______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended JUNE 30, 1996 Commission File Number 33-24608-LA
USA INTERNATIONAL CHEMICAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4068292
(State of other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
20720 Ventura Boulevard, Ste. 210 WOODLAND HILLS, CALIFORNIA 91364
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (818) 346-9595
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $-0-
The aggregate market value of the issuer's voting stock held by non-
affiliates of the issuer based upon the average bid and asked prices of
such stock as of July 31, 1996, was $615,104.
The number of shares outstanding of the issuer's common stock as of August
30, 1996 was 1,341,809.
Documents Incorporated By Reference:
S-18 Registration Statement effective November 10, 1988.
Transitional Small Business Disclosure Format: Yes No X
PART I
ITEM 1. BUSINESS
THE COMPANY
The Company was originally incorporated in the State of California on June 25,
1986, under the name "USA International Chemical, Inc." On August 22, 1988,
the Company changed its corporate domicile to the State of Delaware, through a
merger into a newly formed Delaware corporation named "USA International
Chemical, Inc."
In April, 1989, the Company completed a public offering of 22,481,000 units,
each unit consisting of one share of common stock and one Class A purchase
warrant, at an offering price of $.01 per Unit. The net proceeds of that
offering to the Company were approximately $155,000.
On August 27, 1994, the Company's three largest shareholders (the "Selling
Shareholder Group") entered into a Stock Purchase Agreement in which they
agreed to sell 88,200,000 of the Company's common stock to Shane Investment
Company, Inc. for $69,000 in cash. These shares represented approximately 78%
of the Company's then outstanding common shares. This Stock Purchase Agreement
closed on September 23, 1994 at which time Shane Investment Company, Inc.
assumed ownership of the 88,200,000 shares of the Company's common stock
becoming the Company's largest single shareholder.
On September 23, 1994, a Special Meeting of the Company's Board of Directors
was held to elect Yale Farar and Harold S. Fleischman to the Company's Board of
Directors. On September 24, 1994, in conjunction with the sale of their shares
in the Company, Edward Kislinger and Cathy Waterman resigned as directors and
officers of the Company. At that time Yale Farar became Chairman, President
and Chief Financial Officer of the Company while Harold S. Fleischman became
the Company's Secretary.
PAST OPERATIONS
In December, 1989, the Company sold its customer list for sales of various
chemicals and other product lines for the maintenance of aircraft to Gerald
Fields & Co., an unaffiliated company, for $6,000. Gerald Fields & Co. also
received certain equipment and fixtures related to this business from the
Company and took over the Company's obligations under its lease on facilities
located in Rancho Cucamonga, California.
As additional consideration for this sale, Gerald Fields & Co. is required to
pay the Company a percentage of its aerospace chemical sales in excess of
$200,000 per year through 1995 based on the following schedule:
Percentage
AMOUNT OF SALES TO THE COMPANY
$200,001 to $250,000 5.0%
$250,001 to $400,000 7.5%
$400,001 to $500,000 8.0%
$500,001 or more 10.0%
These amounts, if any, were payable annually. Through December 5, 1995, (the
expiration of the "earnout" period), Gerald Fields & Co. had not had annual
gross sales in excess of $200,000. Consequently, no additional consideration
was ever realized by the Company.
Until September, 1994, the Company sold a line of skin care products through a
foreign distributor. The Epicuren line of skin care products was manufactured
by Epicuren, Inc. of Mission Viejo, California, and includes a six step program
of scrub, cleanser, conditioner, concentrate, gel and moisturizer. The Company
had no written agreement with the manufacturer, but understood that it had the
sole right to distribute these products in Singapore.
Between July and September, 1994, the Company expanded its product line and
sold lint free cloth to a foreign customer.
The Company was also involved in the purchase and resale of various chemical
products to the Government of Taiwan.
The Company's warranty obligations under its former lines of business are
limited to the replacement of defective products, which in turn are replaced by
the manufacturer.
PRESENT OPERATIONS
As a result of the change of control of the Company in September 1994, all past
business operations were discontinued and the Company does not expect to pursue
any of the Company's former lines of business. Consequently, since September
1994, the Company has had no operating revenues and the Company does not
anticipate any revenues from business operations until the Company develops or
acquires new business lines.
Since September 1994 and for the foreseeable future, the Company's sole
activity is expected to be the identification and evaluation of suitable
business opportunities which could result in an acquisition by or a combination
with the Company. Pursuant to this activity, Management is constantly in
discussions with a variety of companies and individuals that could result,
either very quickly or in the distant future, in a business acquisition or
combination. Because of this approach, the announcement of a definitive or
consummated transaction involving the Company could happen at any time. There
can be no assurance as to when or if such an acquisition or combination might
occur or that other types of business transactions might not be considered and
entered into by the Company.
EMPLOYEES
At present, the Company has one part-time employee. Yale Farar, the President
of the Company, devotes approximately 10% of his time to the Company's
business. Harold Fleischman, the Company's Secretary, is employed by the
Company on an as-needed basis.
ITEM 2. PROPERTIES
The Company's President currently provides office space to the Company at no
cost to the Company.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 29, 1996. Although
notice of the meeting was sent to all shareholders of record, proxies were not
solicited because shareholders, owning or controlling a majority of the voting
common stock outstanding, attended and voted at the meeting. At the Annual
Meeting, two directors, Yale Farar and Harold S. Fleischman, were nominated and
elected to the Company's Board of Directors. The shareholder vote with respect
to the election of directors was as follows:
789,000 Shares For
-0- Shares Withheld
-0- Shares Abstentions
The Company also sought ratification of Ernst & Young LLP as the Company's
independent public accountants and auditors. Ernst & Young LLP was ratified by
votes as follows:
789,000 Shares For Ratification
-0- Shares Against
There were no other matters proposed or voted on at the Company's Annual
Meeting.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
a. PRINCIPAL MARKET OR MARKETS. The Company's common stock is listed for
trading on the OTC Market's Electronic Bulletin Board where it is
currently listed under the symbol "USXC." The following table sets forth
the high and low bid quotations for the Company's stock, as reported by
the National Quotation Bureau, Inc. for the periods indicated. These
prices are believed to be representative inter-dealer quotations, without
retail markup, markdown or commissions, and may not represent actual
transactions.
