SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[ X ] Filed by the registrant
[ ] Filed by a party other than the registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
USABG Corp.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
<PAGE>
USABG Corp.
53-09 97th Place
Corona, New York 11368
SPECIAL MEETING OF STOCKHOLDERS
To Be Held on July 29, 1998
To the Stockholders of
USABG Corp.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of USABG
Corp. (the "Company") will be held at the offices of Klarman & Associates at 14
East 60th Street, Suite 402, on July 29, 1998, at 10 a.m., New York time, for
the following purposes:
1. To vote on the proposal to reverse-split the Company's
outstanding shares on a 1 for 4 basis; and
2. To transact such other business as may properly be
brought before the meeting or any adjournment thereof.
The close of business on June 24, 1998 has been fixed as the record
date for the determination of shareholders entitled to notice of, and to vote
at, the meeting and any adjournment thereof.
You are cordially invited to attend the meeting. Whether or not you
plan to attend, please complete, date, and sign the accompanying proxy, and
return it promptly in the enclosed envelope to assure that your shares are
represented at the meeting. If you do attend, you may revoke any prior proxy and
vote your shares in person if you wish to do so. Any prior proxy will
automatically be revoked if you execute the accompanying proxy or if you notify
the Secretary of the Company, in writing, prior to the Special Meeting of
Shareholders.
By Order of the Board of Directors
/s/Ronald J. Polito, Secretary
------------------------------
Ronald J. Polito
Dated: July 8, 1998
Whether Or Not You Expect To Attend The Meeting,
Please Complete, Date, And Sign The Enclosed Proxy And Mail It
Promptly In The Enclosed Envelope In Order To Assure Representation
Of Your Shares. No Postage Need Be Affixed If Mailed In The United States.
<PAGE>
USABG CORP.
53-09 97th Place
Corona, New York 11368
PROXY STATEMENT
FOR
Special Meeting of Stockholders
To Be Held on July 29, 1998
This proxy statement and the accompanying form of proxy were mailed on
July 8, 1998 to the stockholders of record (on June 24, 1998) of USABG Corp.
(the "Company"), a Delaware corporation, in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the Special Meeting
to be held on July 29, 1998 and at any adjournment thereof.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
Shares of the Company's Common Stock, par value $.001 per share (the
"Common Stock"), represented by an effective proxy in the accompanying form
will, unless contrary instructions are specified in the proxy, be voted FOR the
proposal to reverse-split the Company's outstanding shares on a 1 for 4 basis.
Any such proxy may be revoked at any time before it is voted. A
stockholder may revoke this proxy by (i) notifying the Secretary of the Company
either in writing prior to the Special Meeting or in person at the Special
Meeting; (ii) submitting a proxy bearing a later date; or (iii) voting in person
at the Special Meeting. An affirmative vote of a majority of the shares of
Common Stock, present in person or represented by proxy at the Special Meeting
and entitled to vote thereon, is required to approve the proposal to
reverse-split the Company's outstanding shares. A stockholder voting through a
proxy who abstains is considered to be present and entitled to vote on the
proposal at the meeting, and his abstention is, in effect, a negative vote;
however, a stockholder (including a broker) who does not give authority to a
proxy to vote or who withholds authority to vote on the proposal shall not be
considered present and entitled to vote on the proposal. A stockholder voting
through a proxy who abstains with respect to approval of any other matter to
come before the meeting is considered to be present and entitled to vote on that
matter, and his abstention is, in effect, a negative vote; however a stockholder
(including a broker) who does not give authority to a proxy to vote or who
withholds authority to vote on any such matter shall not be considered present
and entitled to vote thereon.
The Company will bear the cost of the solicitation of proxies by the
Board of Directors. The Board of Directors may use the services of its executive
Officers and certain Directors to solicit proxies from stockholders in person
and by mail, telegram, and telephone. Arrangements
2
<PAGE>
may also be made with brokers, fiduciaries, custodians, and nominees to send
proxies, proxy statements, and other material to the beneficial owners of the
Company's Common Stock held of record by such persons, and the Company may
reimburse them for reasonable out-of-pocket expenses incurred by them in so
doing.
