SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995 Commission File Number 33-10737-LA
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-3891884
(State or other Jurisdiction of (IRS Employer
incorporation or organization Identification Number)
2700 Neilson Way, Suite 1221
Santa Monica, California 90405
(Address of principal (Zip Code)
Executive offices)
Registrant's telephone number, including area code: (310) 392-4595
Indicate by check mark 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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of business on March 28, 1996.
CLASS SHARES OUTSTANDING
Common Stock - $.00001 par value 308,800,000
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
USA International Defense Systems, Inc.
Santa Monica, California
We have reviewed the accompanying balance sheet of USA International
Defense Systems, Inc. as of June 30, 1995 and the related statements
of operations and accumulated deficit, and cash flows for the three-
month periods ended June 30, 1995 and 1994. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical review procedures to financial data and making inquiries
of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for
them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of USA International Defense
Systems, Inc. as of March 31, 1995 and the related statements of
operations, stockholders' equity, and cash flows (not presented
herein); and in our report dated September 8, 1995, we expressed an
unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying condensed balance sheet
as of March 31, 1995, is fairly stated in all material respects in
relation to the balance sheet from which it has been derived.
s/Block & Handelman
Los Angeles, California
March 28, 1996 2 <PAGE>
PART I
FINANCIAL INFORMATION
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
CONDENSED BALANCE SHEETS
June 30, 1995 (Unaudited) and March 31, 1995 (Audited
ASSETS
June 30, March 31,
1995 1995
(Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 2,933 $ -
Trade accounts receivable, net of
allowance for doubtful accounts of $15,336
and $1,451 161,280 76,718
Merchandise inventories (Note 2) 21,868 22,618
Loans receivable - officer, including
accrued interest of $6,083 and $5,855 (Note 3) 74,283 34,644
Loans receivable - other, including accrued
interest of $1,494 and $1,054 (Note 2) 23,544 23,104
TOTAL CURRENT ASSETS 283,908 157,084
PROPERTY AND EQUIPMENT, at cost (Note 2)
Office furniture, equipment and library 68,487 68,487
Transportation equipment 55,546 55,546
124,033 124,033
Less: Accumulated depreciation 82,307 78,311
41,726 45,722
LOANS RECEIVABLE - OFFICER (Note 3) 324,054 331,546
OTHER ASSETS
Deposits 959 959
Investments (Note 2) 27,035 27,035
27,994 27,994
TOTAL ASSETS $ 677,682 $ 562,346
See accompanying notes to condensed financial statements and management's
discussion and analysis of financial condition and results of operations.
3 <PAGE>
PART I
FINANCIAL INFORMATION
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
CONDENSED BALANCE SHEETS
June 30, 1995 (Unaudited) and March 31, 1995 (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, March 31,
1995 1995
(Unaudited) (Audited)
CURRENT LIABILITIES
Cash overdraft $ - $ 6,696
Accounts payable and accrued expenses 148,332 58,351
Note payable - bank (Note 4) 150,000 150,000
Customer deposits (Note 2) 63,844 -
Payroll taxes payable 2,374 2,566
Current portion - long-term debt (Note 5) 14,546 13,631
TOTAL CURRENT LIABILITIES 379,096 231,244
LONG-TERM DEBT, net of current portion (Note 5) 29,908 34,446
409,004 265,690
COMMITMENTS (Notes 4 and 5)
STOCKHOLDERS' EQUITY (Note 2)
Common stock, par value $.00001 per share;
750,000,000 authorized shares, 325,050,000 shares
issued, 308,800,000 shares outstanding 498,501 498,501
Treasury shares at cost, 16,250,000 shares (40,000) (40,000)
458,501 458,501
Accumulated deficit (189,823) (161,845)
TOTAL STOCKHOLDERS' EQUITY 268,678 296,656
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $677,682 $ 562,346
See accompanying notes to condensed financial statements and management's
discussion and analysis of financial condition and results of operations.