COMMON STOCK
BID ASK
QUARTER ENDED HIGH LOW HIGH LOW
September 30, 1994 No Bid No Bid No Record
December 31, 1994 No Bid No Bid No Record
March 31, 1995 No Bid No Bid No Record
June 30, 1995 No Bid No Bid No Record
September 30, 1995 5/8 3/8 1 5/8 3/4
December 31, 1995 5/8 3/8 1 5/8 3/4
March 31, 1996 5/8 3/8 1 5/8 3/4
June 30, 1996 5/8 3/8 1 5/8 3/4
b. APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. The approximate number of
holders of the Company's common stock at August 31, 1996 was 250.
c. DIVIDENDS. Holders of common stock are entitled to receive such dividends
as may be declared by the Company's Board of Directors. No dividends have
been paid with respect to the Company's common stock and no dividends are
anticipated to be paid in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Pursuant to the terms of a Stock Purchase Agreement, the Company liquidated
substantially all of its assets and liabilities during the first three months
of its 1995 fiscal year. For the remaining nine months of the Company's fiscal
year ended June 30, 1995, the Company generated no revenues from operations.
Capital was provided for operations from the proceeds from the sale of 200,000
shares of common stock for $20,500 to the principal stockholders of the
Company.
During the fiscal year ended June 30, 1996 the principal stockholders made
capital contributions of $30,000 which was used to pay for operating expenses.
The Company expects to fund its ongoing capital needs through investments in or
advances to the Company by its principal stockholders or other affiliates of
the Company.
OPERATING ACTIVITIES
During the three months ended September 30, 1994, net cash provided by
operations was $12,204. During the remaining nine months of the Company's
fiscal year 1995, cash of $21,885 was used in operations. During the fiscal
years ended June 30, 1996 and 1995, the Company used cash of $28,089 and
$9,681, respectively, in operations.
Accounts payable and accrued expenses decreased $2,238 from $2,479 at June 30,
1995 to $241 at June 30, 1996. The reduction resulted from the payment of
outstanding obligations at June 30, 1995.
The Company issued 6,000 shares of its common stock each to a director and a
financial consultant who rendered services to the Company during the 1996
fiscal year.
Since the change of control of the Company in September 1994, the Company has
not pursued any of its former chemical or skin care products sales business.
Consequently, until the Company's current management develops or acquires new
business lines, no operating revenues are expected. In light of the foregoing,
the Company will attempt to keep administrative expenses to a minimum.
However, operating losses are anticipated until the Company establishes or
acquires new lines of business.
For the foreseeable future the Company's sole activity is expected to be the
identification and evaluation of suitable business opportunities which could
result in an acquisition by or combination with the Company. There can be no
assurance, however, that the Company will be successful in its efforts, or that
other types of business transactions might not be considered.
FINANCING ACTIVITIES
Net cash provided by financing activities was $30,000 for the year ended June
30, 1996, and $10,888 for the year ended June 30, 1995.
During the 1995 fiscal year's first three months ended September 30, 1994, the
Company's former President repaid his loan receivable of $31,856 and
contributed an additional $56,996 of capital to the Company to pay its
liabilities. In addition, borrowings of $98,464 from an affiliated corporation
were repaid by the Company during the three months ended September 30, 1994.
Principal stockholders purchased 200,000 shares of the Company's Common Stock
for $20,500 during the remaining nine months of the fiscal year ended June 30,
1995.
FINANCIAL CONDITION
The following is a financial summary of the Company:
JUNE 30, 1995 JUNE 30, 1996
Total Assets $1,502 $3,413
Total Liabilities (2,479) (241)
Stockholders' Equity (Deficit) $ (977) $3,172
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 1996 AS COMPARED TO
THE FISCAL YEAR ENDED JUNE 30, 1995
There were no sales or cost of sales for the year ended June 30, 1996 compared
to net sales of $34,320 and cost of sales of $17,377 for the year ended June
30, 1995.
General and administrative expenses increased $3,255 to $26,201 in 1996 from
$22,946 in 1995. The increase was principally from additional costs in 1996 in
seeking and evaluating various opportunities to recapitalize the Company as a
going concern.
There was no interest income or interest expense in fiscal 1996 compared to
$271 and $1,038, respectively, in fiscal 1995. The receivable and obligation
which gave rise to the interest were collected or paid during fiscal 1995.
The net loss for the year ended June 30, 1996 of $27,051 resulted from expenses
incurred and the absence of revenues.
<PAGE>
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 1995 AS COMPARED TO
THE FISCAL YEAR ENDED JUNE 30, 1994:
Net sales for the fiscal year ended June 30, 1995 were $34,320 (all in the
first quarter) as compared to sales of $11,101 for the fiscal year ended June
30, 1994. The increase of $23,219 in sales volume resulted from a $30,847 sale
of chemical products to the Government of Taiwan in the first quarter of fiscal
1995. Gross profit, as a percentage of sales, increased from 24.6% for the
year ended June 30, 1994 to 49.4% for the year ended June 30, 1995 due to the
high margin achieved on the sale to the Government of Taiwan.
Interest income for the years ended June 30, 1995 and 1994, respectively,
consisted of interest earned of $271 and $1,628 from an officer loan.
Operating expenses totaled $22,946 during the year ended June 30, 1995 compared
to $12,829 for the fiscal year 1994. This $10,117 increase was a direct result
of higher legal and accounting fees paid during the fiscal year including fees
in connection with completing the Stock Purchase Agreement and recapitalizing
the Company's common stock.
The net loss totaled $7,620 for the year ended June 30, 1995 compared to a net
loss of $16,005 for the year ended June 30, 1994, a decrease of $8,385, which
resulted primarily from increased sales and the related margin achieved on
these sales.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are set forth on pages F-1 through F-9 attached as an
exhibit to this document. See "Item 13. Exhibits and Reports on Form 8-K."
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not Applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Officers of the Company are as follows:
NAME AGE POSITION
Yale Farar 58 Chairman of the Board, President and
Chief Financial Officer
Harold S. Fleischman 54 Director and Secretary
YALE FARAR has served as the Company's President, Chief Financial Officer,
Treasurer and Chairman since September, 1994. Mr. Farar has been engaged in
venture capital and real estate activities individually and through his wholly-
owned corporation, Shane Investment Company, Inc., for over 20 years, having
loaned money and taken equity positions in various private and public
companies.
HAROLD S. FLEISCHMAN has served as a Director and Secretary since September,
1994. Mr. Fleischman has been an attorney for over 25 years and currently
maintains his own private practice in Encino, California. He earned both a
Bachelor's degree and Law degree from UCLA.
All directors of the Company hold office until the next annual meeting of the
shareholders or until their successors have been elected and qualified.