The Company's quarterly report on Form 10-QSB for the quarter ended
March 31, 1998, including unaudited financial statements, accompanies this proxy
statement as Exhibit "A."
The principal executive offices of the Company are located at 53-09
97th Place, Corona, New York 11368; the Company's telephone number is (718)
699-0100.
VOTING SECURITIES AND SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The securities entitled to vote at the meeting are the Company's Common
Stock, par value $.001 per share. The presence, in person or by proxy, of a
majority of shares entitled to vote will constitute a quorum for the meeting.
Each share of Common Stock entitles its holder to one vote on each matter
submitted to stockholders. The close of business on June 24, 1998 has been fixed
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting and any adjournment thereof. At that date, 7,844,148
shares of Common Stock were outstanding. Voting of the shares of Common Stock is
on a non-cumulative basis.
The following table sets forth information as of May 31, 1998 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
(including any "group" as that term is used in ss. 13(d)(3) of the Securities
Exchange Act of 1934, as amended), known by the Company to be the owner of more
than 5% of the outstanding shares of Common Stock; (ii) each Director; and (iii)
all Officers and Directors as a group. Except to the extent indicated in the
footnotes to the following table, each of the individuals listed below possesses
sole voting power with respect to the shares of Common Stock listed opposite his
name.
3
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percent of Common Stock
Name and Address Beneficially Owned (1) Beneficially Owned (2)
---------------- ---------------------- ----------------------
<S> <C> <C>
Joseph M. Polito (3)
c/o USABG Corp.
53-09 97th Place 5,204,156 64.1%
Corona, New York 11368
Steven J. Polito (4)
c/o USABG Corp.
53-09 97th Place 152,500 *
Corona, New York 11368
Ronald J. Polito(5)
c/o USABG Corp.
53-09 97th Place 177,500 *
Corona, New York 11368
Marvin Weinstein
c/o USABG Corp.
53-09 97th Place -- --
Corona, New York 11368
Ronald Murphy
c/o USABG Corp.
53-09 97th Place -- --
Corona, New York 11368
All Officers and Directors as a group (5 5,534,156 68.8%
persons)
</TABLE>
*Less than 1%
(1) Unless otherwise noted, all of the shares shown are held by
individuals or entities possessing sole voting and investment power
with respect to such shares. Shares not outstanding but deemed
beneficially owned by virtue of the right of an individual or
entity to acquire them within 60 days, whether by the exercise of
options or warrants or through the conversion of a security, are
deemed outstanding in determining the number of shares beneficially
owned by such person or entity.
(2) The "Percent of Common Stock Beneficially Owned" is calculated
by dividing the "Number of Shares Beneficially Owned" by the sum of
(i) the total outstanding shares of Common Stock of the Company,
and (ii) the number of shares of Common Stock that such
person/entity has the right to acquire within 60 days, whether by
exercise of options or warrants or through the conversion of a
security. The "Percent of Common Stock Beneficially Owned" does not
reflect shares beneficially owned by virtue of the right of any
person, other than the person named and affiliates of said person,
to acquire them within 60 days, whether by exercise of options or
warrants.
4
<PAGE>
(footnotes continued from previous page)
(3) Includes (i) 275,000 shares issuable upon the exercise of an
option which is presently vested and exercisable; (ii) 192,000
shares of Common Stock issued in March 1998 in exchange for 106,667
shares of NY's common stock; and (iii) 150,000 shares of Common
Stock issued in March 1998. Does not include (i) 10,000 shares
issuable to Joseph M. Polito upon the exercise of options not
presently vested; and (ii) an aggregate of 251,000 shares gifted by
Joseph M. Polito, of which 81,000 shares were gifted to members of
Joseph M. Polito's family (including 50,000 each to Ronald and
Steven Polito) and 70,000 shares were gifted to employees of the
Company, as of January 23, 1995. Joseph M. Polito disclaims
beneficial ownership of all shares transferred to his family
members. See "Business -- Properties" and Certain Relationships and
Related Transactions."
