Company
advanced EDC $90,000 and NYN $95,000 as of September 30, 2000.
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
December 31, September 30,
1999 2000
------------ ------------
Accrued claims and litigation
settlements $ 550,000 $ 625,000
Accrued professional fees 1,045,137 978,485
Customer deposits and accrued tour costs - 522,069
Retained liabilities of discontinued
operations 628,538 723,832
Other 608,322 597,585
------------ -----------
$ 2,831,997 $ 3,446,973
============ ============
19
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIENCY)
The transactions discussed below have been retroactively restated to reflect the
one-for-fifty reverse stock split effected on September 16, 1998 and the 200%
stock dividend effective on May 14, 1999.
Common Stock Issuances
----------------------
On March 13, 1998, ASAT entered into a stock exchange agreement and plan of
reorganization, whereby ASAT acquired PSA, Inc., a California corporation, which
it subsequently merged into ASAT. Control of the corporation shifted to the
Walsh Family Trust, David E. Walsh, Trustee, and ASAT changed its name to the
Company's current name. David E. Walsh and other individuals replaced the
existing officers and directors. This transaction resulted in the issuance to
the Walsh Family Trust of 1,424,319 shares of the Company's common stock, which,
after issuance, was to have equaled 81.58% of the outstanding common stock at
the time of the reorganization. The Walsh Family Trust owned 97% of the common
stock of the acquired California entity prior to the acquisition by the Company.
This transaction has been accounted for as a reverse acquisition under the
purchase method of accounting, with an effective date of March 13, 1998. At the
time of acquisition, ASAT had no tangible assets and no operations, and no
goodwill resulted from this transaction.
On March 20, 1998, the Board of Directors authorized an amendment to the
Articles of Incorporation of the Company to increase the authorized number of
shares of common stock from 30,000,000 shares to 75,000,000 shares with a $0.001
par value per share.
On May 20, 1998, the Board of Directors approved the issuance of 163,800 shares
of unrestricted common stock to David E. Walsh in consideration for his
management services to the Company during 1997. On June 15, 1998, the Board of
Directors approved 240,000 shares of restricted common stock to be issued to Mr.
Walsh for past services from May 1994 through May 1998, excluding calendar year
1997.
On March 10, 1999, as consideration for executing a settlement and mutual
release agreement, the Board of Directors approved the issuance of 15,900,000
shares of common stock to the Walsh Family Trust to correct inequities created
by undisclosed liabilities and undisclosed stock transactions implemented by
former management and/or their agents before the March 13, 1998 acquisition. The
stock was also issued in consideration for subsequent unauthorized stock
transactions by this former management, which were not disclosed to current
management, and in consideration for the Walsh Family Trust not rescinding the
business combination between the California corporation and the Company.
20
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIENCY) (Continued)
Common Stock Issuances (Continued)
----------------------
On March 15, 1999, the Board of Directors approved the issuance of 4,635,000
shares of unrestricted common stock valued at $970,000 to David E. Walsh, as
consideration for compensation of his management services to the Company for
past services from June 1998 through May 1999.
On September 15, 1999, the Board of Directors approved the issuance of 5,700,000
shares of restricted common stock valued at $1,425,000 to David E. Walsh,
pursuant to a five-year employment agreement.
Regulation S Offering
---------------------
On October 1, 1999, pursuant to Rule 902 of Regulation S of the Securities Act
of 1933, the Company offered to sell a maximum value of $10,000,000 of shares of
common stock of the Company at the purchase price per share of 90% of the
closing bid as quoted on the NASD OTC Bulletin Board on the date of purchase or
$2.00 per share, whichever was greater, to selected institutional and individual
investors. On May 22, 2000, the offering was amended to sell a maximum of
$25,000,000 at a purchase price not less than $5.00 per share. The minimum
purchase value was $25,000, subject to the Company's right to accept less.