The officers of the Company are appointed by the Board of Directors and hold
office until their death, resignation or removal from office.
ITEM 10. EXECUTIVE COMPENSATION
During the last three fiscal years ended June 30, 1996, 1995 and 1994, the
Company did not pay or accrue any amounts for compensation to its Executive
Officers. The Company does not anticipate any salary to its Executive Officers
for the current fiscal year.
One officer of the Company received 6,000 shares of restricted common stock as
compensation for services as a Director. Although Directors do not receive
compensation for their services as such, they may be reimbursed for expenses
incurred in attending Board meetings.
On May 10, 1996 the Board of Directors adopted the USA International Chemical,
Inc. 1996 Stock Option Plan which is a non-qualified option plan under the
Internal Revenue Code (i.e. certain advantageous tax provisions are not
available to participants). The Company allocated 500,000 shares of common
stock which may be issued pursuant to the Stock Option Plan. Officers,
directors, employees and other persons rendering valuable services to the
Company are eligible to receive options pursuant to the Stock Option Plan. As
of June 30, 1996, no options had been granted under this Plan.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 31, 1996, the stock ownership of
each person known by the Company to be the beneficial owner of five percent or
more of the Company's Common Stock.
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNERS BENEFICIAL OWNERSHIP OF CLASS
Common Yale Farar, President(1) 419,550(2) 31.3%
Shane Investment Company, Inc.
20720 Ventura Blvd., Ste. 210
Woodland Hills, California 91364
Common Sim Farar(1)(3) 369,500 27.5%
20501 Ventura Blvd., Ste. 116 (Individually)
Woodland Hills, CA 91364
Common Justin B. Farar(3) 75,000 5.6%
20501 Ventura Blvd., Ste. 116 (Individually)
Woodland Hills, CA 91364
Common Joel D. Farar(3) 75,000 5.6%
20501 Ventura Blvd., Ste. 116 (Individually)
Woodland Hills, CA 91364
Common Beth Farar(4) 99,059 7.4%
15915 Ventura Blvd., Ste. 301 (Individually)
Encino, CA 91436
(1) Yale Farar and Sim Farar are brothers but disclaim any beneficial
ownership of each others shares.
(2) 100,000 shares are held by Shane Investment Company, Inc. of which Yale
Farar is the CEO and sole shareholder; 269,350 are held by Mr. Farar,
personally; and 50,000 shares are held in Mr. Farar's IRA.
(3) Justin Farar and Joel Farar are the sons of Sim Farar. Sim Farar may be
deemed to have beneficial ownership of the shares held by his younger son,
Joel, but disclaims beneficial ownership of shares held by his older son,
Justin.
(4) Beth Farar is the daughter of Yale Farar. Mr. Farar disclaims any
beneficial ownership of shares held by Ms. Farar.
<PAGE>
The following table sets forth, as of August 31, 1996, the stock ownership of
each officer and director individually and all directors and officers of the
Company as a group.
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNERS BENEFICIAL OWNERSHIP OF CLASS
Common Yale Farar, President 419,550(1) 31.3%
Shane Investment Company, Inc.
20720 Ventura Blvd., Ste. 210
Woodland Hills, CA 91364
Common Harold S. Fleischman, Director 6,000 0.4%
15915 Ventura Blvd., Ste. 301
Encino, California 91436 _______ _____
Common Ownership by Management as 425,550 31.7%
a Group (2 persons)
(1) 100,000 shares are held by Shane Investment Company, Inc. of which Yale
Farar is the CEO and sole shareholder; 269,350 shares are held by Mr.
Farar, personally; and 50,000 shares are held in Mr. Farar's IRA.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Yale Farar and Sim Farar (principal shareholders of the Company) have invested
funds in the Company to pay for operating expenses and to provide working
capital to the Company. During fiscal year 1996, these contributions totalled
$30,000 which were reflected in the financial statements as additional paid in
capital.
The Company's principal shareholders anticipate making additional contributions
or advances to the Company on an as-needed basis until such time as the Company
establishes or acquires an operating business.
The Company currently maintains its executive offices in space provided by the
Company's President, Yale Farar, at no charge.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are being filed as part of this report:
PAGE
(1) FINANCIAL STATEMENTS
Report of Independent Auditors - Ernst & Young LLP.F-1
Balance sheet as of June 30, 1996..................F-2
Statements of Operations for the years ended
June 30, 1996 and 1995.............................F-3
Statements of Stockholders' Equity for the
years ended June 30, 1996 and 1995.................F-4
Statements of Cash Flows for the years ended
June 30, 1996 and 1995.............................F-5
Notes to Financial Statements...............F-6 to F-8
(2) EXHIBITS
EXHIBIT
NO. DESCRIPTION LOCATION
3.1 Articles of Incorporation and Incorporated by reference to
Bylaws Exhibit No. 3.1 to the
Registrant's S-18 Registration
Statement (No. 33-24608-LA)
3.2 Certificate of Amendment to Attached hereto
Certificate of Incorporation
10.1 1996 Stock Option Plan Attached hereto
22.1 Shareholder Letter reporting Attached hereto
on Annual Shareholder Meeting
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
USA INTERNATIONAL CHEMICAL, INC.
Dated: September 23, 1996 By: YALE FARAR
Yale Farar, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
YALE FARAR President, Chief Executive September 23, 1996
Yale Farar Officer, Treasurer, (Principal
Financial and Accounting Officer)
and Director
HAROLD S. FLEISCHMAN Secretary and Director September 23, 1996
Harold S. Fleischman
<PAGE>
Supplemental Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Act by Non-reporting Issuers.
On May 17, 1996 the Registrant sent to its shareholders a Notice of Annual
Meeting of Shareholders to be held May 29, 1996. Proxies were not solicited,
however, a copy of the Annual Report included with this Notice is provided to
the Commission herewith but is not deemed to be "filed" with the Commission.
Report of Independent Auditors
Board of Directors
USA International Chemical, Inc.
We have audited the accompanying balance sheet of USA International
Chemical,Inc. as of June 30, 1996 and the related statements of
operations, stockholders' equity, and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we 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. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of USA
International Chemical, Inc. as of June 30, 1996, and the results
of its operations and its cash flows for each of the two years in the
period then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
USA International Chemical, Inc. will continue as a going concern. As
discussed in Note 1 to the financial statements, under existing
circumstances, there is substantial doubt about the ability of USA
International Chemical, Inc. to continue as a going concern at
June 30, 1996. Management's plans in regard to that matter also are
described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
August 28, 1996
F-1
<PAGE>
USA International Chemical, Inc.