4
<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT (UNAUDITED)
THREE MONTHS ENDED June 30, 1995 AND 1994
Three Months Ended
June 30,
1995 1994
SALES (Note 6) $ 305,755 $ 93,432
COST OF SALES 221,874 50,022
GROSS PROFIT 83,881 43,410
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 117,784 87,509
LOSS FROM OPERATIONS (33,903) (44,099)
OTHER INCOME (EXPENSE)
Interest income - officer loans (Note 3) 6,082 5,888
Interest income - affiliated corporation
(Note 3) - 1,498
Interest income - other (Note 3) 440 -
Miscellaneous income 3,668 2,642
Interest expense (3,465) (6,188)
Occupancy fee income - affiliated
corporation (Note 3) - 900
6,725 4,740
LOSS BEFORE
INCOME TAX PROVISION (27,178) (39,359)
INCOME TAX PROVISION (Note 1) 800 800
NET LOSS (27,978) (40,159)
ACCUMULATED DEFICIT, beginning of period (161,845) (16,958)
ACCUMULATED DEFICIT, end of period (189,823) $ (57,117)
NET LOSS PER SHARE $ (.0001) $ (.0001)
WEIGHTED AVERAGE SHARES
OUTSTANDING 308,800,000 308,800,000
See accompanying notes to condensed financial statements and management's
discussion and analysis of financial condition and results of operations.
5
<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1995 AND 1994
Three Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(27,978) $(40,159)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Non-cash items included in net loss:
Depreciation and amortization 3,996 4,284
Changes in:
Trade accounts receivable, net (84,562) 135,642
Merchandise inventories 750 -
Deposits - 28,836
Accounts payable and accrued expenses 89,981 (69,895)
Customers deposits 63,844 (52,856)
Payroll taxes payable (192) (4,695)
Income taxes payable - 957
73,817 42,273
NET CASH PROVIDED BY OPERATING
ACTIVITIES 45,839 2,114
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit borrowings - 15,000
Reduction of term loan borrowings - (26,087)
Reduction of long-term debt (3,623) (1,210)
Decrease (increase) in related party loans
receivable (32,587) 7,992
NET CASH USED BY FINANCING ACTIVITIES (36,210) (4,305)
NET INCREASE (DECREASE) IN CASH 9,629 (2,191)
CASH OVERDRAFT, beginning of period (6,696) (3,923)
CASH (OVERDRAFT), end of period $ 2,933 $ (6,114)
See accompanying notes to condensed financial statements and management's
discussion and analysis of financial condition and results of operations.
6
<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1995
NOTE 1 - In the opinion of the Company, the accompanying unaudited
financial statements contain all adjustments necessary to
present fairly its financial position and the results of
its operations and cash flows for the periods shown. Such
adjustments consisted only of normal recurring items.
The results of operations for the three-month periods is
not necessarily indicative of the results to be expected
for a full year of operations.
The financial statements and notes are presented as
permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and
notes.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General
The Company is in the business of supplying replacement
parts and spare parts for airplanes owned by foreign
governments and for airlines, worldwide.
B. Inventories and Recognition of Revenue
Inventories are valued at the lower of cost (first-in,
first-out method) or market. Revenue from goods provided
under customer contracts is recognized when the merchandise
is shipped. Deposits received from customers under the
contracts are deferred and shown as a current liability
until shipment.
C. Property and Equipment
Depreciation is computed by using the straight-line method
over the estimated service lives of the assets which range
from 5 to 7 years. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or
loss is recognized in income for the period. The cost of
maintenance and repairs is charged to operations as
incurred; significant renewals and improvements are
capitalized. Deduction is made for retirements resulting
from renewals or improvements.
D. Investments
The Company has an investment in a company in which it owns
less than a 20% interest. The investment is carried at
cost which approximates market value.
7 <PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
E. Income Taxes
The Company implemented SFAS 109 in accounting for income
taxes effective in the fiscal year ended March 31, 1994.
Because the Company had incurred book and tax net operating
losses, the cumulative effect of the change of adopting
SFAS 109 did not have a material effect on the financial
statements.
The Company has available at June 30, 1995 unused Federal
and state net operating loss carryforwards of approximately
$151,400 and $130,400, respectively, which may be applied
against future taxable income, expiring in years 2006
through 2012.
F. Reclassification
Certain prior period balances have been reclassified to
conform with the current period's presentation.
G. Net Loss Per Share
Net loss per share has been computed based on the weighted
average common shares outstanding during each period.
NOTE 3 - RELATED PARTY TRANSACTIONS
Related party loans receivable consisted of the following
at June 30, 1995:
June 30, March 31,
1995 1995
(Unaudited) (Audited)
Loan receivable - officer, payable in
quarterly installments of $12,880,
including principal and interest at
6.5% per annum, scheduled to mature
in April, 2004. $ 359,394 $366,190
Loan receivable - officer, due on
demand, bearing interest at 6.5% per 38,943 -
annum.