Through December 31, 1999, 1,462,294 shares were sold, yielding $2,896,025 in
proceeds, net of commissions. During the nine months ended September 30, 2000,
3,151,818 shares have been sold yielding $10,434,456 in proceeds, net of
commissions. Per share prices varied from $2.00 to $10.50. The Company intends
to use the net proceeds of this offering of its common stock to fund future
acquisitions and for working capital. There is no assurance that the Company
will be able to sell any additional shares of its common stock in the course of
this offering.
In connection with this offering, the Company entered into an exclusive
agreement with a placement agent to solicit offers from individuals to purchase
shares. As consideration, the Company is obligated to pay the placement agent a
commission equal to 7% of the gross proceeds of the offering.
21
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Litigation and Claims
---------------------
As of September 30, 2000, the Company was subject to the following litigation
claims:
PSA, Inc.:
During May 1997, a suit was filed by Thomas Halder against the Company and
several officers and directors of the Company in the Superior Court of
California, San Diego County Case No. 719562, alleging fraud in the issuance of
securities of PSAZZ, a subsidiary of the Company. Plaintiff Thomas Halder, has
been dismissed as plaintiff per his request and replaced by substitute plaintiff
Michael Dupont. Plaintiff Dupont sought to have the case certified as an
investor class action, but the Court denied his request. Despite the notice,
none has so far joined this action. Thus, the case is, at this time, limited to
Mr. Dupont's individual claim pertaining to his $75,000 investment. In November
1999, the Court abated the action and required Mr. Dupont to pursue his claim in
arbitration, pursuant to his subscription agreement. Mr. Dupont failed to file
for arbitration and this action was dismissed by the court on August 18, 2000.
During October 1998, a suit was filed by F. Hawkins and H. Hawkins against the
Company in the Superior Court of California, Los Angeles County, Case No.
YC033477. Plaintiff F. Hawkins seeks approximately $1 million in additional
consideration from the Company, Pacific States Airline Services, Inc. ("PSAS"),
a subsidiary of the Company, and certain individual officers and directors for
the Company's purchase of her interest in PSAS in June 1998. Plaintiff H.
Hawkins seeks damages for breach of an employment contract. As a result of PSAS
filing for Chapter 11 Bankruptcy in April 2000, this case was removed from the
Superior Court to the U.S. Bankruptcy Court Central District of California, Los
Angeles Division, Case No. LA00-22748KM. In September 2000, the action was
remanded back to the Superior Court and is awaiting a status conference. The
Company intends to negotiate a settlement or vigorously defend against the
claims, but there is no assurance as to whether a settlement agreement will be
reached.
22
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation and Claims (Continued)
---------------------
PSA, Inc.: (Continued)
Meyer Group Ltd., et al., v. Douglas T. Beaver, et al. Superior Court of
California, Orange County, Case No. 775680, Third Amended Cross-Complaint filed
June 23, 1998 by defendant Robert E. Thompson. The complaint in this action does
not name the Company as a defendant. However, individual defendant Robert E.
Thompson filed a cross-complaint against over thirty cross-defendants, one of
which is American Telecommunications Standards International, Inc. ("ASAT"),
with whom the Company entered into a stock exchange agreement and plan of
reorganization on March 13, 1998. Later, Mr. Thompson also added the Company as
a Roe cross-defendant. Briefly, Mr. Thompson alleges that he was fraudulently
induced by ASAT and others to invest money in that venture and in other ventures
not related to the Company. Mr. Thompson seeks approximately $900,000 from all
the cross-defendants. Negotiations to settle all claims with Mr. Thompson are
currently ongoing. The Company believes that this action will be settled and
will include a "good faith" dismissal for past and future claims by all
claimants. There is no assurance as to whether a settlement agreement will be
reached.
During August 1999, a suit was filed by Jan Bonner against the Company in the
District Court of Harris County, Texas, Case No. 99-39761. Bonner alleges a
breach of contract, seeking approximately $20,000, plus 75,000 shares in the
Company. The Company believes that this claim has no merit because of a breach
of contract and failure to perform by the plaintiff. In October 2000, a
confidential settlement was reached in this action and a dismissal is expected
to be entered with the court on or about November 1, 2000.
