UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended March 31, 1996 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 (I.R.S. Employer
incorporation or organization Identification No.)
2700 Neilson Way, Suite 1221, Santa Monica, California 90405
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 392-4595
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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 .
The aggregate market value of the voting stock held by non-
affiliates of the Registrant was approximately $529,125 on November
25, 1991 based on the last available average ask quotation ($.0075)
at the close of the market on that day. There has been no
published bid price available since May 31, 1989 at which time the
bid quotation was $.00625.
The number of shares outstanding of the registrant's common stock
on January 29, 1997 was 308,800,000.<PAGE>
PART I
ITEM 1. Business:
The Company was incorporated in the State of California on
March 28, 1983 as PHT International and on November 2, 1984 filed
a fictitious name statement to do business as USA International.
On May 14, 1986, the Company amended its Articles of Incorporation
to change its name to USA International Defense Systems. On
November 20, 1986 the Company changed its corporate domicile to the
State of Delaware.
Present Operations
Numerous foreign governments operate American military
aircraft, with each aircraft representing a multi-million dollar
purchase for any given government. As is the case with any
aircraft, maintenance is critical. Therefore, the demand exists
for replacement and repair parts for such aircraft. These parts
may be available from the aircraft manufacturers but, especially in
the case of older aircraft, aircraft manufacturers do not maintain
an inventory of replacement and spare parts. Therefore, owners of
military aircraft must either maintain their own inventory or seek
to purchase the necessary parts from subcontractors or other
manufacturers of original component parts or replacement parts for
each individual aircraft. The Company's business consists of
seeking requests and inquiries for specific replacement and spare
parts from foreign governments, research and preparation of a bid
as to the availability and cost of such parts and then, if the bid
is accepted, obtaining the parts from manufacturers and the sale of
such parts to the purchasing government. The Company then arranges
for the shipping of the respective parts to their destination, or
to a freight forwarder designated by the purchasing government.
In connection with its operations, the Company maintains an
office in Santa Monica, California and local representatives in
nine countries. Such representatives may be either individuals or
corporate representatives. The military aircraft for which the
Company supplies parts include the C-130, F-5 and UH-1. Examples
of parts that the Company may supply include engine replacement
parts, avionics, airframe parts, hydraulic parts, aircraft
accessories, and the myriad of other parts that compose any
aircraft. Approximately 90% of the parts and supplies sold by the
Company during the year ended March 31, 1996 were subject to the
Arms Export Control Act. In those instances where Department of
State clearance is necessary for the sale of items, the Company is
familiar with such regulations and is able to make the necessary
applications for licenses so that such exports may be lawfully
undertaken.
Except upon request by customers, the Company does not offer
warranties. In the limited circumstances that a warranty request
is received, the length of the warranty is dependent upon the
individual customer's requirements and/or regulations. There have
not been any significant repairs, returns or costs associated with
this warranty policy.
Domestic Sales
Typically, aircraft manufacturers manufacture only a small
percentage of the systems that they sell. Therefore, the United
States Department of Defense (DOD) regularly requests bids for
supplies of spare parts for such maintenance.
The Company's percentage of domestic sales during the fiscal
years ended March 31, 1996, 1995 and 1994 was 7.4%, 1.6% and .5%,
respectively, of total sales of the Company. The Company is in the
process of reducing this segment of its business and is
concentrating its efforts on obtaining foreign sales contracts.
Foreign Sales
Substantially all of the Company's revenues were derived from
sales to foreign governments during the last three fiscal years.
Foreign governments operate many of the same American military
aircraft that are operated by United States armed forces. In
connection with the supply of replacement and spare parts to
foreign governments, the Company contracts with the same original
equipment manufacturers, their original subcontractors and/or
United States Government approved manufacturers of such aircraft
parts. Local representatives in foreign countries communicate to
the Company which spare and replacement parts are currently
required by applicable government agencies.
In the event the Company's bid is accepted, the customer
issues a purchase order. The Company then contracts with its
supplier to furnish the necessary parts based upon the
specifications provided by the procuring government agency. The
specifications will include price, required time of delivery,
warranty and other details. Upon availability of the part, the
Company ships the part, depending upon individual procedures,
either to a freight forwarder located in the United States or makes
shipping arrangements for the delivery of the part to the foreign
government. In either instance, compliance with export custom
regulations is required.
Additionally, if the part is on a restricted list prepared by
the Department of State, compliance with munitions control
licensing procedures is required. During the year ended March 31,
1996, approximately 90% of the parts and supplies sold by the
Company required compliance with the Arms Export Control Act. Many
of these articles were shipped pursuant to blanket licenses
obtained from the State Department by the applicable governments.
The amount of goods shipped under licenses which the Company was
required to obtain was approximately 75%. Failure to comply with
the Arms Export Control Act can result in civil penalties of up to
$500,000 and criminal penalties of imprisonment and/or a fine of up
to $1,000,000.
The Company's terms of payment vary depending upon the
government agency with which the Company is dealing. With respect
to smaller contracts, the Company will frequently permit the
procuring agency to make payment in the due course of business
following receipt of the parts. However, in circumstances where
the credit history of the procuring agency is unknown or in the
event of larger contracts, the Company will require the foreign
agency to post a letter of credit or other security that will
guarantee payment of the contract price.
During the fiscal year ended March 31, 1996, approximately
92.6% of the Company's sales were to foreign governments, with
sales to the Kenyan, Thailand and Jordanian governments comprising
approximately 30.6%, 12.4% and 10.3% of total sales, respectively,
during the fiscal year ended March 31, 1996. The Company's total
revenues for the fiscal year ended March 31, 1996 increased
$416,544 from $377,957 for the fiscal year ended March 31, 1995 to
$794,501 for the fiscal year ended March 31, 1996. The Company has
no long term contracts with any of its customers and its business
may be substantially affected by economic and political changes
within each foreign country.
Operations
The Company's largest foreign customers are, at this time, the
nations of Kenya, Thailand and Jordan. The Company's operations
are substantially dependent upon sales to Kenya, Thailand and
Jordan with total sales to those nations compromising approximately
53.3% of the Company's total revenues for the fiscal year ended
March 31, 1996. See Note 5 to the Financial Statements. See Item
7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations". In order to reduce its dependence on a
small number of customers, the Company has been seeking to expand
its customer base. Although the Company will continue to seek to
expand its business through obtaining new customers and seeking to
become an authorized distributor for certain product lines, it is
not realistic for the Company at this time to expect a large scale
expansion of its operations.