Balance Sheet
June 30, 1996
ASSETS
Current assets:
Cash $3,413
Total assets $3,413
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 241
Stockholders' equity:
Common Stock, $.00001 par value,
authorized 50,000,000 shares,
issued and outstanding 1,341,809 shares
(NOTES 1 AND 5) 13
Additional paid-in capital 270,167
Retained deficit (267,008)
Total stockholders' equity 3,172
Total liabilities and stockholders' equity $ 3,413
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
USA International Chemical, Inc.
Statements of Operations
YEAR ENDED JUNE 30
1996 1995
Sales (NOTE 4) $ - $ 34,320
Cost and expenses:
Cost of sales - 17,377
General and administrative expenses 26,201 22,946
26,201 40,323
Loss from operations (26,201) (6,003)
Other income (expense):
Interest income (NOTE 3) - 271
Interest expense (NOTE 3) - (1,038)
- (767)
Loss before income tax provision (26,201) (6,770)
Income tax provision 850 850
Net loss $ (27,051) $ (7,620)
Net loss per share $ (.02) $ (.01)
Weighted average shares outstanding 1,330,138 1,163,714
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
USA International Chemical, Inc.
Statements of Stockholders' Equity
Additional
Common Stock Paid-in Retained
Shares Amount Capital Deficit Total
Balance at June 30, 1994 1,124,809 $ 11 $ 160,960 $(232,337) $ (71,366)
Capital contribution in
September 1994 (NOTE 1) - - 56,996 - 56,996
Sale of Common Stock
(NOTE 5) 200,000 2 20,498 - 20,500
Stock issued for services 5,000 - 513 - 513
Net loss for year ended
June 30, 1995 - - - (7,620) (7,620)
Balance at June 30, 1995 1,329,809 13 238,967 (239,957) (977)
Capital contributions - - 30,000 - 30,000
Stock issued for services 12,000 - 1,200 - 1,200
Net loss for year ended
June 30, 1996 - - - (27,051) (27,051)
Balance at June 30, 1996 1,341,809 $ 13 $ 270,167$ (267,008) $ 3,172
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
USA International Chemical, Inc.
Statements of Cash Flows
YEAR ENDED JUNE 30
1996 1995
OPERATING ACTIVITIES
Net loss $ (27,051) $ (7,620)
Adjustments to reconcile net loss to net cash
use in operating activities:
Stock issued for services 1,200 513
Changes in operating assets and liabilities:
Trade accounts receivable - 2,530
Accounts payable and accrued expenses (2,238) (4,304)
Income taxes payable - (800)
Net cash used in operating activities (28,089) (9,681)
FINANCING ACTIVITIES
Capital contributions 30,000 56,996
Proceeds from the sale of Common Stock - 20,500
Decrease in related party loans - (66,608)
Net cash provided by financing activities 30,000 10,888
Net increase in cash 1,911 1,207
Cash at beginning of year 1,502 295
Cash at end of year $ 3,413 $ 1,502
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ 1,038
Income taxes $ 850 $ 850
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
1. BASIS OF PRESENTATION
USA International Chemical, Inc. (the Company) was incorporated in the
state of Delaware and was in the business of supplying skin care products
produced by United States manufacturers to foreign distributors.
On September 23, 1994, the Company's former President and Secretary
and an affiliate of the Company, USA International Defense Systems, Inc.,
(Sellers) and the Company finalized a Stock Purchase Agreement whereby,
the Sellers agreed to sell to Shane Investment Company, Inc. (Buyer)
882,000 shares of the Company's Common Stock for consideration of
$69,000 in cash. Pursuant to the agreement, to complete the sale of
stock, the Company's former President was required to repay his loan
to the Company and the Company was required to repay its loan to USA
International Defense Systems, Inc. and liquidate all other liabilities
outstanding at the date of the sale. The liabilities were liquidated
through the capital contribution into the Company of $56,996 prior to the
sale. Upon closing and consummation of the agreement, all then current
members of the Company's Board of Directors tendered their
resignations as Directors, and Shane Investment Company, Inc.'s
nominees were appointed to replace them on the Board. During 1996 and
1995, the Company did not pay or accrue any amounts for compensation to
officers.
The Company has undergone a change in management. Management recognizes
that the Company has a history of losses and is evaluating various
alternatives to recapitalize the Company which may provide the
opportunity for the Company to continue as a going concern.
It is not possible to predict the success of management's efforts. If
management is unable to achieve any of its goals, the Company will find
it necessary to undertake actions as may be appropriate to continue
operations. The financial statements do not reflect any adjustments that
might result from the outcome of this uncertainty.
F-6
<PAGE>
USA International Chemical, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RECOGNITION OF REVENUE
Revenue from goods provided under customer contracts is recognized when
the merchandise is shipped.
INCOME TAXES
At June 30, 1996, the Company has federal and state operating loss
carryforwards of approximately $210,000 and $84,000, respectively,
expiring in years 2004 through 2012. Given the change in ownership (Note
1), the Company does not believe it will be able to utilize approximately
$177,000 (federal) and $67,000 (state) of these operating loss
carryforwards to reduce future taxable income. With respect to the
remaining operating loss carryforwards of $33,000 (federal) and $17,000
(state), certain further ownership changes will result in an annual
limitlation on their utilization. As a result, no benefit has been
recorded in the financial statements related to such operating losses as
their realization is not assured.
NET LOSS PER SHARE
Net loss per share has been computed based on the weighted average common
shares outstanding during each year.
On April 19, 1995 the Company's stockholders approved a one for 100
reverse stock split with respect to outstanding Common Stock. All
references to share and per share amounts of Common Stock have been
adjusted to give effect to the reverse stock split.
CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and on deposit and highly
liquid investments with maturities of three months or less.
F-7
<PAGE>
USA International Chemical, Inc.
Notes to Financial Statements (continued)
3. RELATED PARTY TRANSACTIONS
Interest income for the year ended June 30, 1995 includes interest of
$271 earned from loans to a former officer.
Interest expense for the year ended June 30, 1995 includes $1,038 on
advances from a former affiliate.
Through September 1994, the Company and a former affiliate shared common
office facilities in Santa Monica, California. The former affiliate
charged the Company $300 per month for its share of occupancy expenses.
After the sale of stock in September 1994 (Note 1), the Company
maintained its executive offices in space provided by the Company's
President at no charge.