(4) Includes (i) 75,000 shares issuable upon the exercise of an
option which is presently vested and exercisable; and (ii) 25,000
shares of Common Stock issued in March 1998.
(5) Includes (i) 100,000 shares issuable upon the exercise of an
option which is presently vested and exercisable; and (ii) 25,000
shares of Common Stock issued in March 1998.
It is expected that the following will be considered at the meeting and
that action will be taken thereon:
REVERSE STOCK SPLIT
In June 1998, the Company's Board of Directors voted to submit a
proposal to the Company's shareholders to reverse-split the Company's shares of
Common Stock on a 1 for 4 basis. Management of the Company is of the opinion
that a reverse-split of the Company's stock (1 new share for every 4 old shares)
is in the best interests of the Company's shareholders. All fractional shares
will be rounded up or down to the nearest whole shares. No cash will be paid for
any fractions of shares.
The Company's Common Stock is quoted on the Nasdaq SmallCap Stock
Market ("Nasdaq"), and in order for Nasdaq to continue to list the Company's
securities, the Company must maintain certain maintenance requirements as
follows: (i) net tangible assets of at least $2,000,000; (ii) at least 500,000
shares in the public float; (iii) a minimum market value for the public float of
$1,000,000; (iv) a minimum bid price of $1.00; (v) two market makers; and (vi)
at least 300 stockholders. In the event the Company's Securities are delisted
from Nasdaq, trading, if any, in the Securities will thereafter be conducted on
the over-the-counter market on the OTC Bulletin Board. Consequently, an investor
may find it more difficult to dispose, or to obtain accurate quotations as to
the price, of the Company's Securities. Quotation on Nasdaq does not imply that
a meaningful, sustained market for the Company's Securities will develop or that
if developed, it will be sustained for any period of time.
Since the Company's Common Stock is trading at approximately $0.28 per
share, the Company does not meet criteria (iv) above; therefore, its securities
are at risk of being delisted from quotation on Nasdaq. In effecting a reverse
stock split, however, the best strategy in management's belief, the Company
shall be able to increase its minimum bid price to satisfy this criteria and
maintain its Nasdaq listing. The reverse-split will be effected by reducing the
Company's present issued and outstanding shares from approximately 7,844,148
shares to approximately 1,961,037 shares. The effective date for purposes of
calculating the reverse-split will be as soon as practicable, after the meeting
date, as Nasdaq can effect the reverse-split within its systems.
5
<PAGE>
The affirmative vote of the holders of a majority of the shares of the
Common Stock issued and outstanding on the record date, voting together as a
single class, is required for the approval of this proposal. The Directors and
Officers of the Company and other principal stockholders owning of record,
beneficially, directly, and indirectly, an aggregate of approximately 68.8% of
such shares outstanding on the record date, have agreed to vote in favor of
approval of this proposal; therefore, this proposal shall be approved at the
meeting.
The Board of Directors recommends that you vote "FOR" this Proposal.
FINANCIAL INFORMATION
A Copy Of The Company's Annual Report On Form 10-KSB/A-1 For The Fiscal
Year Ended June 30, 1997, Filed With The Securities And Exchange Commission,
Will Be Furnished (Without The Accompanying Exhibits) To Stockholders Without
Charge Upon Written Request Therefor Sent To Ronald J. Polito, Secretary, USABG
Corp., 53-09 97th Place, Corona, New York 11368. Each Such Request Must Set
Forth A Good Faith Representation That As Of June 24, 1998 The Person Making The
Request Was The Beneficial Owner Of Shares Of The Company's Common Stock
Entitled To Vote At The Special Meeting Of Stockholders.
III. OTHER BUSINESS
As of the date of this proxy statement, the only business which the
Board of Directors intends to present, and knows that others will present, at
the Special Meeting is that hereinabove set forth. If any other matter or
matters are properly brought before the Special Meeting, or any adjournments
thereof, it is the intention of the persons named in the accompanying form of
proxy to vote the proxy on such matters in accordance with their judgment.