Competition
The Company experiences intense competition from a number of
companies which also engage in the supply of replacement military
parts to the United States and other nations. Because the supply
of such parts is often obtained through a competitive bidding
process, companies with greater financial resources, volumes of
purchases or less expensive manufacturing sources, may be in a
position to underbid the Company and therefore obtain contracts
which the Company may have otherwise obtained. Company management
is aware of a number of competitors who in all likelihood have
greater experience, financial resources, sales personnel and sales
volume than the Company. Such competition as it now exists, or may
exist in the future, could have a materially adverse effect upon
the operations of the Company. However, Company management
believes that through its cumulative contacts and knowledge of the
industry and the Company's ability to supply many replacement parts
to grounded aircraft on a rapid basis, the Company does have
various operational attributes that aid it with respect to
competition with other firms.
Government Regulation
The Company as an exporter of replacement and spare military
parts is subject to complicated government statutes and regulations
promulgated by the Department of State and Department of Commerce.
The Department of State, pursuant to the authority set forth in the
Arms Export Control Act, 22 U.S.C. 2778, has promulgated the
International Traffic in Arms Regulations, 22 C.F.R. Parts 120-130.
Those regulations designate the defense articles regulated by the
Arms Export Control Act, procedures relating to registration of
exporters, licenses for export of defense articles, violations and
penalties, and other administrative and procedural matters.
Failure to comply with the Arms Export Control Act could result in
civil penalties of up to $500,000 and criminal penalties of
imprisonment and/or a fine of up to $1,000,000. The Department of
Commerce, as with any exporting company, requires compliance with
export regulations relating to export declarations. Violation of
export regulations may subject a shipper to civil and/or criminal
penalties.
Additionally, the Company will be subject to compliance with
the Foreign Corrupt Practices Act, ("FCPA") which was enacted to
deter bribery of foreign officials by American businessmen. The
FCPA imposes on SEC reporting companies certain accounting and
internal control requirements, with which the Company intends to
comply, insofar as applicable to the Company. Violation of the
FCPA may result in corporate fines of up to $1,000,000 per offense
and fines and/or imprisonment for convicted corporate officers of
up to $10,000 and five years imprisonment.
Although the Company will make every effort to comply with all
such statutes and regulations, inadvertent non-compliance could
result in legal actions against the Company and consequent
impairment of its ability to conduct business.
Employees
At present, the Company has one full-time clerical employee in
its Santa Monica office. During the past year, Edward Kislinger,
the President of the Company, devoted approximately 75% of his time
to the Company's business. Cathy Waterman, the Company's Vice
President, is employed by the Company on an as needed basis. The
Company's foreign representatives are not employees of the Company
but are compensated on a commission basis.
Other Business Investments
In March, 1989 the Company purchased a $25,000 interest in
Broadway Deli, Ltd. The Company received distributions of $3000
from this investment in fiscal 1996. The Company expects to
receive the same amount of distributions in the fiscal year ending
March 31, 1997. Broadway Deli, Ltd. is not affiliated with the
Company or its officers or directors. See Item 13, "Certain
Relationships and Related Transactions", regarding investment in
USA International Chemical, Inc.
ITEM 2. Properties:
The Company's principal office is located at 2700 Neilson Way,
Suite 1221, Santa Monica, California pursuant to a month to month
lease with the Company's President with rent in the amount of $1045
per month. The cost to the Company's President for the office
space is also $1,045 per month.
ITEM 3. Legal Proceedings:
There are no material legal proceedings to which the Company
or any of its property is subject or pending, nor to the knowledge
of the Company are there any such legal proceedings threatened.
ITEM 4. Submission of Matters to a Vote of Security Holders:
There were no matters submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report.
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Stockholder Matters:
(A) The Company's securities are traded in the Over-the-Counter
market.
(B) The following table sets forth the high and low quotations
(bid), as reported by National Quotation Bureau, Inc., for the
Company's securities for the calendar periods indicated.<PAGE>
C o m m o n S t o c k
Bid Asked
High Low High Low
1994
1st Qtr. U N P R I C E D
2nd Qtr. U N P R I C E D
3rd Qtr. U N P R I C E D
4th Qtr. U N P R I C E D
1995
1st Qtr. U N P R I C E D
2nd Qtr. U N P R I C E D
3rd Qtr. U N P R I C E D
4th Qtr. U N P R I C E D
1996
lst Qtr. U N P R I C E D
2nd Qtr. U N P R I C E D
3rd Qtr. U N P R I C E D
4th Qtr. U N P R I C E D
As of November 25, 1991, the last available quotation date for
the Company's securities, there was no bid and the high and low ask
was $.0075. The past performance of the Company's securities is
not necessarily indicative of future performance. The present
number of shareholders of record of the Company's Common Stock is
600.
(C) The Company has never paid cash dividends on its common
stock. Payment of dividends, if any, will be within the discretion
of the Company's Board of Directors and will depend, among other
factors, on earnings, capital requirements and the operating and
financial condition of the Company. At the present time, the
Company's anticipated financial capital requirements are such that
it intends to follow a policy of retaining earnings in order to
finance the development of its business.<PAGE>
ITEM 6. Selected Financial Data:
The following is a summary of selected financial data:
For Years Ended March 31,
1996 1995 1994 1993 1992
Operating Revenue $ 794,501 $ 377,957 $ 1,249,936 $ 1,081,236 $1,405,653
Net Income (Loss) 45,227 (144,887) 66,413 (11,444) 46,173
Net Income (Loss)
Per Share .0001 (.0005) .0003 (.0001) .0002
Dividends Per Share - - - - -
Total Assets 669,217 562,346 906,821 915,979 647,186
Working Capital
Deficiency (6,525) (74,160) (64,012) (183,086) (214,399)
Shares Outstanding 308,800,000 308,800,000 308,800,000 308,800,000 308,800,000
Stockholders'
Equity 341,883 296,656 441,543 375,130 386,574
See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations.
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
This analysis of the Company's financial condition, capital
resources and operating results should be viewed in conjunction
with the accompanying financial statements, including the notes
thereto.
Capital Resources and Liquidity
Operating Activities
During the fiscal years ended March 31, 1996 and 1995, net
cash provided (used) by operations was $55,977 and $(153,572),
respectively. The Company's working capital deficiency at March
31, 1996 was $6,525, a decrease in deficiency of $67,635 as
compared to a deficiency of $74,160 at March 31, 1995.
Trade accounts receivable increased $112,457 from $76,718 at
March 31, 1995 to $189,175 at March 31, 1996. This increase was
due primarily to the increase in sales volume experienced by the
Company in fiscal 1996.