4. MAJOR CUSTOMERS
During the year ended June 30, 1995, all of the Company's revenue
was derived from sales to two foreign customers. Sales to one customer
accounted for approximately 89.9% of sales, and another customer
accounted for approximately 10.1% of sales.
5. STOCKHOLDERS' EQUITY
In April 1995, 200,000 shares of Company stock were sold to parties
related to Shane Investment Company, Inc. (Note 1) for $20,500.
During the year ended June 30, 1996, the Company adopted the USA
International Chemical, Inc. 1996 Stock Option Plan (Plan). The Plan is a
nonqualified plan under which options to purchase up to 500,000 shares of
Common Stock may be issued. The exercise price shall be determined by the
Plan administrator; however, in the case of Incentive Stock Option
grants, the exercise price shall be 100% of the fair market value at date
of grant (110% in the case of options granted to an optionee who owns
more than 10% of the Company's Common Stock). Option terms shall be
determined by the Plan administrator, but no later than 10 years after
date of grant or five years for Incentive Stock Options to optionees who
own more than 10% of the Company's Common Stock.
No options have been granted under the Plan.
F-8
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-KSB FOR THE PERIOD ENDED JUNE 30, 1996 FOR USA INTERNATIONAL CHEMICAL, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,413
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,413
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,413
<CURRENT-LIABILITIES> 241
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 3,159
<TOTAL-LIABILITY-AND-EQUITY> 3,413
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (26,201)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (26,201)
<INCOME-TAX> 850
<INCOME-CONTINUING> (27,051)
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</TABLE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
USA INTERNATIONAL CHEMICAL, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: By Unanimous Written Consent of the Board of Directors of USA
INTERNATIONAL CHEMICAL, INC., resolutions were duly adopted setting forth
proposed amendments of the Certificate of Incorporation of said
corporation, declaring said amendments to be advisable and calling a
meeting of the stockholders of said corporation for consideration thereof.
The resolutions setting forth the proposed amendments are as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by restating paragraph 4 to read as follows:
"4.(a) The total number of shares of stock which this corporation
shall have authority to issue is Fifty Million (50,000,000), all such
shares are to be designated "Common Stock", par value of $0.00001 per share
and are to be of one class."
RESOLVED, that the Certificate of Incorporation of this corporation be
further amended by adding a new paragraph "4.(b)", which new paragraph will
read as follows:
"4.(b) Each one hundred (100) issued and outstanding shares of Common
Stock of this Corporation shall hereby be combined into one (1) share of
validly issued, fully paid and non-assessable Common Stock par value
$0.00001 per share. Each person as of April 20, 1995 holding of record any
issued and outstanding shares of Common Stock shall receive upon surrender
to the Corporation's transfer agent a stock certificate or certificates to
evidence and represent the number of shares of post-consolidation Common
Stock to which such shareholder is entitled after giving effect to the
consolidation; provided, however, that all fractional shares resulting
therefrom shall be paid in cash."
EXHIBIT 3.1
<PAGE>
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, an annual meeting of the stockholders of said corporation was
duly called and held, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware at which meeting the
necessary number of shares as required by statute were voted in favor of
the amendments.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by Yale Farar, its President, and Harold S. Fleischman, its
Secretary, this 17 day of April, 1995.
BY: Yale Farar
Yale Farar, President
ATTEST: Harold S. Fleischman
Harold S. Fleischman,
Secretary
EXHIBIT 3.1
USA INTERNATIONAL CHEMICAL, INC.
1996 STOCK OPTION PLAN
1. PURPOSE; DEFINITIONS.
(a) PURPOSE. The purpose of the Plan is to attract, retain and
motivate officers, employees, consultants and directors of the Company, or
subsidiaries of the Company, by giving them the opportunity to acquire Stock
ownership in the Company.
(b) DEFINITIONS. For purposes of the Plan, the following terms
have the following meanings:
(i) "Administrator" means the Compensation Committee
referred to in Section 4 in its capacity as administrator of the Plan in
accordance with Section 4.
(ii) "Board" means the Board of Directors of the Company.
(iii) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
(iv) "Commission" means the Securities and Exchange
Commission, and any successor agency.
(v) "Company" means USA International Chemical, Inc., a
Delaware corporation.
(vi) "Director" shall mean a member of the Board.
(vii) "Disinterested Person" has the meaning set forth in
Rule 16b-3 under the Exchange Act, and any successor definition adopted by the
Commission.
(viii) "Effective Date" has the meaning set forth in
Section 2.
(ix) "Eligible Person" shall mean in the case of the
grant of an Incentive Stock Option Plan all employees of the Company or a
Subsidiary of the Company and in the case of a Nonqualified Stock Option any
director, officer or employee of the Company or other person who, in the
opinion of the Board, is rendering valuable services to the Company, including
without limitation, an independent contractor, outside consultant, or advisor
to the Company.
(x) "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, and any successor statute.
(xi) "Fair Market Value" shall mean (i) if the stock is
listed or admitted to trade on a national securities exchange, the closing
price of the stock on the Composite Tape, as published in the Western Edition
of the Wall Street Journal, of the principal national securities exchange on
which the stock is so listed or admitted to trade, on such date, or, if there
is no trading of the stock on such date, then the closing price of the stock as
quoted on such Composite Tape on the next preceding date on which there was
trading in such shares; (ii) if the stock is not listed or admitted to trade on
a national securities exchange, the last price for the stock on such date, as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through the NASDAQ National Market Reporting System or a similar organization
if the NASD is no longer reporting such information; (iii) if the stock is not
reported on the National Market Reporting System, the mean between the closing
bid and asked price for the stock on such date, as furnished by the NASD; and
(iv) if the stock is not reported on the National Market Reporting System and
if bid and asked prices for the stock are not furnished by the NASD or a
similar organization, the values established by the Administrator for purposes
of granting options under the Plan.
(xii) "Grant Date" means the date of grant of any Option.
(xiii) "Incentive Stock Option" shall mean an option which
is an option within the meaning of Section 422 of the Code, the award of which
contains such provisions as are necessary to comply with that section.
(xiv) "Nonqualified Stock Option" shall mean an option
which is designated a Nonqualified Stock Option.
(xv) "Officer" shall mean an officer of the Company and
an officer who is subject to Section 16 of the Exchange Act.
(xvi) "Option" shall mean an option to purchase Common
Stock under this Plan. An Option shall be designated by the Committee as an
Incentive Stock Option or a Nonqualified Stock Option.
(xvii) "Option Agreement" means the written option
agreement covering an Option.