By Order of the Board of Directors,
/s/Ronald J. Polito
-------------------
Ronald J. Polito
Secretary
July 8, 1998
Whether Or Not You Expect To Attend The Meeting, Please
Complete And Return Your Proxy Promptly In The Enclosed Envelope. No
Postage Is Required If The Proxy Is Mailed In The United States Of America.
6
<PAGE>
Exhibit A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[xx] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-28140
USABG Corp.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2974406
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation) (IRS Employer Identification No.)
53-09 97th Place, Corona, New York 11368
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(718) 699-0100
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
(Former Name, Former Address, and Former Fiscal Year, If Changed Since Last
Report)
Check 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 registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [xx] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Common stock, par value $.001 per share: 7,844,148 shares outstanding
as of May 12, 1998.
<PAGE>
USABG CORP.
INDEX
PART 1. FINANCIAL INFORMATION:
Item 1. FINANCIAL STATEMENTS
Balance Sheets March 31, 1998 (Unaudited) and June 30, 1997 3
Statements of Operations (Unaudited)
for the three months ended March 31, 1998 and 1997 4
Statements of Operations (Unaudited)
for the nine months ended March 31, 1998 and 1997 5
Statement of Stockholders' Equity (Unaudited)
for the nine months ended March 31, 1998 6
Statements of Cash Flows (Unaudited)
for the nine months ended March 31, 1998 and 1997 7
Notes to Financial Statements 8-13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14-20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes In Securities And Use Of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission Of Matters To A Vote Of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits And Reports On Form 8-K 22
2
<PAGE>
<TABLE>
<CAPTION>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, June 30,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 511,389 $ 555,435
Cash restricted 222,280 214,001
Contracts and retainage receivable, net 10,831,768 8,962,297
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,545,272 2,225,723
Deferred tax asset 336,200 304,225
Due from officer and related parties 492,411 --
Other current assets 58,377 139,393
------------ ------------
Total current assets 13,997,697 12,401,074
Assets of discontinued operations -- 2,889,999
Deferred tax assets - non-current 30,200 74,575
Other assets 100,437 30,606
------------ ------------
Total assets $ 14,128,334 $ 15,396,254
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, including cash overdrafts of $45,372
and $149,290, respectively $ 1,786,531 $ 3,495,492
Accrued expenses 1,238,611 771,211
Payroll taxes payable 2,186,484 1,634,614
Income taxes payable 710,964 522,379
Convertible debentures 450,000 --
Liabilities of discontinued operations 150,000 3,039,999
Notes payable, including current portion of long-term obligations 445,358 145,358
Due to officer and related parties 152,376 166,540
Billings in excess of costs and estimated earnings
on uncompleted contracts -- 126,455
------------ ------------
Sub-total current liabilities 7,120,324 9,902,048
------------ ------------
Long-term obligations 1,350,000 --
------------ ------------
Minority interest 3,324,648 2,828,301
------------ ------------
Commitments and contingencies (Note 7) -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Stockholders' equity:
Preferred stock, authorized 10,000,000, issued and outstanding -0- shares
Common stock, $.001 par value, authorized 50,000,000 shares,
issued and outstanding 7,844,148 and 7,402,148, respectively 7,448 7,006
Additional paid-in capital 3,972,907 3,756,589
Accumulated deficit (1,028,276) (753,065)
------------ ------------
Subtotal 2,952,079 3,010,530
------------ ------------
Less: Stock subscription receivable (240,625) (240,625)
Deferred compensation and consulting (293,292) (104,000)
Prepaid rent (84,800) --
------------ ------------
Total subtractions (618,717) (344,625)
------------ ------------
Total stockholders' equity 2,333,362 2,665,905