PSA of California entered into a stock exchange agreement and plan of
reorganization on March 13, 1998 with American Telecommunications Standards
International, Inc. ("ASAT"), which has subsequently changed its name to PSA,
Inc. The transaction was entered into by the Walsh Family Trust based on
representations by former management that ASAT had no litigation, no material
contracts, no liabilities and positive stockholders' equity. On August 2, 1999,
the Securities and Exchange Commission filed a complaint in Federal District
Court against fifteen individuals and entities, among which were former
management of ASAT, for their roles in a fraudulent offering and market
manipulation of the stock of the Company. Neither the Company, its subsidiaries
or any of their current management were named in the complaint.
During 1999, a suit was filed by FNG & Associates, Inc. against the Company in
the Superior Court of California, County of Los Angeles, Case No. BC224041 for
compensatory damages of not less than $1,272,000 subject to proof at the time of
trial, plus punitive damages, according to proof and attorneys' fees. Discovery
has commenced in this action. The Company is vigorously defending this claim.
23
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation and Claims (Continued)
---------------------
PSA, Inc.: (Continued)
In September 2000, the Company was served with a suit filed in August by Richard
Okoturo and Sammoric Financial Co. alleging breach of contract and claiming
$27,100, plus 100,000 shares of the Company's stock for services rendered. The
Company believes this action to be merit less and will vigorously defend the
claim.
In September 2000, a suit was filed against the Company in the District Court of
Clark County, Nevada, Case No. A424877 by James Stock d/b/a Stock Enterprises
claiming unspecified damages exceeding $40,000. The Company is investigating
this claim and will, if appropriate, either negotiate a settlement or defend the
claim.
Pacific States Airline Services, Inc. ("PSAS"):
During April 2000, PSAS filed for bankruptcy. As a result of the bankruptcy
filing the following cases were removed from the Superior Court to the U.S.
Bankruptcy Court Central District of California, Los Angeles Division, Case No.
LA 00-22748 KM:
During 1999, a suit was filed by James Winford against PSAS in the Superior
Court of California, San Francisco County, Case No. 30201. Mr. Winford alleges
that he was wrongfully terminated from PSAS and seeks damages of $25,000, plus a
daily penalty, alleged to be $87,000 at the time of the complaint. The case is
in preliminary stages. The Company is vigorously defending this claim.
During June 1995, a suit was filed by Phyllis Emerson against PSAS in the
Superior Court of California, County of Oakland, Case No. 753384-4. This case
has been reduced to judgement, on which plaintiff claims approximately $128,000
remains unpaid. The Company, nevertheless, contends that the judgement was
improperly perfected, is attempting to negotiate a lesser payment and/or payment
terms and, if unsuccessful in that attempt, will challenge the enforceability of
the judgement.
During May 1999, a suit was filed by Douglas Lloyd and Joseph Alibo against PSAS
in the Superior Court of California, Fresno County, Case No. 611044-9. There is
an unpaid judgement in this employment discrimination case of approximately
$21,900. The Company is attempting to negotiate a lesser payment.
24
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation and Claims (Continued)
---------------------
PSAZZ Air, Inc. ("PSAZZ"):
A suit was filed by the Trustee for Air 21 Bankruptcy Estate against PSAZZ in
the U.S. Bankruptcy Court, Eastern District of California, Case No.
97-10084-B-7. During September 1999, this case has been reduced to judgement of
approximately $46,000. The Company is attempting to negotiate a lesser amount
and/or payment terms.
A suit, which has yet to be served, was filed in late June 2000 against PSAZZ by
New Archetype Publishing Corp. d/b/a Vox Mundi in Superior Court of California,
Los Angeles County, Case No. BC231773, alleging breach of contract. The Company
believes this action is without merit and intends to vigorously defend the
allegations.