(xviii) "Optionee" means the holder of an option.
(xix) "Plan" means this USA International Chemical, Inc.
1996 Stock Option Plan, as amended from time to time.
(xx) "Rule 16b-3" means Rule 16b-3 under Section 16(b) of
the Exchange Act, as amended from time to time, and any successor rule.
(xxi) "Stock" means the Common Stock, par value $0.00001
of the Company, and any successor entity.
(xxii) "Subsidiary" shall mean any corporation in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(xxiii) "Tax Date" means the date defined in Section 7.
(xxiv) "Vesting Date" means the date on which an Option
becomes wholly or partially exercisable.
2. EFFECTIVE DATE; TERM OF PLAN. The Effective Date of this Plan shall
be upon the date of Board approval. This Plan, but not Options already
granted, shall terminate automatically ten years after its adoption by the
Board, unless terminated earlier by the Board under Section 13. No Options
shall be granted after termination of this Plan but all Options granted prior
to termination shall remain in effect in accordance with their terms.
3. NUMBER AND SOURCE OF SHARES OF STOCK SUBJECT TO THE PLAN. Subject
to the provisions of Section 8, the total number of shares of Stock with
respect to which Options may be granted under this Plan is 500,000 shares of
Stock. The shares of Stock covered by any canceled, expired or terminated
Option or the unexercised portion thereof shall become available again for
grant under this Plan. The shares of Stock to be issued hereunder upon
exercise of an Option may consist of authorized and unissued shares or treasury
shares.
4. ADMINISTRATION OF THE PLAN. This Plan shall be administered by a
committee of at least one member of the Board to which administration of this
Plan is delegated by the Board, each of whom shall be Disinterested Persons
(the "Compensation Committee"). The "Administrator" shall mean the
"Compensation Committee" referred to in this Section 4 in its capacity as
administrator of the Plan in accordance with this Section 4. The Administrator
may delegate nondiscretionary administrative duties to such employees of the
Company, or a Subsidiary, as it deems proper.
Subject to the express provisions of this Plan, the Administrator shall
have the authority to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Optionees under this
Plan, to further define the terms used in this Plan, to prescribe, amend and
rescind rules and regulations relating to the administration of this Plan, to
determine the duration and purposes of leaves of absence which may be granted
to Optionees without constituting a termination of their employment for
purposes of this Plan and to make all other determinations necessary or
advisable for the administration of this Plan.
Any decision or action of the Administrator in connection with this Plan
or Options granted or shares of Stock purchased under this Plan shall be final
and binding. The Administrator shall not be liable for any division, action or
omission respecting this Plan, or any Options granted or shares of Stock sold
under this Plan. The Board at any time may abolish the Compensation Committee
and revest in the Board the administration of the Plan; provided that all
members of the Board at the time of such action must be "Disinterested
Persons."
5. GRANT OF OPTIONS; TERMS AND CONDITIONS OF GRANT.
(a) GRANT OF OPTIONS. One or more Options may be granted to any
Eligible Person. Subject to the express provisions of the Plan, the
Administrator shall determine from the Eligible Persons those individuals to
whom Options under the Plan shall be granted. Each Option so granted shall be
designated by the Administrator as either a Nonqualified Stock Option or an
Incentive Stock Option.
Subject to the express provisions of the Plan, the Administrator shall
specify the Grant Date, the number of shares of Stock covered by the Option,
the exercise price and the terms and conditions for exercise of the Options.
If the Administrator fails to specify the Grant Date, the Grant Date shall be
the date of the action taken by the Administrator to grant the Option. As soon
as practicable after the Grant Date, the Company will provide the Optionee with
a written Stock Option Agreement in the form approved by the Administrator,
which sets out the Grant Date, the number of shares of Stock covered by the
Option, the exercise price and the terms and conditions for exercise of the
Option.
The Administrator may, in its absolute discretion, grant Options under
this Plan at any time and from time to time before the expiration of ten years
from the Effective Date to officers, employees, consultants and directors of
the Company and its Subsidiaries.
(b) GENERAL TERMS AND CONDITIONS. Except as otherwise provided
herein, the Options shall be subject to the following terms and conditions and
such other terms and conditions not inconsistent with this Plan as the
Administrator may impose:
(i) EXERCISE OF OPTION. In order to exercise all or any
portion of any Option granted under this Plan, an Optionee must remain as an
officer, employee, consultant or director of the Company, or a Subsidiary,
until the Vesting Date. The Option shall be exercisable on or after each
Vesting Date in accordance with the terms set forth in the Option Agreement.
(ii) OPTION TERM. Each Option and all rights or obligations
thereunder shall expire on such date as shall be determined by the
Administrator, but not later than 10 years after the grant of the Option (5
years in the case of an Incentive Stock Option when the Optionee owns more than
10% of the total combined voting power of all classes of stock of the Company),
and shall be subject to earlier termination as hereinafter provided.
(iii) EXERCISE PRICE. The Exercise Price of any Option shall
be determined by the Administrator, but in the case of Incentive Stock Options
shall not be less than 100% (110% in the case of an Optionee who owns more than
10% of the total combined voting power of all classes of stock of the Company)
of the Fair Market Value of the Common Stock on the date the Incentive Stock
Option is granted.
(iv) METHOD OF EXERCISE. To the extent the right to purchase
shares of Stock has accrued, Options may be exercised, in whole or in part,
from time to time in accordance with their terms by written notice from the
Optionee to the Company stating the number of shares of Stock with respect to
which the Option is being exercised and accompanied by payment in full of the
exercise price. Payment may be made in cash, certified check or, at the
absolute discretion of the Administrator, by non-certified check.
(v) RESTRICTIONS ON STOCK; OPTION AGREEMENT. At the time it
grants Options under this Plan, the Company may retain, for itself or others,
rights to repurchase the shares of Stock acquired under the Option or impose
other restrictions on such shares. The terms and conditions of any such rights
or other restrictions shall be set forth in the Stock Option Agreement
evidencing the Option. No Option shall be exercisable until after execution of
the Stock Option Agreement by the Company and the Optionee.
(vi) NONASSIGNABILITY OF OPTION RIGHTS. No Option shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of an Optionee, only the Optionee may exercise an Option.
(vii) EXERCISE AFTER CERTAIN EVENTS.
(1) TERMINATION OF EMPLOYMENT/CONSULTING/DIRECTORSHIP.