------------ ------------
Total liabilities and stockholders' equity $ 14,128,334 $ 15,396,254
============ ============
</TABLE>
See notes to consolidated financial statements (unaudited)
3
<PAGE>
<TABLE>
<CAPTION>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1997
----------- -----------
<S> <C> <C>
Revenues $ 2,018,534 $ 1,915,553
----------- -----------
Costs and expenses:
Cost of contract revenues 1,350,392 1,156,070
General and administrative expenses 1,137,245 743,692
----------- -----------
Total costs and expenses 2,487,637 1,899,762
----------- -----------
Loss from operations before other income (expense),
minority interest and provision for income taxes (469,103) 15,791
----------- -----------
Other income (expense):
Interest expense (116,624) (77,368)
Gain on acquisition of subsidiary stock 11,307 --
----------- -----------
Total other income (expenses) (105,317) (77,368)
----------- -----------
Loss from operations before minority interest
and provision for income taxes (574,420) (61,577)
Minority interest in net loss (income) 51,741 (57,219)
----------- -----------
Loss before provision for income tax (benefit) expense (522,679) (118,796)
Provision for income tax (benefit) expense (7,468) 76,445
----------- -----------
Net loss $ (515,211) $ (195,241)
=========== ===========
Net loss per common equivalent share:
Basic:
Net loss $ (.07) $ (.03)
=========== ===========
Diluted:
Net loss $ (.07) $ (.03)
=========== ===========
Weighted average number of common shares outstanding 7,613,480 6,527,147
=========== ===========
Weighted average number of common shares outstanding
- assuming dilution 7,613,480 6,527,147
=========== ===========
</TABLE>
See notes to consolidated financial statements (unaudited)
4
<PAGE>
<TABLE>
<CAPTION>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1997
------------ ------------
<S> <C> <C>
Revenues $ 14,293,019 $ 7,722,994
Costs and expenses:
Cost of contract revenues 11,422,861 5,170,187
General and administrative expenses 2,585,647 2,310,929
------------ ------------
Total costs and expenses 14,008,508 7,481,116
------------ ------------
Income from operations before other income (expense),
minority interest and provision for income taxes 284,511 241,878
Other income (expense):
Interest expense (124,382) (232,366)
Gain on sale/acquisition of subsidiary stock 11,307 --
------------ ------------
Total other income (expense) (113,075) (232,366)
------------ ------------
Income from operations before minority interest
and provision for income taxes 171,436 9,512
Minority interest in net loss (income) (241,347) (224,931)
------------ ------------
Loss before provision for income tax expense (69,911) (215,419)
Provision for income tax expense 205,300 301,000
------------ ------------
Net loss $ (275,211) $ (516,419)
============ ============
Net (loss) income per common equivalent share:
Basic:
Net loss $ (.04) $ (.08)
============ ============
Diluted:
Net loss $ (.04) $ (.08)
============ ============
Weighted average number of common shares outstanding 7,472,591 6,499,369
============ ============
Weighted average number of common shares outstanding
- assuming dilution 7,472,591 6,499,369
============ ============
</TABLE>
See notes to consolidated financial statements (unaudited)
5
<PAGE>
<TABLE>
<CAPTION>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
Common Stock
stock Additional subscription Total
--------------------------- paid-in Accumulated and other Stockholders'
Shares Amount capital deficit deductions equity
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1997 7,402,148 $ 7,006 $ 3,756,589 $ (753,065) $ (344,625) $ 2,665,905
Issuance of common stock pursuant
to the Senior Management Incentive
Plan as consideration for services
provided to the Company 250,000 250 114,750 -- (92,000) 23,000
Issuance of common stock in
connection with prepayment
of subsidiary?s rent 192,000 192 101,568 -- (113,067) (11,307)
Deferred compensation in connection
with issuance of subsidiary's common
stock -- -- -- -- (217,500) (217,500)
Amortization of deferred expenses -- -- -- -- 120,208 120,208
Amortization of prepaid rent -- -- -- -- 28,267 28,267
Net loss for the nine months ended
March 31, 1998 -- -- -- (275,211) -- (275,211)