Other
The Company and its subsidiaries are also involved in a number of smaller
litigations and claims. The Company has interposed answers in all cases, except
where an answer is not yet due. The Company has established provisions for most
of the liabilities represented by these smaller claims, and where provisions
have not been established, management believes it will prevail on the merits and
intends to vigorously contest the claims. Based on its past experience dealing
with such claims, the Company anticipates it will be able to settle most of
these smaller litigations with provisions to pay over periods of time, which are
manageable for the Company.
25
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
Concentrations of Credit Risk
-----------------------------
Financial instruments, which potentially subject the Company to concentrations
of credit risk, are primarily cash and cash equivalents and trade accounts
receivable. As of December 31, 1999 and September 30, 2000, cash and cash
equivalents include $1,156,665 and $848,376, respectively, in money funds and
certificates of deposits maintained at a foreign bank (LGT Bank located in
Zurich, Switzerland). Such funds are uninsured.
With respect to trade receivables, ongoing credit evaluations of customers'
financial condition are performed and generally, no collateral is required. The
Company maintains a reserve for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations.
At September 30, 2000, one customer accounted for approximately 100% of the
accounts receivable balance.
Leases
------
PSA currently leases approximately 6,000 square feet of office space at a
monthly rental rate of $6,505, subject to annual adjustments. Its lease term
expires in February 2004.
Rent expense relating to the operating leases included in selling, general and
administrative expenses amounted to $35,425 and $104,561 for the nine months
ended September 30, 1999 and 2000, respectively.
Employment Agreements
---------------------
David E. Walsh, Chairman, Chief Executive Officer and President, receives a
salary of $350,000 per annum. Mr. Walsh is eligible for incentive compensation
payable in cash and stock options as determined by the Board of Directors,
pursuant to a five-year employment agreement, effective on September 30, 1999.
Pursuant to the employment agreement, Mr. Walsh received 5,700,000 shares of
common stock as additional consideration valued at $1,425,000 in 1999. The value
is being amortized over the five-year period of the agreement, of which $213,750
was charged to operations for the nine months ended September 30, 2000.
26
<PAGE>
PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
Computer Software License and Services
--------------------------------------
On March 30, 2000, the Company entered into a software license and services
agreement with Datalex Limited, a company located in Dublin, Ireland. The
agreement calls for the Company to license certain computer software pertaining
to tour travel system for a five-year period. The cost of the license is
$1,725,000, of which $517,500 was paid in March, and $517,500 is payable upon
software delivery, $345,000 is payable upon acceptance of the software and the
balance, $345,000, is payable 60 days after delivery. The agreement also calls
for annual software maintenance costing $245,250 per year, payable in advance.
The $517,500 payment made in March of 2000 has been reflected on the September
30, 2000 consolidated balance sheet as a capitalized cost of computer software
developed or obtained for internal use.
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
During the nine months ended September 30, 1999 and 2000, with respect to its
continuing operations, the Company paid $-0- for interest and income taxes.
Non-Cash Transactions
---------------------
During the nine months ended September 30, 2000, the Company completed the
acquisitions of Royal, Travel and Canticle. The transactions had the following
non-cash impact on the balance sheet and income statement as of September 30,
2000:
Property and equipment $ 15,000
Intangibles 863,975
Accounts payable and accrued liabilities (75,125)
Equity (891,850)
Costs of acquiring Canticle charged to
operations 700,000
----------
Net Cash Used for Acquisitions $ 612,000
==========
During the nine months ended September 30, 1999:
a. Common stock issued in settlement of claims by Walsh Family Trust
aggregating $3,975,000.
b. Common stock issued in settlement of 1999 and prior year's compensation
aggregating $404,167 and $565,833, respectively.
c. Common stock issued for services rendered aggregating $536,359.