If for any reason other than permanent and total disability or death (as
defined below) an Optionee ceases to be employed by or to be a consultant or
director of the Company, or a Subsidiary, Options held at the date of such
termination (to the extent then exercisable) may be exercised, in whole or in
part, at any time during the period specified in the Stock Option Agreement
(but in no event after the earlier of (i) the expiration date of the Option as
set forth in the Stock Option Agreement, and (ii) ten years from the Grant
Date).
If an Optionee granted an Incentive Stock Option
terminates employment but continues as a consultant, advisor or in a similar
capacity to the Company or a Subsidiary, Optionee need not exercise the Option
within three months of termination of employment but shall be entitled to
exercise within three months of termination of services to the Company or the
Subsidiary (one year in the event of permanent disability or death). However,
if Optionee does not exercise within three months of termination of employment,
the option will not qualify as an Incentive Stock Option.
(2) PERMANENT DISABILITY AND DEATH. If an Optionee
becomes permanently and totally disabled (within the meaning of Section
22(e)(3) of the Internal Revenue Code of 1986, as amended), or dies while
employed by the Company, or while acting as an officer, consultant or director
of the Company, or a Subsidiary, (or, if the Optionee dies within the period
that the Option remains exercisable after termination of employment or
affiliation), Options then held (to the extent then exercisable) may be
exercised by the Optionee, the Optionee's personal representative, or by the
person to whom the Option is transferred by will or the laws of descent and
distribution, in whole or in part, at any time within one year after the
disability or death or any lesser period specified in the Option Agreement (but
in no event after the earlier of (i) the expiration date of the Option as set
forth in the Option Agreement, and (ii) ten years from the Grant Date).
(viii) COMPLIANCE WITH SECURITIES LAWS. The Company shall
not be obligated to issue any shares of Stock upon exercise of an Option unless
such shares are at that time effectively registered or exempt from registration
under the federal securities laws and the offer and sale of the shares of Stock
are otherwise in compliance with all applicable securities laws. The Company
is not obligated to register the shares of Stock under the federal securities
laws or to take other steps necessary to enable the shares of Stock to be
freely tradeable under federal or other securities laws except for certain
"piggy-back" rights set forth below. Upon exercising all or any portion of an
Option, an Optionee may be required to furnish representations or undertakings
deemed appropriate by the Company to enable the offer and sale of the shares of
Stock or subsequent transfers of any interest in such shares to comply with
applicable securities laws. Evidences of ownership of shares of Stock acquired
upon exercise of Options shall bear any legend required by, or useful for
purposes of compliance with, applicable securities laws, this Plan or the Stock
Option Agreement evidencing the Option.
6. LIMITATIONS ON GRANT OF INCENTIVE STOCK OPTIONS.
(a) The aggregate Fair Market Value (determined as of the Grant
Date) of the Stock for which Incentive Stock Options may first become
exercisable by any Optionee during any calendar year under this Plan, together
with that of Stock subject to Incentive Stock Options first exercisable (other
than as a result of acceleration pursuant to Section 9(a)) by such Optionee
under any other plan of the Company or any Subsidiary, shall not exceed
$100,000.
(b) There shall be imposed in the Option Agreement relating to
Incentive Stock Options such terms and conditions as are required in order that
the Option be an "incentive stock option" as that term is defined in
Section 422 of the Code.
(c) No Incentive Stock Option may be granted to any person who, at
the time the Incentive Stock Option is granted, owns shares of outstanding
Stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, unless the exercise price of such Option is at
least 110% of the Fair Market Value of the stock subject to the Option and such
Option by its terms is not exercisable after the expiration of five years from
the Grant Date.
(d) No Incentive Stock Option may be granted to any person who is
not an employee of the Company.
7. LIMITED RIGHT OF REGISTRATION OF SHARES UNDERLYING OPTIONS.
(a) In the event the Company, in its sole discretion, determines to
file a registration statement with the SEC, holders of shares underlying any
Options granted pursuant to this Plan shall have the right to include any or
all of such shares in such registration statement (referred to as "piggy-back
rights"). Inclusion of such shares shall not be subject to approval by the
underwriter(s) but will be subject to a reasonable resale "lock-up" period if
such provision is deemed necessary by the underwriter(s).
(b) Shares underlying Options granted pursuant to this Plan are
eligible to be included only once in a registration statement.
(c) Such piggy-back rights shall not be transferable.
(d) The holder of any such shares to be included in a registration
statement shall pay his or her prorata portion of expenses related to the
preparation and filing of such registration statement.
8. PAYMENT OF TAXES. Upon the disposition by an Optionee or other
person of shares of an Option prior to satisfaction of the holding period
requirements of Section 422 of the Code, or upon the exercise of a Nonqualified
Stock Option, the Company shall have the right to require such Optionee or such
other person to pay by cash, or check payable to the Company, the amount of any
taxes which the Company may be required to withhold with respect to such
transactions. Any such payment must be made promptly when the amount of such
obligation becomes determinable (the "Tax Date"). The Administrator may, in
lieu of such cash payment, withhold that number of Shares sufficient to satisfy
such withholding.
9. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. The existence of
outstanding Options shall not affect the Company's right to effect adjustments,
recapitalizations, reorganizations or other changes in its or any other
corporation's capital structure or business, any merger or consolidation, any
issuance of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock, the dissolution or liquidation of the Company's or any
other corporation's assets or business or any other corporate act whether
similar to the events described above or otherwise. Subject to Section 10, if
the outstanding shares of the Stock are increased or decreased in number or
changed into or exchanged for a different number or kind of securities of the
Company or any other corporation by reason of a recapitalization,
reclassification, stock split, combination of shares, stock dividend or other
event, an appropriate adjustment of the number and kind of securities with
respect to which Options may be granted under this Plan, the number and kind of
securities as to which outstanding Options may be exercised, and the exercise
price at which outstanding Options may be exercised will be made.
10. DISSOLUTION, LIQUIDATION, MERGER.
(a) COMPANY NOT THE SURVIVOR. In the event of a dissolution or
liquidation of the Company, a merger, consolidation, combination or
reorganization in which the Company is not the surviving corporation, or a sale
of substantially all of the assets of the Company (as determined in the sole
discretion of the Board of Directors), the Administrator, in its absolute
discretion, may cancel each outstanding Option upon payment in cash to the
Optionee of the amount by which any cash and the fair market value of any other
property which the Optionee would have received as consideration for the shares
of Stock covered by the Option if the Option had been exercised before such
liquidation, dissolution, merger, consolidation, combination, reorganization or
sale exceeds the exercise price of the Option. In addition to the foregoing,
in the event of a dissolution or liquidation of the Company, or a merger,
consolidation, combination or reorganization, in which the Company is not the
surviving corporation, the Administrator, in its absolute discretion, may
accelerate the time within which each outstanding Option may be exercised. In
the event of a merger in which the Company is not the surviving corporation,
the successor entity may assume the obligations under all outstanding Options.