At March 31, 1996, the Company had no merchandise inventories.
At March 31, 1995, the Company had special order and surplus parts
inventory on hand totalling $22,618. The Company was unable to
sell the parts, and they were written off to operations during
fiscal 1996. The Company does not stock parts inventory for resale
unless an order is delayed or cancelled. The Company normally
arranges for the parts' manufacturer or a freight forwarder to
directly ship merchandise to customers.
Accounts payable and accrued expenses increased $81,834 to
$140,185 at March 31, 1996 as compared to $58,351 at March 31,
1995. The increase was caused by higher purchases in connection
with increased sales orders and delays in shipment of orders. This
backlog delayed most payments to vendors supplying merchandise.
At March 31, 1995, the Company had no income taxes payable due
to the net operating loss incurred during fiscal 1995. At March
31, 1996, income taxes payable totalled $3,238, as the Company
returned to profitable operations.
Payroll tax liabilities decreased $1,217 from $2,566 at March
31, 1995 to $1,349 at March 31, 1996. The decrease resulted from
the Company incurring lower salaries during fiscal 1996.
Investing Activities
Net cash used by investing activities totalled ($7,154) for
fiscal 1996 as compared to net cash provided by investing
activities of $7,685 for fiscal 1995.
Net cash used by investing activities of $7,154 in fiscal 1996
was for the acquisition of office and computer equipment. During
the fiscal year ended March 31, 1995, the Company sold its
investment in the common stock of an affiliated corporation, USA
International Chemical, Inc., for $10,178 and recognized a gain on
the sale of $5,178. Net cash used by investing activities in
fiscal 1995 was for the acquisition of computer equipment.
Financing Activities
Net cash used by financing activities was ($42,501) in fiscal
1996 as compared to net cash provided by financing activities of
$143,114 in fiscal 1995.
During the second quarter of fiscal 1996, the Company repaid
its bank line of credit of $150,000. The Company had borrowed
$105,000 of these funds during fiscal 1995. Subsequent to the
renewal of its line of credit agreement, the Company again borrowed
funds. At March 31, 1996, the line of credit of $150,000 was fully
utilized.
<PAGE>
During fiscal 1996 and 1995, the Company repaid its term loan
and long-term equipment contracts by approximately $10,400 and
$5,500 and $70,600 and $5,000, respectively.
At March 31, 1996, the Company had two loans receivable from
its president. During the fiscal year ended March 31, 1996, the
president's net borrowings were $25,371. During fiscal 1996, the
president borrowed $54,627 from the Company, which is due on demand
and outstanding at March 31, 1996. Loan repayments on the
president's term loan totalled $29,256 during fiscal 1996.
The Company loaned $1,241 and $23,104, respectively, to
individual related parties (other family members) during the fiscal
years ended March 31, 1996 and 1995.
Operating Results
Years ended March 31, 1996 and 1995
Operating revenue for the year ended March 31, 1996 was
$794,501 versus $377,957 for the year ended March 31, 1995 an
increase of $416,544.
The increase in sales volume, as compared to the fiscal year
ended 1995, resulted from sales to several new customers acquired
through the Company's marketing efforts. In addition, during
fiscal 1996, the Company continued to ship merchandise from a
backlog of orders to foreign government which were being processed
as rapidly as possible. The downturn in sales volume during fiscal
1995 was attributable to the loss of major customer contracts with
the Turkish and Malaysian Governments during the first quarter of
fiscal 1995.
Gross profit percentage decreased 14.7% from 53.1% in fiscal
1995 to 38.4% in fiscal 1996. The decrease in gross profit as a
percentage of sales is attributable to sales to new customers being
made at lower margins than sales to the Governments of Norway,
Taiwan and Malaysia, the Company's major customers in fiscal 1995.
Although sales volume increased $416,544 in fiscal 1996, gross
profit only increased $104,111 as compared to the fiscal year ended
March 31,1995, as a result of Company selling its products at lower
margins.
At March 31, 1996, the Company had a backlog of approximately
$100,000. The Company's management has indicated that this backlog
is increasing as new orders are being obtained. Management is
maintaining ongoing sales efforts in order to achieve an increased
order backlog.
Interest income for the fiscal year ended March 31, 1966
includes interest of $25,774 and $1,741, earned form officer and
individual related party loans, respectively.
Interest income for the fiscal year ended March 31,1995,
included interest of $28,202, $2,181 and $1,054, earned from
officer, individual related party loans, and an affiliated
corporation loan, respectively.
Operating expenses totalled $272,803 for the fiscal year ended
March 31, 1996, as compared to the fiscal year ended March 31,1995
which reflected operating expenses of $364,190, a decrease of
$91,387.
Operating expenses consist of selling, general and
administrative expenses. Selling expenses for the fiscal year
ended March 31, 1996 totalled $35,238, an increase of $4,113, as
compared to the fiscal year ended March 31,1995 when these expenses
totally $31,125. Travel expenses increased $4,756 from $17,820 in
fiscal 1995 to $22,576 in fiscal 1996. The increase is
attributable to higher business travel costs incurred in fiscal
1996 to obtain new customers. Other selling expenses decreased
$643 in fiscal 1996.
General and administrative expenses decreased $95,500 from
$333,065 in fiscal 1995 to $237,565 in fiscal 1996, a 28.7%
decrease. The decrease is due primarily to lower salaries and
related payroll expenses incurred during the current fiscal year,
as a result of the Company's continuing efforts to lower its
overhead. These expenses totalled $99,689 in fiscal 1996 as
compared to $191,684 in fiscal 1995, a $91,995 decrease (48%).
Other general and administrative expenses decreased approximately
$3,500 during fiscal 1996.
The fiscal year ended March 31, 1996 reflected net income of
$45,227 as compared to a net loss of $144,887 for the fiscal year
ended March 31, 1995.
Operating Results
Years ended March 31, 1995 and 1994
Operating revenue for the year ended March 31, 1995 was
$377,957 versus $1,249,936 for the year ended March 31,1995, a
decrease of $871,979.
The downturn in sales volume, as compared to the fiscal year
ended March 31, 1994, resulted from the loss of major customer
contracts with the Turkish and Malaysian Governments during the
first quarter of fiscal 1995.
During the fiscal year ended March 31, 1994, the Company
obtained the Government of Malaysia as a new major customer and
continued to ship merchandise from a substantial, but reduced
backlog of orders to the Government of Turkey.