----------- ----------- ----------- ----------- ----------- -----------
Balances at March 31, 1998 7,844,148 $ 7,448 $ 3,972,907 $(1,028,276) $ (618,717) $ 2,333,362
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements (unaudited)
6
<PAGE>
<TABLE>
<CAPTION>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1997
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $ (275,211) $ (516,419)
Adjustments to reconcile net loss to net
cash (used) for operating activities:
Depreciation and amortization 8,787 369,740
Amortization of deferred compensation & consulting 120,208 26,125
Bad debt recovery (128,000) --
Issuance of common stock for services 23,000 107,453
Amortization of prepaid rent 28,267 --
Deferred tax 12,400
Gain on subsidiary stock (11,307) --
Minority interest increases (decreases) 278,847 224,931
Decrease (increase) in:
Accounts receivable (1,741,471) (3,641,588)
Prepaid expenses -- (3,150)
Costs and estimated earnings in excess of
billing on uncompleted contracts 680,451 1,044,828
Other current assets (6,716) 22,697
Increase (decrease) in:
Accounts payable 41,039 1,439,023
Accrued expenses 467,400 188,622
Payroll taxes payable 551,870 283,105
Billings in excess of costs and estimated earnings
on uncompleted contracts (126,455) 12,892
Income taxes payable 188,585 301,000
----------- -----------
Net cash used for operating activities 111,694 (140,741)
----------- -----------
Investing activities:
Fixed asset acquisitions (87,779) (5,677)
Increase in restricted cash (8,279) --
----------- -----------
Net cash used for investing activities (96,058) (5,677)
----------- -----------
Financing activities:
Proceeds from convertible debentures 450,000 --
Proceeds from related parties 118,456 --
Due to officer (132,620) --
Loans from related parties (395,518) 94,532
Principal payments on mortgage payable -- --
Repayment of notes payable (100,000) (479)
----------- -----------
Net cash provided by financing activities (59,682) 94,053
----------- -----------
Net (decrease) in cash (44,046) (52,365)
Cash, beginning 555,435 399,652
----------- -----------
Cash, ending $ 511,389 $ 347,287
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the nine months for:
Interest $ 11,564 $ 7,599
=========== ===========
Taxes $ -- $ --
=========== ===========
Supplemental disclosure of non-cash investing and financing activities:
Issuance of common stock in connection with services provided
to the Company $ -- $ 257,453
=========== ===========
Surrender of property, plant and equipment in lieu of foreclosure
on mortgage $ 2,889,999 $ --
=========== ===========
Conversion of accounts payable to note payable $ 1,750,000 $ --
=========== ===========
</TABLE>
See notes to consolidated financial statements (unaudited)
7
<PAGE>
USABG CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
NOTE 1 - GENERAL
The consolidated financial statements of USABG Corp. (the
"Company") at March 31, 1998 and 1997 include the accounts of
its subsidiary USA Bridge Construction of N.Y. Inc ("NY")
(56.8%) and its wholly-owned subsidiaries Royal Steel
Services, Inc. ("Royal"), Worldwide Construction Limited
("Worldwide"), One Carnegie Court Associates, Ltd. ("One
Carnegie") and USA Bridge Construction Corp. (Maryland)
("MD"), after elimination of all significant intercompany
transactions and accounts.
Royal Steel was formed in November 1997, in order for the
Company to conduct work on its smaller base contracts. To
date, Royal Steel has commenced work on two projects,
aggregating approximately $215,000. Worldwide was formed by
the Company in December 1997 and is a British Virgin Islands
corporation. It was formed to own 80% of each of Falcon TChad
S.A. ("Falcon") and Portshop S.A. ("Portshop"), both of which
companies were formed in N'Djamena, Chad. Falcon was formed in
February 1998 to operate as a full service transportation,
forwarding, and warehousing company. Portshop was formed in
February 1998 to stock and operate a duty free store in Chad's
sole international airport. Worldwide shall operate as the
liaison between Portshop and Falcon and the governmental or
private entities with which both companies intend to contract
in Chad. As of March 31, 1998, no activity has commenced in
Worldwide.