(b) COMPANY IS THE SURVIVOR. In the event of a merger,
consolidation, combination or reorganization in which the Company is the
surviving corporation, the Board of Directors shall determine the appropriate
adjustment of the number and kind of securities with respect to which
outstanding Options may be exercised, and the exercise price at which
outstanding Options may be exercised. The Board of Directors shall determine,
in its sole and absolute discretion, when the Company shall be deemed to
survive for purposes of this Plan.
11. SUSPENSION AND TERMINATION. In the event the Board or the
Administrator reasonably believes an Optionee has committed an act of
misconduct specified below, the Administrator may suspend the Optionee's right
to exercise any Option granted hereunder pending final determination by the
Board or the Administrator. If the Administrator determines that an Optionee
has committed an act of embezzlement, fraud, breach of fiduciary duty or
deliberate disregard of the Company rules resulting in loss, damage or injury
to the Company, or if an Optionee makes an unauthorized disclosure of any
Company trade secret or confidential information, engages in any conduct
constituting unfair competition, induces any Company customer to breach a
contract with the Company or induces any principal for whom the Company acts as
agent to terminate such agency relationship, neither the Optionee nor his or
her estate shall be entitled to exercise any Option hereunder. In making such
determination, the Board or the Administrator shall act fairly and in good
faith and shall give the Optionee an opportunity to appear and present evidence
on the Optionee's behalf. The determination of the Board or the Administrator
shall be final and conclusive.
12. NO RIGHTS AS SHAREHOLDER OR TO CONTINUED EMPLOYMENT. An Optionee
shall have no rights as a shareholder with respect to any shares of Stock
covered by an Option. An Optionee shall have no right to vote any shares of
Stock, or to receive distributions of dividends or any assets or proceeds from
the sale of Company assets upon liquidation until such Optionee has effectively
exercised the Option and fully paid for such shares of Stock. Subject to
Sections 9 and 10, no adjustment shall be made for dividends or other rights
for which the record date is prior to the date title to the shares of Stock has
been acquired by the Optionee. The grant of an Option shall in no way be
construed so as to confer on any Optionee the rights to continued employment by
the Company, or a Subsidiary.
13. TERMINATION; AMENDMENT. The Board may amend, suspend or terminate
this Plan at any time and for any reason, but no amendment, suspension or
termination shall be made which would impair the right of any person under any
outstanding Options without such person's consent not unreasonably withheld.
14. GOVERNING LAW. This Plan and the rights of all persons under this
Plan shall be construed in accordance with and under applicable provisions of
the laws of the State of Delaware.
EXHIBIT 10
USA INTERNATIONAL CHEMICAL, INC.
20720 Ventura Boulevard, Suite 210, Woodland Hills, CA 91364
Mail: P.O. Box 5020, Woodland Hills, CA 91365-5020
(818) 346-9595 * Fax (818) 346-1570
June 20, 1996
Dear Shareholder:
The annual shareholders' meeting was held at 10:00 a.m. on May 29, 1996, at
our corporate office. At that meeting, the following issues were approved
by the Company's shareholders: Messrs. Farar and Fleischman were re-
elected as directors; the appointment of Ernst & Young LLP as the
independent public accountants and auditors was ratified. On May 10, 1996,
the Board of Directors adopted a non-qualified stock option plan and
allocated up to 500,000 shares of the Company's Common Stock to be issued
pursuant to the Plan. Persons eligible to receive options under the Plan
include officers, directors and employees of the Company as well as
independent contractors, outside consultants and advisors to the Company.
The Plan will be administered by the Compensation Committee as designated
by the Board of Directors.
As previously mentioned, the Company has continued to hold preliminary
discussions with various companies and individuals regarding reactivating
the Company through a combination with an appropriate operating business
entity that could increase stockholder equity. Although we continue to be
hopeful for the prospects of the Company, there is no assurance that the
Company will be successful in accomplishing its goals. Due to lack of
capital and operations in the last fiscal year, principal shareholders made
additional capital contributions to the Company.
We will continue to keep you informed of the progress of the Company. We
welcome your continued support.
Sincerely,
Yale Farar
Yale Farar
President
EXHIBIT 22
[USA INTERNATIONAL CHEMICAL, INC.]
20720 Ventura Boulevard, Suite 210, Woodland Hills, California 91364
Mail: P.O. Box 5020, Woodland Hills, California 91365-4010
(818) 346-9595 * Fax (818) 346-1570
May 17, 1996
Dear Shareholder,
Since the change of Company's management in September 1994, we have
continued to review and evaluate potential business opportunities with the
goal of acquiring or merging with a private operating company, or to seek
out other viable business opportunities that could increase stockholder
equity. The Company has not identified a prospective business for
acquisition, has not targeted any particular business or industry within
which it will seek an acquisition, nor does it have a letter of intent,
agreement in principle, or other agreement to acquire a business. However,
management believes that it is taking positive steps toward these goals and
is expending its efforts constructively in this area.
We have enclosed our Notice of Annual Meeting of Shareholders and Form 10-
QSB as filed with the Securities and Exchange Commission for the quarter
ended March 31, 1996. As you will note from the attached financial
statements, the Company has minimal assets, minimal liabilities, and no
current revenue producing activities. In an effort to keep operating
expenses as low as possible, the Company is not currently and does not
intend in the foreseeable future to pay cash remuneration to its officers
and directors. Certain office expenses are being financed by principal
shareholders resulting in no cost to the Company. If additional funds are
needed to carry on the business of the Company, it is anticipated that the
majority shareholders of the Company would provide such funding either
through further investments in the Company or advances to the Company.
Current management has an investment in the Company and will use its best
efforts to try to enhance the value of the Company for all shareholders.
Although your company's stock is relatively inactive, it is quoted in the
Over-the-Counter Market's Electronic Bulletin Board under the symbol USXC.
We invite you to attend our annual meeting which will be held on May 29,
1996 at 10:00 a.m. at 20720 Ventura Boulevard, Suite 210, Woodland Hills,
CA 91364. We will continue to keep you informed of the progress of the
Company and welcome your continued support.
Sincerely,
Yale Farar
Yale Farar
Enclosure