Gross profit percentage increased 10.8% from 42.3% in 1994 as
compared to 53.1% in 1995. The increase in gross profit percentage
is attributable to higher margin sales to the Government of
Malaysia in the first quarter of fiscal 1995, no low margin sales
to the Government of Turkey in 1995 and the settlement of a $26,000
sales invoice dispute with the Government of Thailand which
originated in fiscal 1993.
Although sales volume decreased approximately $872,000 in
fiscal 1995, gross profit only decreased approximately $328,000 as
compared to the fiscal year ended March 31, 1994, as a result of
the Company's increased gross profit percentage. At March 31,
1995, the Company had a backlog of approximately $233,000.
Interest income for the fiscal years ended March 31, 1995 and
1994 includes interest of $28,202 and $2,181 and $25,255 and
$3,904, earned from officer and affiliated corporation loans,
respectively. The balance of interest income earned during the
fiscal year ended March 31, 1995 of $1,054 was from individual
related party loans. The balance of interest income earned during
the fiscal year ended March 31, 1994 of $270 was from a commercial
bank holding the Company's performance bond deposits.
Operating expenses totalled $364,190 for the year ended March
31, 1995, as compared to the year ended March 31, 1994 which
reflected operating expenses of $475,425, a decrease of $111,235.
Operating expenses consist of selling, general and
administrative expenses. Selling expenses for the year ended March
31, 1995 totalled $31,125, a decrease of $34,608 as compared to the
fiscal year ended March 31, 1994 when these expenses totalled
$65,733. Commissions decreased $27,082 from $30,403 in fiscal 1994
to $3,321 in fiscal 1995, an 89% decrease. The decrease resulted
from the Company no longer selling to the Government of Turkey.
The Company's only commission sales in fiscal 1995 were to the
Government of Norway. Travel expenses increased $5,609 from
$12,211 in 1994 to $17,820 in 1995. The increase is attributable
higher business travel expenses incurred in 1995 to obtain new
customers. Other selling expenses decreased $13,135 in fiscal 1994
as a direct result of the Company's lower sales volume.
General and administrative expenses decreased $76,627 from
$409,692 in fiscal 1994 to $333,065 in fiscal 1995, an 18.7%
decrease. The decrease is due primarily to lower salaries and
related expenses incurred during the current fiscal year, as a
result of the Company's decline in operating performance. These
expenses totalled $273,892 in fiscal 1994 as compared to $191,684
in fiscal 1995, a decrease of $82,208 (30%). Other general and
administrative expenses increased approximately $5,600 during
fiscal 1995.
The fiscal year ended March 31, 1995 reflected a net loss of
$144,887 compared to net income of $66,413 for the fiscal year
ended March 31, 1994.
For Years Ended March 31,
1996 1995 1994
Sales $ 794,501 $377,957 $1,249,936
Cost of Sales 489,682 177,249 721,188
Gross Profit 304,819 200,708 528,748
Operating Expenses 272,803 364,190 475,425
Gross Profit Percentage 38.37% 53.10% 42.31%
Outlook
The Company's sales, profitability and cash flow were negatively
impacted by the loss of two major customers during the fiscal year
ended March 31, 1995. The Company has also felt the effects of
cutbacks in defense spending by foreign governments, increased
competition in the market place, and the overall recessionary state
of the aerospace industry.
Accordingly, management became aware that it was important to
develop new strategies to attain profitable operations. Through
the Company's fiscal 1995 marketing efforts, new customers were
acquired in fiscal 1996 and sales increased approximately $416,500.
Management traveled extensively changing sales agents in those
countries where it had been doing business for several years and
achieved sales growth from those markets. The Company also
appointed sales agents in countries where business had not been
done previously and expanded its customer base.
The Company also reduced its selling, general and
adminsitrative expenses by approximately 25% in fiscal 1996. As a
result of these cost reductions and the increase in sales volume,
the Company returned to profitable oeprations in fiscal 1996.
Management anticipates that sales in the next fiscal year will
approximate the Company's fiscal 1996 volume. Through the
Company's continuing marketing efforts, new customers have been
acquired. The Company also plans to continue its cost reduction
efforts which have helped stabilize the Company and reduced its
debt service.
<PAGE>
ITEM 8. Financial Statements and Supplementary Data:
INDEX TO FINANCIAL STATEMENTS
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
REPORT
Bennett Block Accountancy Corporation . . . . . . . . . . .F-1
BALANCE SHEETS
as of March 31, 1996 and 1995 . . . . . . . . . . . . . . .F-2
STATEMENTS OF OPERATIONS
years ended March 31, 1996, 1995 and 1994. . . . . . . . .F-4
STATEMENTS OF STOCKHOLDERS' EQUITY
years ended March 31, 1996, 1995 and 1994. . . . . . . . .F-5
STATEMENTS OF CASH FLOWS
years ended March 31, 1996, 1995 and 1994. . . . . . . . .F-6
NOTES TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . .F-7
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Stockholders
USA International Defense Systems, Inc.
Santa Monica, California
I have audited the accompanying balance sheets of USA International
Defense Systems, Inc. as of March 31, 1996 and 1995, and the
related statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended March 31,
1996. My audits also included the financial statement schedule
listed in the Index at Item 14(a)(2). These financial statements
and financial statement schedule are the responsibility of the
Company's management. My responsibility is to express an opinion
on these financial statements and financial statement schedule
based on my audits.
I conducted my audits in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audits provide
a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of USA
International Defense Systems, Inc. as of March 31, 1996 and 1995,
and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1996 in conformity
with generally accepted accounting principles. Also, in my
opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
s/Block & Handelman
Los Angeles, California
January 29, 1997<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
BALANCE SHEETS
March 31, 1996 and 1995
ASSETS
1996 1995
CURRENT ASSETS
Trade accounts receivable, net of
allowance for doubtful accounts of
$1,698 (1996) and $1,451 (1995) $189,175 $ 76,718
Merchandise inventories (Note 1) - 22,618
Loans receivable - officer, including
accrued interest of $5,388 (1996) and
$5,855 (1995) (Note 2) 90,721 34,644
Loans receivable - other, including
accrued interest of $2,795 (1996)
and $1,054 (1995) (Note 2) 24,345 23,104
TOTAL CURRENT ASSETS 304,241 157,084
PROPERTY AND EQUIPMENT, at cost (Note 1)
Office furniture, equipment and library 75,641 68,487
Transportation equipment 55,546 55,546
131,187 124,033
Less: Accumulated depreciation 95,045 78,311
36,142 45,722
LOANS RECEIVABLE - OFFICER (Note 2) 300,840 331,546
OTHER ASSETS
Deposits 959 959
Investments (Note 1) 27,035 27,035
27,994 27,994
TOTAL ASSETS $669,217 $562,346
The accompanying notes are an integral part of these financial statements.<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
BALANCE SHEETS
March 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
CURRENT LIABILITIES
Cash overdraft $ 374 $ 6,696
Accounts payable and accrued expenses 140,185 58,351
Note payable - bank (Note 3) 150,000 150,000
Income taxes payable (Note 1) 3,238 -
Payroll taxes payable 1,349 2,566
Current portion - long-term debt (Note 4) 15,620 13,631
TOTAL CURRENT LIABILITIES 310,766 231,244
LONG-TERM DEBT, net of current
portion (Note 4) 16,568 34,446
327,334 265,690
COMMITMENTS (Notes 3 and 4)
STOCKHOLDERS' EQUITY (Note 1)
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 (116,618) (161,845)
TOTAL STOCKHOLDERS' EQUITY 341,883 296,656
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $669,217 $562,346
The accompanying notes are an integral part of these financial statements.