The accompanying unaudited consolidated financial statements
of the Company have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of management,
the consolidated interim financial statements include all
adjustments necessary in order to make the consolidated
financial statements not misleading. The results of operations
for the three and nine months ended are not necessarily
indicative of the results to be expected for the full year.
For further information, refer to the Company's audited
consolidated financial statements and footnotes thereto at
June 30, 1997, included in the Company's Annual Report Form
10-KSB, filed with the Securities and Exchange Commission.
NOTE 2 - NOTE PAYABLE
a) In August 1994, the Company secured a $250,000 credit line
with a bank at an interest rate of one and one half percent
(11/2%) above the prime rate. Interest is payable on the first
day of each month which commenced October 1, 1994. Said credit
line is payable on demand. The line of credit is secured by a
certificate of deposit. At March 31, 1998 the balance was
$145,358.
b) In November 1997, NY entered into an agreement with the Iron
Workers Local 40, 361, and 417 Joint Security Funds (the
"Union") in order to liquidate $1,750,000 owed for unpaid
union dues previously recorded as accounts payable. NY agreed
to pay $75,000 by January 1998 and at least $25,000 monthly
commencing March 1, 1998 with interest at 9.5% per annum. As
collateral, NY assigned its retainage receivable from a
certain project as well as $1,750,000 of its related
mechanic's lien (which was discharged upon the lien-debtor's
posting of a bond with the court). Upon any funds
8
<PAGE>
USABG CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
being released or paid under such bond, the Union will be
repaid any balance it is owed, in full, before NY may receive
any funds. NY will receive credit for any payments received by
the Union related to the assigned portion of the mechanics
lien.
NOTE 3 - CONVERTIBLE DEBENTURES
In January 1998, the Company raised a net of $393,000 after a
10% commission (and expenses), in connection with a private
placement to fund the Worldwide operations, from the sale of
$450,000 of convertible debentures. Such debentures are due
January 30, 2000 with interest accruing at 8% per annum.
Holders of the debentures are entitled to convert the entire
face of the debentures plus accrued interest, at the lesser of
(a) 100% of the 5-day average closing bid price, for the 5
trading days immediately preceding the closing date of the
offering (February 3, 1998) or b) 75% of the 5-day average
closing bid price for the 5 trading days immediately preceding
the date of conversion. The Company agreed to file a
Registration Statement covering the shares of common stock to
be issued upon conversion of the debentures, and if not
declared effective within 90 days following the closing of the
offering, then there shall be a decrease of the conversion
ratios by 2.5% per 30 day period or portion thereof pro rata,
until the Registration Statement has been declared effective.
In addition, the purchasers of the debentures received
warrants to purchase an aggregate of 100,000 shares of common
stock, 50,000 shares at an exercise price of $1.125 per share
and 50,000 shares at $1.41 per share. The funds are being
loaned to Worldwide to commence operations in Chad.
As a result of the beneficial conversion feature, the Company
will record additional interest of $166,667 which will be
amortized over the period between date of issuance and the
estimated date of conversion, or six months. The recording of
additional interest results in an effective interest rate of
74.7%.
NOTE 4 - MINORITY INTEREST
As noted in Note 1, the Company has ownership of 56.8% of NY
(inclusive of the President's ownership thereof). During
February 1998, the Company's ownership increased from 53% to
55% (not inclusive of the President's shares) and during March
1998, the Company's ownership decreased to 48% (not inclusive
of the President's shares). The Company, along with its
President, owns more than 50% of the outstanding shares of NY.
Accordingly, as of March 31, 1998 and December 31, 1997, the
Company's minority interest amounting to $3,324,648 and
$2,828,301, respectively, is a result of the stock
transactions of NY and the proportionate share of income and
losses attributable to minority stockholders.