27
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PSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
NOTE 12 - PROFORMA INFORMATION
The Company's consolidated financial statements for the nine months ended
September 30, 1999 do not include the results of operations of Royal and Travel
and the consolidated financial statements for the nine months ended September
30, 2000 do not include the results of operations of Royal for the period from
January 1, 2000 through March 14, 2000 and Travel for the period January 1, 2000
through March 15, 2000. The following summarizes the proforma results of
operations for the nine months ended September 30, 1999 and 2000, assuming the
foregoing acquisitions had occurred on January 1, 1999 and 2000:
1999 2000
------------- ------------
Revenues - Net $ 5,445,350 $ 6,525,275
============= ============
Loss from Operations $ (2,092,980) $(4,498,766)
============= ============
Loss Before Taxes $ (6,067,980) $(5,037,314)
============= ============
Basic and Diluted Net Loss Per Share $ (0.37) $ (0.15)
============= ============
NOTE 13 - SUBSEQUENT EVENT
Financial Advisory Agreement
----------------------------
On October 10, 2000, the Company entered into a three-month agreement with a
financial advisory firm. Under this agreement, the advisor is to provide
financial advisory services in connection with the Company's capital structure,
financial strategy, business plan development, access to capital markets and
other matters relating to the financial position of the Company. The agreement
calls for the Company to pay a fee at the rate of $10,000 per month and to issue
to the advisor 2,712 shares of the Company's common stock per month. The
agreement shall be automatically renewed for additional three-month periods,
unless written notice is given 45 days of the expiration of the term.
28
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF
OPERATION.
The following is a discussion of our financial condition, results of our
operations and liquidity. This discussion should be read together with our
financial statements and notes included in this 10-QSB.
The following discussion contains certain forward-looking statements that
involve risks and uncertainties. Our actual future results could differ
materially from those foreseen in this discussion.
OVERVIEW
We are a holding company for entities comprising our proposed broad-based global
travel and transportation services network that will include global electronic
commerce ("E-Commerce"), international tour services, air transportation, and
Internet television broadcast via "Spectrum Broadband Access".
We own and operate two majority-owned and two wholly-owned subsidiaries: PSA
Internet, Inc., PSAZZ Air, Inc., Royal International Tours, Inc. (acquired on
March 14, 2000) and Travel Treasures, Inc. (acquired on March 15, 2000),
respectively. In addition, PSA Internet, Inc. owns 80% of PSAZZ.COM. We have a
34% interest of S.M.A. Real Time Inc.("SMA") (acquired on May 4, 2000).
Through PSA Internet, Inc., one of our majority-owned subsidiaries, we intend to
create, through strategic acquisitions/alliances and internal development,
global cyber-streaming network with multi-channel-broadband capacity for travel
and entertainment. It will be vertically integrated to deliver highly targeted,
interactive online content with horizontal line extensions into television and
print. Under the umbrella of "www.psazz.com", this Internet and Television
Network's initial focus will be on travel, followed by content channels devoted
to music, short subjects, live event coverage, film and digital print. In our
efforts to enhance our Web site capabilities, we intend to utilize currently
available Internet broad-based distribution travel software. Webmaster Zone One,
which has developed several large Web sites, is in final stages of this site's
development and another Web designer company, DATALEX, is currently constructing
the site's booking engine. We are also planning to feature on our site broadband
convergence to create a comprehensive database enabling prospective travelers to
search for travel intelligence, travel specials, news, music, sporting and
industry related events.
In conjunction with our business plan, during March of 2000, we acquired 100% of
the outstanding stock of two travel tour operators for cash and shares of our
common stock, and in May of 2000, we acquired an equity interest in a production
and post-production company. During the quarter ended September 30, 2000, we
entered into three acquisition agreements, all of which are subject to the
satisfactory completion of due diligence and one of which is subject to FCC
approval. The companies consist of a travel tour company, specializing in
Western European vacation, a low power television broadcaster located in
Vermont, and an on-line trading company located in New York state. As of
November 14, 2000, we have not closed any of these three peinding acquisitions.
(see Note 5 - Acquisitions).