<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1996 1995 1994
SALES (Note 5) $794,501 $377,957 $1,249,936
COST AND EXPENSES
Cost of sales 489,682 177,249 721,188
Selling expenses 35,238 31,125 65,733
General and administrative expenses 237,565 333,065 409,692
762,485 541,439 1,196,613
INCOME (LOSS) FROM OPERATIONS 32,016 (163,482) 53,323
OTHER INCOME (EXPENSE)
Interest income - officer loans (Note 2) 25,774 28,202 25,255
Interest income - affiliated corporation
(Note 2) - 2,181 3,904
Interest income - other (Note 2) 1,741 1,054 270
Miscellaneous income (expense) 4,531 1,729 (2,909)
Interest expense (Note 3) (14,954) (20,599) (15,830)
Gain on sale of investment in affiliated
corporation (Note 2) - 5,178 -
Occupancy fee income - affiliated
corporation (Note 2) - 1,650 3,600
17,092 19,395 14,290
INCOME (LOSS) BEFORE INCOME TAX
PROVISION 49,108 (144,087) 67,613
INCOME TAX PROVISION (Notes 1 and 6) 3,881 800 1,200
NET INCOME (LOSS) $ 45,227 $(144,887) $ 66,413
NET INCOME (LOSS) PER SHARE $ .0001 $ (.0005) $ .0003
WEIGHTED AVERAGE SHARES OUTSTANDING 308,800,000 308,800,000 308,800,000
The accompanying notes are an integral part of these financial statements.
<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
Common Stock Treasury Stock Accumulated
Shares Amount Shares Amount Defict Total
BALANCE,
<S> <C> <C> <C> <C> <C> <C>
April 1, 1993 325,050,000 $498,501 16,250,000 (40,000) (83,371) $375,130
Net income for year
ended March 31, 1994 - - - 66,413 66,413
BALANCE,
March 31, 1994 325,050,000 498,501 16,250,000 (40,000) (16,958) 441,543
Net loss for year
ended March 31, 1995 - - - - (144,887) (144,887)
BALANCE
March 31, 1995 325,050,000 498,501 16,250,000 (40,000) (161,845) 296,656
Net income for year
ended March 31, 1996 - - - - 45,227 45,227
BALANCE
March 31, 1996 325,050,000 $ 498,501 16,250,000 $(40,000) $ (116,618) $ 341,883
</TABLE>
The accompanying notes are an integral part of these financial statements.<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 45,227 $ (144,887) $ 66,413
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES
Non-cash item included in net income
(loss):
Depreciation and amortization 16,734 17,527 15,723
Gain on sale of investment in
affiliated corporation - (5,178) -
Changes in:
Trade accounts receivable, net (112,457) 139,076 (2,328)
Merchandise inventories 22,618 1,480 38,941
Deposits - 70,196 34,167
Accounts payable and accrued
expenses 81,834 (83,104) (102,419)
Customer deposits - (132,611) 71,611
Payroll taxes payable (1,217) (16,071) 12,289
Income taxes payable 3,238 - (2,800)
10,750 (8,685) 65,184
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 55,977 (153,572) 131,597
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (7,154) (2,493) (11,505)
Proceeds from sale of investment
in affiliated corporation - 10,178 -
NET CASH (USED) PROVIDED BY
INVESTING ACTIVITIES (7,154) 7,685 (11,505)
CASH FLOWS FROM FINANCING ACTIVITIES
Reduction of line of credit and
term loans (204,487) (75,575) (58,175)
Proceeds from bank line of credit 188,598 105,000 -
(Decrease)Increase in officer loans (25,371) 39,551 (25,000)
(Decrease)Increase in loans to
affiliate - 97,242 (64,441)
Increase in other loans receivable (1,241) (23,104) -
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (42,501) 143,114 (147,616)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (OVERDRAFT) 6,322 (2,773) (27,524)
CASH AND CASH EQUIVALENTS (OVERDRAFT),
beginning of year (6,696) (3,923) 23,601
(OVERDRAFT), end of year $ (374) $ (6,696) $ (3,923)
The accompanying notes are an integral part of these financial statements.<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General
USA International Defense Systems was originally incorporated in the State of
California on March 28, 1983. On November 20, 1986, the Company changed its
corporate domicile to the State of Delaware, by merging into a newly formed
Delaware corporation, USA International Defense Systems, Inc., the merger was
structured as an "F" reorganization under the Internal Revenue Code.
The Company is in the business of supplying replacement parts and spare parts
for airplanes owned by foreign governments and for airlines, worldwide.
The Company is headquartered in Santa Monica, California. Its products are
currently being sold primarily to foreign governments (Note 5). The Company
also occasionally sells its products domestically to non-governmental
customers.
Since most of the Company's business activities are with governmental
agencies located throughout the world, concentrations of credit risk with
respect to trade receivables are limited due to the nature of the Company's
customer base and its geographic dispersion.
B. Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles necessarily requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
C. 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.
D. 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.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 operations 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.
E. Investments
The Company has an investment in a company in which it owns less than a 20%
interest. The investment is carried at cost ($27,035) which approximates
market value.
F. 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.
G. Statement of Cash Flows
Cash payments related to interest expense and income taxes were $18,079
and $800, $17,298 and $800 and $16,083 and $4,000 for the years ended
March 31, 1996, 1995 and 1994, respectively.
Cash and cash equivalents include cash on hand and on deposit and highly
liquid debt instruments with maturities of three months or less.