398,337 366,190
8
<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1995
NOTE 3 -RELATED PARTY TRANSACTIONS (Continued)
June 30, March 31,
1995 1995
(Unaudited) (Audited)
Loans receivable - other (officer family
members) due on demand, bearing interest
at 8% per annum. $ 23,544 $ 23,104
421,881 389,294
Less current portion-loans receivable- officer 74,283 34,644
Less current portion-loans receivable- other 23,544 23,104
97,827 57,748
Loans receivable-officer-noncurrent portion 324,054 331,546
Current maturities of related party receivables over the next
five years were as follows as of June 30, 1995:
Year Ending June 30,
1996 $97,827
1997 31,206
1998 33,284
1999 35,500
2000 37,865
Thereafter 186,199
$ 421,881
9
<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1995
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
During the three months ended June 30, 1994, the Company
had unsecured advances due from an affiliated corporation,
USA International Chemical, Inc. (Chemical) which bore
interest at 6.5% per annum. The Company also shared common
office facilities in Santa Monica, California with
Chemical. The Company charged Chemical $300 per month for
its share of occupancy expenses. On September 23, 1994,
when the Company sold its investment in Chemical, the
office sharing arrangement terminated and all unsecured
advances were repaid to the Company by Chemical.
Interest income for the three months ended June 30, 1995
and 1994, includes interest of $6,522 and $7,386
respectively, earned from these related parties.
NOTE 4 - NOTE PAYABLE-BANK
Note payable - bank consisted of the following at June 30,
1995:
June 30, March 31,
1995 1995
(Unaudited) (Audited)
Note payable to bank under a line
of credit agreement. The note is
unsecured and personally
guaranteed by the president of
the Company. The note bears
interest at prime plus 2% (11% at
June 30, 1995) per annum.
Maximum borrowings available
under the line of credit are
$150,000. The line of credit was
fully utilized at June 30, 1995.
The note matured on July 31, 1995
and was extended by the bank
until September 29, 1995. In
October, 1995, the line of credit
was renewed for an additional
year. The note is scheduled to
mature on October 5, 1996. $ 150,000 $ 150,000
10
<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1995
NOTE 5 - LONG-TERM DEBT
At June 30, 1995, the Company's long-term debt consisted of
the following:
June 30, March 31,
1995 1995
(Unaudited) (Audited)
Term note payable to bank. The
note is unsecured and personally
guaranteed by the president of
the Company. The note bears
interest at prime plus 2% (11% at
June 30, 1995) per annum. The
note is payable in monthly
installments, including principal
and interest, of $956 and is
scheduled to mature on January
15, 1998. $ 27,116 $ 29,414
Contract payable - transportation
equipment, payable in monthly
installments of $581, including
principal and interest, at 9.16%
per annum, scheduled to mature in
April, 1998. 17,338 18,663
44,454 48,077
Less current portion 14,546 13,631
$ 29,908 34,446
Current maturities of long-term debt over the next four
years were as follows as of June 30, 1995:
Year Ending December 31,
1996 14,546
1997 16,116
1998 13,792
$44,454
11
<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1995
NOTE 6 - MAJOR CUSTOMERS
During the three month period ended June 30, 1995,
substantially all of the Company's revenue was derived from
sales to five customers. Sales to the five customers of
$75,150, $57,114, $48,550, $48,063 and $34,165 accounted for
24.6%, 18.7%, 15.9%, 15.7% and 11.1%, respectively, of total
revenues.
During the three months ended June 30, 1994, sales to three
customers of $52,906, $13,998 and $10,875, accounted for
56.6%, 15% and 11.6%, respectively, of total revenues.
No other single customer had sales exceeding 10% of total
revenue for the three months ended June 30, 1995 and 1994.
12 <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1995
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 1995
AS COMPARED TO THE THREE-MONTH PERIOD ENDED JUNE 30, 1994:
Quarter Ended June 30:
Net sales for the quarter ended June 30, 1995 were $305,755
versus $93,432 for the quarter ended June 30, 1994, an
increase of $212,323.