29
<PAGE>
As discussed further in Note 6, on March 14, 2000, we completed the sale of 100%
of the issued and outstanding stock of PSAS to a member of our Board of
Directors. PSAS is an airport/airline service company providing skycap services
at various airports in the United States. The sale will enable us to concentrate
on our proposed on-line travel services business. Accordingly, we have accounted
for the operations of PSAS as a discontinued operations.
RESULTS OF OPERATIONS
For the Nine Months Ended September 30, 2000 vs. the Nine Months Ended
September 30, 1999:
----------------------------------------------------------------------
We reported revenue of $5,928,199 for the nine months ended September 30, 2000,
as a result of the acquisition of Royal International Tours, Inc. ("Royal") on
March 14, 2000, Travel Treasures, Inc. ("Travel") on March 15, 2000. Previously,
we had no revenue from our continuing operations. We reported cost of revenues
for the nine months ended September 30, 2000 of $5,389,797 as a result of the
acquisitions mentioned above. Previously, we had no cost of revenues from our
continuing operations.
Selling, general and administrative expenses increased for the nine months ended
September 30, 1999 from $1,210,063 to $4,680,559 for the nine months ended
September 30, 2000. The increase was attributable to expenses incurred for
consulting, public relations and advisory fees, aggregating $2,826,738, other
corporate overhead and selling, general and administrative expenses of our
acquired businesses.
During the nine months ended September 30, 1999, the Company incurred non- cash
compensation aggregating $429,167. This was the result of stock issued to David
E. Walsh as compensation for his management services to the Company.
For the nine months ended September 30, 1999 and 2000, we incurred operating
losses of $2,150,589 and $4,407,625, respectively. The losses are principally
due to expenses incurred in the development of software, public relations,
advisory fees, general and administrative expenses, and the lack of revenues.
For the nine months ended September 30, 1999 and 2000, other expense was
$3,975,000 and $538,548, respectively. For the nine months ended September 30,
1999, as consideration for executing a settlement and mutual release agreement,
the Board of Directors approved the issuance of 15,900,000 shares of common
stock, valued at $3,975,000, to the Walsh Family Trust. During the nine months
ended September 30, 2000, we charged $700,000 to operations in connection with
our purchase of the Canticle Corporation (Note 5). For the nine months ended
September 30, 2000, the Company realized a gain aggregating $277,368 from the
sale of marketable securities, net interest income of $139,929 and recorded an
equity loss in the investment in SMA of $255,845.
We expect revenues to increase as we recognize revenues from our acquisitions.
However, such revenues may not be sufficient to eliminate our operating loss
during 2000.
30
<PAGE>
For the Three Months Ended September 30, 2000 vs. the Three Months Ended
September 30, 1999:
------------------------------------------------------------------------
We reported revenue of $2,576,001 for the three months ended September 30, 2000,
as a result of the acquisition of Royal on March 14, 2000 and Travel on March
15, 2000. Previously, we had no revenue from our continuing operations. We
reported cost of revenues for the three months ended September 30, 2000 of
$2,326,960 as a result of the acquisitions mentioned above. Previously, we had
no cost of revenues from our continuing operations.
Selling, general and administrative expenses increased for the three months
ended September 30, 1999 from $204,035 to $1,100,630 for the three months ended
September 30, 2000. The increase was attributable to expenses incurred for
consulting public relations and advisory fees, aggregating $315,259, other
corporate overhead and selling, general and administrative expenses of our
acquired businesses.
For the three months ended September 30, 1999 and 2000, we incurred operating
losses of $204,035 and $956,422, respectively. The losses are principally due to
expenses incurred in the development of software, public relations, advisory
fees, general and administrative expenses, and the lack of revenues.
For the three months ended September 30, 2000, other expense was $252,413. For
the three months ended September 30, 2000, we recorded net interest income of
$23,980 and equity losses of the investment in SMA of $276,393. There were no
other income or expense for the three months ended September 30, 1999.
We expect revenues to increase during 2000 as we recognize revenues from our
acquisitions. However, such revenues may not be sufficient to eliminate our
operating loss during 2000.