H. Net Income (Loss) Per Share
Net income (loss) income per share has been computed based on the weighted
average common shares outstanding during each year.<PAGE>
NOTE 2 - RELATED PARTY TRANSACTIONS
On September 23, 1994, the Company and its President and Secretary (Sellers)
and the Company's affiliate, USA International Chemical, Inc. (Chemical),
finalized a Stock Purchase Agreement whereby, the Company agreed to liquidate
its investment in Chemical by selling to Shane Investment Company (Buyer)
13,000,000 shares of Chemical's common stock for consideration of $10,178
in cash.
The Company owned less than a 20% interest in Chemical and carried the
investment at cost. The Company paid $5,000 for Chemical's shares and
recognized a gain of $5,178 from their sale.
Pursuant to the Agreement, to complete the sale of stock, Chemical was
required to repay its outstanding borrowings of $98,464, including accrued
interest, to the Company at the date of sale.
Related party receivables consist of the following at March 31, 1996
and 1995:
1996 1995
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. $ 336,934 $ 366,190
Loan receivable - officer, due on demand, bearing
interest at 6.5% per annum. 54,627 -
391,561 366,190
Loans receivable - other (officer family members) due
on demand, bearing interest at 8% per annum. 24,345 23,104
415,906 389,294
Less current portion - loans receivable - officer 90,721 34,644
Less current portion - loans receivable - other 24,345 23,104
115,066 57,748
Loans receivable - officer - noncurrent portion $300,840 331,546
<PAGE>
NOTE 2 - RELATED PARTY TRANSACTIONS (Continued)
Current maturities of related party receivables over the next five years
were as follows as of March 31, 1996:
Year Ending March 31,
1997 $ 115,066
1998 32,751
1999 34,933
2000 37,259
2001 39,741
Thereafter 156,156
$ 415,906
During the fiscal year ended March 31, 1996, the president of the Company
borrowed $54,627 from the Company, which is due on demand and is outstanding
at March 31, 1996.
During the fiscal year ended March 31, 1994, the president borrowed $25,000
from the Company. The loan was due on demand and was repaid during the
fiscal year ended March 31, 1995.
Loan repayments on the officer's term loan totalled $29,256 and $14,551,
respectively, for the fiscal years ended March 31, 1996 and 1995.
Interest income for the years ended March 31, 1996, 1995 and 1994, includes
interest of $27,515, $31,437 and $29,159, respectively, earned from related
parties.
The Company subleases its office space from officers of the Company at a
rental of $1,045 per month on a month to month lease. The rent paid by the
Company is in the same amount paid by the officers pursuant to their lease
with their landlord. During the fiscal years ended March 31, 1996, 1995
and 1994, rent expense and sublease income were $13,756, $12,429 and $12,108,
respectively.
The Company and its affiliate (Chemical) shared common office facilities in
Santa Monica, California, until September 23, 1994, when the Company sold
its investment in the affiliate. The Company charged the affiliate $300
per month for its share of occupancy expenses.
<PAGE>
NOTE 3 - NOTE PAYABLE-BANK
At March 31, 1996 and 1995, the Company's note payable - bank consisted
of the following:
1996 1995
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% (10.25%
at March 31, 1996) per annum. Maximum
borrowings available under the line of credit are
$150,000. The line of credit was fully utilized at
March 31, 1996. 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 matured on October 5, 1996 and was
renewed until October 22, 1997. $ 150,000 $ 150,000
The Company's average short-term borrowings were $126,647, $142,867 and
$179,066 at weighted average interest rates of 10.70%, 9.82%, and 8.01% in
fiscal years 1996, 1995 and 1994, respectively.
Interest paid on short-term bank notes payable amounted to $12,256, $13,425
and $13,338 during the fiscal years 1996, 1995 and 1994, respectively.
<PAGE>
NOTE 4 - LONG-TERM DEBT
At March 31, 1996 and 1995, the Company's long-term debt consisted of the
following:
1996 1995
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%
(10.25% at March 31, 1996) per annum. The note
is payable in monthly installments, including
principal and interest, of $956 and is scheduled
to mature on January 15, 1998. $ 19,014 $ 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. 13,174 18,663
32,188 48,077
Less current portion 15,620 13,631
$ 16,568 $ 34,446
Current maturities of long-term debt over the next three years were as
follows as of March 31, 1996:
Year Ending March 31,
1997 $15,620
1998 15,048
1999 1,520
$32,188
NOTE 5 - MAJOR CUSTOMERS
During the fiscal years ended March 31, 1996, 1995 and 1994, substantially
all of the Company's revenue was derived from sales to foreign governments.
During the fiscal years ended March 31, 1996, the Company had three major
customers. Sales to the Governments of Kenya, Thailand and Jordan,
accounted for 30.6%, 12.4% and 10.3% of total sales, respectively. During
the fiscal years ended March 31, 1995 and 1994, sales to the Government of
Malaysia of $52,906 and $586,859 accounted for 14% and 47% of sales,
respectively. Sales to the Norwegian Government of $127,008 and $181,435
accounted for approximately 33.6% and 14.5% of sales for the fiscal years
ended March 31, 1995 and 1994, respectively.
NOTE 5 - MAJOR CUSTOMERS (Continued)
Sales to the Government of Taiwan of $108,622 accounted for approximately
28.7% of sales for the fiscal year ended March 31, 1995. Sales to the
Turkish Government of $339,736 accounted for 27.2% of sales for the fiscal
year ended March 31, 1994. No other customer had sales exceeding 10% of
total revenue in either fiscal 1996, 1995 or 1994.
NOTE 6 - INCOME TAXES
The Company utilized net operating loss carryforwards to reduce its tax
liabilities as follows:
Year ended Year ended Year ended
March 31, March 31, March 31,
1996 1995 1994
Expected tax expense $ 11,787 $ 800 $ 24,312
Reduction due to
utilization of net
operating loss
carryforwards (7,906) - (23,112)
Tax expense $ 3,881 $ 800 $ 1,200
The Company has available for federal income tax purposes at March 31, 1996,
unused net operating loss carryforwards of $2,441 which may be applied
against future taxable income; the carryforwards expire in year 2009.
<PAGE>
ITEM 9. Disagreements on Accounting and Financial Disclosures:
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant:
The Company's Directors and Executive Officers, their ages and
positions are as follows:
Name Age Position Held with Company
Edward Kislinger 48 Chairman of the Board,
President, Treasurer, Director
Cathy Waterman 46 Vice President, Secretary,
Director
Edward Kislinger has been President, Chief Executive Officer,
Treasurer and a director of the Company since 1983. Mr. Kislinger
is a graduate of UC Berkeley (1969) and UCLA Law School (1972).