During the quarter ended June 30, 1995, the Company sold
merchandise to several new customers and continued to ship
merchandise from a backlog of orders to foreign governments,
which were being processed as rapidly as possible, which
explains the comparative increase in sales during the
current quarter. Gross profit percentage for the current
quarter decreased approximately 19.1% to 27.4% as compared
to 1994. This substantial percentage decrease is due to the
current quarter's sales being made at significantly lower
margins to the Company's new customers as compared to sales
of items made at much higher margins to the Government of
Malaysia during the quarter ended June 30, 1994. The dollar
amount of gross profit increased $40,471 as compared to the
quarter ended June 30, 1994 due to higher sales volume in
the current quarter.
Interest income for the quarter ended June 30, 1995 includes
interest earned from officer and individual related party
loans in the amounts of $6,082 and $440, respectively.
Interest income for the quarter ended June 30, 1994 includes
interest earned from officer and an affiliated corporation
loan in the amounts of $5,888 and $1,498, respectively.
Operating expenses totaled $117,784 for the quarter ended
June 30, 1995 compared to the quarter which ended June 30,
1994, which reflected operating expenses of $87,509, an
increase of $30,275. The increase in operating expenses is
due primarily to bad debt expense of $13,885 recorded during
the current quarter, greater salaries and related variable
expenses which increased $6,091 to $45,172 during the
current quarter, and higher insurance and subscription costs
which increased $5,921 and $3,263, respectively, during the
three months ended June 30, 1995. Other general and
administrative expenses increase $1,115 during the current
quarter.
The quarter ended June 30, 1995, showed a net loss of
$27,978 as compared to a net loss of $40,159 for the quarter
ended June 30, 1994.
13
<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1995
Capital Resources and Liquidity
Operating Activities
During the three months ended June 30, 1995 and 1994, net
cash provided by operations was $45,839 and $2,114,
respectively. The Company's working capital deficiency at
June 30, 1995 was $95,188, an increase of $21,028 as
compared to a deficiency of $74,160 at March 31, 1995.
Trade receivables increased $84,562 from $76,718 at March
31, 1995 to $161,280 at June 30, 1995. This increase was
due primarily to the Company's increased sales volume which
generated higher receivables at June 30, 1995.
Accounts payable and accrued expenses increased $89,981 to
$148,332 at June 30, 1995 as compared to $58,351 at March
31, 1995. The increase was caused by higher purchases in
connection with sales orders and delays in shipment of
orders. This backlog delayed most payments to vendors
supplying the merchandise until the second quarter of fiscal
1996.
Customer deposits from the Government of Kenya totalled
$63,844 at June 30, 1995. There were no customer deposits
at March 31, 1995.
Financing Activities
Net cash used by financing activities was $36,210 and
$4,305, respectively, for the three months ended June 30,
1995 and 1994.
The Company repaid $3,623 of its long term debt during the
three months ended June 30, 1995.
During the three months ended June 30, 1995, the Company
loaned its president an additional $38,943.
14
<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1995
FINANCIAL CONDITION AS OF June 30, 1995
The following financial summary shows the equity of the Company:
June 30, March 31,
1995 1995
(Unaudited) (Audited)
Total assets $ 677,682 $ 562,346
Total liabilities 409,004 265,690
Stockholders' Equity $ 268,678 $ 296,656
As of June 30, 1995, the Company's ratio of current assets to
current liabilities was .75 to 1. This compares to the year end
current ratio as of March 31, 1995 of .68 to 1.
15
<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8K - None
16
<PAGE>
SIGNATURE
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.
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
(Registrant)
By s/ Edward Kislinger
Chairman of the Board and President
(Chief Financial Officer)
Date: June 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1995
<CASH> 2,933
<SECURITIES> 0
<RECEIVABLES> 176,616
<ALLOWANCES> 15,336
<INVENTORY> 21,868
<CURRENT-ASSETS> 283,908
<PP&E> 124,033
<DEPRECIATION> 82,307
<TOTAL-ASSETS> 677,682
<CURRENT-LIABILITIES> 379,096
<BONDS> 29,908
0
0
<COMMON> 458,501
<OTHER-SE> (189,823)
<TOTAL-LIABILITY-AND-EQUITY> 677,682
<SALES> 305,755
<TOTAL-REVENUES> 315,945
<CGS> 221,874
<TOTAL-COSTS> 221,874
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,465
<INCOME-PRETAX> (27,178)
<INCOME-TAX> 800
<INCOME-CONTINUING> (27,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,978)
<EPS-PRIMARY> (.001)
<EPS-DILUTED> (.001)
</TABLE>