LIQUIDITY AND CAPITAL RESOURCES
We funded our operations during 1999 and 2000 through sales of our common stock
resulting in net proceeds to us of $2,901,025 in 1999, $10,434,456 for the nine
months ended September 30, 2000, and $876,385 for the three months ended
September 30, 2000. Sales of our common stock in 1999 and 2000 were sold in
private transactions in reliance on various exemptions from the registration
requirements of the Securities Act.
During the nine months ended September 30, 2000, we expended $662,000 to fund
business acquisitions, $517,000 for the initial payment on the acquisition of a
software license, $3,594,000 for working capital needs and $825,000 for
discontinued operations. In addition, we invested $5,000,000 in our equity
investment in SMA.
Our cash and cash equivalents and marketable securities approximated $1,487,000
and $745,000, respectively, as of September 30, 2000. We will require additional
funding in order to accomplish our growth objectives and marketing of our
products and services. There is no assurance that we will be able to secure any
or all funding necessary for our future growth and expansion. There is also no
assurance that even if we manage to obtain adequate funding to complete any
contemplated acquisition, such acquisition will succeed in enhancing our
business and will not ultimately have an adverse effect on our business and
operations. We are exploring other financing alternatives, including private
placements and public offerings.
31
<PAGE>
On May 4, 2000, the Company entered into an agreement to transfer to SMA $10
million in cash and 1,958,824 shares of common stock, valued at approximately
$10 million, in exchange for 55% of SMA's Class A voting common stock and 43.75%
of SMA's Class B non-voting common stock, together representing a 50% equity
interest in SMA. The following consideration was due to SMA as follows:
$1,250,000 in cash on May 4, 2000
$3,750,000 in cash on May 16, 2000
$5,000,000 obligation due October 4, 2000
1,958,824 shares of the Company's common stock
In October of 2000, the Company's obligation to SMA of $5,000,000 was not paid.
As a result, the Company's combined interest in SMA's common share was reduced
to 34% and the $5,000,000 obligation to SMA was cancelled and the shares of PSA
common stock provided to SMA was reduced from 1,958,824 to 1,035,473. The
Company's investment in SMA has been accounted for under the equity method of
accounting commencing with May 4, 2000.
SMA provides a wide range of production and post-production services to
companies that produce commercials, television programs, music videos and
feature films. SMA's principal activities include studio videotape recording,
film to videotape transfer, computer generated visual effects and the coloring,
creation of customized virtual studio sets, editing and dubbing of various form
of emerging media, including film and video. Most of SMA's services are
performed at its headquarters in lower Manhattan, New York.
32
<PAGE>
PART II -- OTHER INFORMATION.
Item 1. Legal Proceedings.
There have been no material developments in our legal proceedings during the
quarter ended September 30, 2000.
Item 2. Changes in Securities.
(a) Not applicable.
(b) Not applicable.
(c) On May 22, 2000, pursuant to Rule 902 of Regulation S of the Securities
Act of 1933, as amended, the Company offered to sell a maximum of
$25,000,000 of shares of common stock of the Company at the purchase
price per share of 90% of the closing bid as quoted on the NASD OTC
Bulletin Board on the date of purchase or $2.00 per share, whichever
was greater, to selected institutional and individual investors. The
minimum purchase was $25,000, subject to the Company's right to accept
less. During the period January 1, 2000 through September 30, 2000,
3,151,818 shares have been sold yielding $10,434,456 in proceeds, net
of commissions. Per share price varied from $2.00 to $10.55.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Not applicable.
(b) Reports on Form 8-K. Form 8-K reflecting the stock purchase of S.M.A.
Real Time Inc. was filed on May 4, 2000 (File No. 0-29627).
Item 27. Financial Data Schedule (2)
33
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 2000
PSA, INC.
(Registrant)
/s/ David E. Walsh
--------------------------------
David E. Walsh, President and
Chief Executive Officer
----------
(2) Filed herewith
34