From 1972 to 1974 Mr. Kislinger was in-house counsel at Motown
Records and from 1974 to 1979 was in private practice in Beverly
Hills, California specializing in entertainment law. During that
time, Mr. Kislinger was employed by the law firms of Pryor,
Cashman, Sherman & Flynn and Hardee, Barovick, Konnecky and Braun.
From 1979 to 1982 Mr. Kislinger was a production executive at
Filmways Pictures in Beverly Hills responsible for acquiring,
developing and overseeing the production of motion picture
properties. From June, 1986 until September, 1994, Mr. Kislinger
was president and principal shareholder of USA International
Chemical, Inc., a public company involved in the sales of skin care
products and coatings. Mr. Kislinger devotes approximately 75% of
his time to the business of the Company. Mr. Kislinger is
licensed to practice law in the State of California.
Cathy Waterman has been Vice President and director of the
Company since 1983. Ms. Waterman is a graduate of UCLA (1975) and
Loyola Law School (1978). From 1981 to 1991, Ms. Waterman was the
owner of Cathy Waterman Handknits, a designer and manufacturer of
handknit clothing whose customers included boutiques in Los Angeles
and New York City. At present, Ms. Waterman is president of a
small business, Cathy Waterman, Inc., which designs and sells fine
jewelry. Between 1979 and 1981 Ms. Waterman was head of
development for Tisch/Avnet Productions and participated in the
development of such motion pictures as Risky Business. Ms.
Waterman is married to Edward Kislinger, President of the Company.
Ms. Waterman was also an officer and director of USA International
Chemical, Inc., a public company, from June, 1986 until September,
1994. Ms. Waterman devotes such time as is necessary to fulfill
her obligations as an officer and director of the Company. Ms.
Waterman is licensed to practice law in the State of California.
All officers and directors serve for a term of one year or
until their successors are duly qualified and appointed.
ITEM 11. Executive Compensation:
Set forth below is the aggregate remuneration paid or accrued
by the Company for the fiscal year ended March 31, 1996 for each of
the executive officers and directors of the Company receiving
compensation in excess of $60,000, and for all Directors and
executive officers as a whole.
A B C
Name of Individual
or Number of Capacities in Cash
Persons in Group Which Served Compensation
Edward Kislinger President, Chairman $67,076
of the Board
Total (1 Person) $67,076
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management:
(a) Security Ownership of Certain Beneficial Owners:
Set forth below is certain information concerning persons who
are known by the Company to own beneficially more than 5% of the
Company's common stock and voting shares on January 29, 1997:
Title of Name & Address of Amount & Nature of % of
Class Beneficial Owner Beneficial Ownership Class
Common Stock Edward Kislinger *(1) 101,375,000 32.8
$.00001 PV 2700 Neilson Way, Chairman of the
Suite 1221 Board, President,
Santa Monica, CA Director
Common Stock Cathy Waterman *(1) 104,375,000 33.8
$.00001 PV 2700 Neilson Way, Vice President,
Suite 1221 Secretary, Director
Santa Monica, CA
Common Stock New America Group,
Inc. 32,500,000 10.5
$.00001 PV 513 Main Avenue Shareholder
Bay Head, New Jersey
Common Stock All Officers and
$.00001 PV Directors 205,750,000 66.6%
as a group (two)
* The above named individuals may be deemed "parents" and "Promoters"
of the Company under the rules and regulations of the securities act
of 1933 by virtue of their common stock ownership.
(1) Mr. Kislinger and Ms. Waterman are married. Each disclaim any
beneficial interest or control in the shares owned by their spouse, other
than attributed by law despite such disclaimer.
ITEM 13. Certain Relationships and Related Transactions:
The Company was incorporated in the State of California on
March 28, 1983 as PHT International and on November 2, 1984 filed
a fictitious name statement to do business as USA International.
On May 14, 1986 the Company amended its Articles of Incorporation
to change its name to USA International Defense Systems. On
November 20, 1986 the Company changed its corporate domicile to the
State of Delaware. The change of corporate domicile was
accomplished through the merger of the previous California
corporation into the present Delaware corporation. The merger was
treated as a pooling of interests of the assets and liabilities of
both companies. The Delaware corporation did not conduct any
business prior to the merger. The certificate of Merger was filed
on December 17, 1986 with the Delaware Secretary of State. In
accordance with the Plan of Merger, all outstanding shares of stock
were exchanged and reissued to the shareholders of the Company at
a ratio of 2,087,500 shares of stock in the Delaware corporation to
each share of previously outstanding stock in the California
corporation, including shares to the following officers and
directors of the Company:
Edward Kislinger President, Treasurer, Director 101,375,000
Cathy Waterman Vice Pres., Secretary, Director 104,375,000
Edward Kislinger, the Company's President, was the President of
USA International Chemical, Inc., a distributor of skin care
products and coatings until September 23, 1994. In certain
instances, the Company purchased certain coatings and solvents from
USA International Chemical, Inc. and resold them to its customers.
No such sales were made during the fiscal year ended March 31,
1995. In April, 1989 USA International Chemical, Inc. made an
initial public offering of its securities. In connection
therewith, the Company purchased 13,000,000 shares of common stock
from USA International Chemical, Inc. for which it paid $5,000,
representing an ownership of 11.6% of the outstanding shares of USA
International Chemical, Inc.
On September 23, 1994, the Company, Mr. Kislinger, Cathy
Waterman and USA International Chemical, Inc. (Chemical) finalized
a stock Purchase Agreement whereby, the Company agreed to liquidate
its investment in Chemical by selling to Shane Investment Company
(Buyer) 13,000,000 shares of Chemical's common stock for
consideration of $10,178 in cash.
The Company owned less than a 20% interest in Chemical and
carried the investment at cost. The Company paid $5,000 for
Chemical's shares and recognized a gain of $5,178 from their sale.
As of March 31, 1994, Chemical had loans payable to the Company
in the amount of $97,242 for advances made to Chemical by the
Company.
Pursuant to the Agreement, to complete the sale of stock,
Chemical was required to repay its outstanding borrowings of
$98,464, including accrued interest, to the Company on September
23, 1994, the date of sale.
The Company also subleases its office space from Edward
Kislinger and Cathy Waterman at a rental of $1,045 per month on a
month to month lease. The rent paid by the Company is in the same
amount paid by Mr. Kislinger and Ms. Waterman pursuant to their
lease with their landlord. Mr. Kislinger has also personally
guaranteed the Company's bank line of credit in the principal
amount of $150,000 and a term loan with the same bank, in the
principal amount of $19,014.
As of the year ended March 31, 1996, Mr. Kislinger was indebted
to the Company in the amount of $391,561, a net increase (including
accrued interest) of $25,371 from the preceding year. Mr.
Kislinger's indebtedness consisted of a term loan of $336,934 and
a demand loan of $54,627 at March 31, 1996. The term and demand
loans bear interest at 6.5% per annum. The term loan is payable in
quarterly installments of $12,880 and is schedule to mature in
April, 2004 The current portion of this loan was $36,094 at March
31, 1996. (See "Financial Statements and Schedule thereto").
On November 20, 1986 the Company sold 16,250,000 shares of its
Common Stock to an unaffiliated shareholder for $1,000, or .00006
per share. During the fiscal years ended 1988, 1989 and 1991, the
Company repurchased these shares from the shareholder for a total
of $40,000 or $.00246 per share. At the time the Company entered
into the agreement with the shareholder to repurchase the shares,
management was of the belief that such a stock repurchase would
reduce dilution to remaining shareholders.
On May 28, 1987 the Company completed an initial public
offering of its securities. At that time the Company sold
5,000,000 Units of its securities at $.01 per Unit, each Unit
consisting of one share of Common Stock and one redeemable Stock
purchase Warrant. Each Warrant entitled the Holder thereof to
purchase one share of Common Stock at $.02 per share. The exercise
period for the Warrants has expired and they are of no further
value. After underwriter commissions and expenses of the offering,
the Company realized net proceeds of approximately $470,000 from
its initial public offering.
<PAGE>
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8K:
(a) The following documents are being filed as a part of this
report:
Page
(1) FINANCIAL STATEMENTS:
See Index to Financial Statements............
(2)SCHEDULES OF USA INTERNATIONAL DEFENSE SYSTEMS,
INC., for the years endedMarch 31, 1996, 1995 and 1994
SCHEDULE II - Valuation and Qualifying Accounts........ S-1
All other schedules are omitted since the required information is
either not present or not present in amounts sufficient to require
submission of the schedule.
(3)EXHIBITS:
Exhibit No. Description
Location
1.1 Underwriting Agreement (Revised) (2)
1.2 Selected Dealers Agreement (Revised) (2)
1.3 Escrow Agreement (1)
3.1 Certificate of Incorporation (1)
(California)
3.2 Amendment to Certificate of (1)
Incorporation (California)
3.3 Certificate of Incorporation (1)
(Delaware)
3.4 Articles of Merger - California (2)
3.5 Certificate of Merger - Delaware (2)
3.6 By-Laws (1)
4.1 Underwriters' Unit Purchase Warrant (1)
<PAGE>
Exhibit No.Description
Location
4.2Common Stock Purchase Warrant (2)
4.3Warrant Agreement (2)
4.4Specimen Stock Certificate (2)
4.5Plan of Merger (Revised) (2)
10.1Stock Purchase and Loan Agreement - (1)
NAM
10.2Stock Purchase Agreement dated August 27, 1994 (3)
(1) Form S-18 filed December 8, 1986
(2) Amendment No. 1 to Form S-18 filed January 30, 1987
(3) See Attachment
(b) Not Applicable
(c) See Item 14(a)(3), above
(d) Not applicable<PAGE>
USA INTERNATIONAL DEFENSE SYSTEMS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
Year Ended March 31, 1996
Additions
Column A Column B Column C Column D Column E Column F
Balance Charged to Charged Balance
Beginning Cost and to Other End of
Description of Year Expenses Accounts Deductions(1) Year
Allowance for
Doubtful Accounts
(Deducted from
Accounts Receivable) $ 1,451 $ 19,329 $ - $ 19,082 $1,698
Year Ended March 31, 1995
Additions
Column A Column B Column C Column D Column E Column F
Balance Charged to Charged Balance
Beginning Cost and to Other End of
Description of Year Expenses Accounts Deductions(1) Year
Allowance for
Doubtful Accounts
(Deducted from
Accounts Receivable) $ 2,722 $ 1,451 $ - $ 2,722 $1,451
Year Ended March 31, 1994
Additions
Column A Column B Column C Column D Column E Column F
Balance Charged to Charged Balance
Beginning Cost and to Other End of
Description of Year Expenses Accounts Deductions(1) Year
Allowance for
Doubtful Accounts
(Deducted from
Accounts Receivable) $ 6,522 $ 8,251 $ - $ 12,051 $2,722
(1) Accounts deemed to be uncollectable
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
DATED: May 16, 1997 By:/S/ Edward Kislinger
EDWARD KISLINGER
Chief Executive Officer and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE
INDICATED.
Signature Title Date
/S/ Edward Kislinger Chairman of the Board May 16, 1997
Edward Kislinger of Directors, President,
Treasurer, Director
/S/ Cathy Waterman Vice President, May 16, 1997
Cathy Waterman Secretary, Director <PAGE>
Supplemental Information to be Furnished With Reports Filed
Pursuant to Section 15(d) of the Act of Registrants Which Have not
Registered Securities Pursuant to Section 12 of the Act.
As of the date hereof the Registrant has not sent any annual
report or proxy material to its security holders. In the event the
Registrant issues an annual report to security holders covering the
Registrant's fiscal year ended March 31, 1996 or an information
statement or proxy statement, such documents shall be furnished to
the Commission for its information. Such material when furnished,
shall not be deemed to be "filed" with the Commission or otherwise
subject to liabilities of Section 19 of the Act (except to the
extent that the Registrant specifically incorporates such material
by referenced in its form 10-K).
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 190,873
<ALLOWANCES> 1,698
<INVENTORY> 0
<CURRENT-ASSETS> 304,241
<PP&E> 131,187
<DEPRECIATION> 95,045
<TOTAL-ASSETS> 669,217
<CURRENT-LIABILITIES> 310,766
<BONDS> 16,568
0
0
<COMMON> 458,501
<OTHER-SE> (116,618)
<TOTAL-LIABILITY-AND-EQUITY> 669,217
<SALES> 794,501
<TOTAL-REVENUES> 826,547
<CGS> 489,682
<TOTAL-COSTS> 489,682
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,954
<INCOME-PRETAX> 49,108
<INCOME-TAX> 3,881
<INCOME-CONTINUING> 45,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,227
<EPS-PRIMARY> .001
<EPS-DILUTED> .001
</TABLE>