NOTE 5 - STOCKHOLDERS' EQUITY
a) Issuance of common stock
i) In December 1997, NY agreed to issue 106,667 shares
of its common stock to the Company as consideration
to the Company for issuing 192,000 shares of its own
common stock to R.S.J.J. Realty Corp. ("RSJJ") in
consideration for payment in full of the rent due by
NY to RSJJ for the period from January 1, 1998 to
December 31, 1998. The value of the shares issued by
NY are
9
<PAGE>
USABG CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
recorded at their estimated market value at the date
of issuance of $2.12 per share, with a 50% discount
due to the restricted nature of the stock. The value
of the shares issued by the Company are recorded at
their estimated market value at date of issuance
($1.06 per share) with a 50% discount due to the
restricted nature of the stock. The difference in
market values of stock will be reported as a gain on
conversion of approximately $11,307.
ii) In December 1997, the Company authorized the issuance
of 250,000 shares of its common stock pursuant to its
Senior Management Incentive Plan. Of the 250,000
shares, 150,000 were issued to the Company's
President, and 25,000 were issued to each of the
Company's Secretary and Treasurer. These shares vest
50% on June 1, 1998 and 50% on January 1, 1999. The
remaining 50,000 shares were issued to consultants to
the Company and vest immediately. The Company also
authorized the filing of a Post-Effective Amendment
to the Form S-8 Registration Statement initially
filed in February 1997 register the resale of
management's shares. In connection with such
issuance, the Company recorded compensation and
consulting expense amounting to $115,000 which is
based on the average closing bid price of $0.92 share
for the third quarter of the Company's fiscal year,
with a 50% discount due to the restricted nature of
the stock. The above shares which do not vest
immediately have been recorded as deferred
compensation and are being amortized over the vesting
period.
NOTE 6 - ISSUANCE OF SUBSIDIARY STOCK
a) Issuance of common stock
i) In December 1997, NY agreed to issue 106,667 shares
of its common stock to the Company as consideration
to the Company for issuing 192,000 shares of its own
common stock to RSJJ in consideration for payment in
full of the rent due by NY to RSJJ for the period
from January 1, 1998 to December 31, 1998. The value
of the shares issued by NY are recorded at their
estimated market value at the date of issuance of
$2.12 per share, with a 50% discount due to the
restricted nature of the stock.
ii) In December 1997, NY authorized the issuance of
290,000 shares of its common stock during the third
quarter of its fiscal year pursuant to its Senior
Management Incentive Plan. Of the 290,000 shares,
150,000 were issued to NY's President, 70,000 were
issued to NY's Secretary, and 70,000 were issued to
NY's Treasurer. These shares vest 50% on June 1, 1998
and 50% on January 1, 1999. NY also authorized the
issuance of 50,000 shares to employees and
consultants of NY which vest immediately. NY
authorized the filing of a Post-Effective Amendment
to the Form S-8 Registration Statement initially
filed in February 1997 to register management's
shares. In connection with such issuance, NY recorded
compensation and consulting expense amounting to
approximately $255,000 which is based on the average
closing bid price of $1.50 per share for the month of
March 1998, with a 50% discount due to the restricted
nature of the stock. The above shares which do not
vest immediately have been recorded as deferred
compensation and are being amortized over the vesting
period.
10
<PAGE>
USABG CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
NOTE 7 - COMMITMENTS AND CONTINGENCIES
a) Disclosure of significant estimates - revenue recognition
NY's construction revenue is recognized on the percentage of
completion basis. Consequently, construction revenue and gross
margin for each reporting period is determined on a contract
by contract basis by reference to estimates by NY's management
and engineers of expected costs to be incurred to complete
each project. These estimates include provisions for known and
anticipated cost overruns, if any exist or are expected to
occur. These estimates may be subject to revision in the
normal course of business.
b) Lease agreement
NY leases its administrative offices and storage space
pursuant to a signed lease agreement with an affiliate owned
by the Company's President. Such lease requires monthly
payments of $20,000 and expires on December 31, 1998. Under
such lease agreement, NY is required to make future minimum
lease payments as follows:
Year Ending
June 30,
--------
1998 $ 240,000
1999 120,000
---------
Total $ 360,000
=========
NY also leases a yard for storage of material pursuant to an
oral agreement with an unrelated party which requires monthly
payments of $3,500. NY settled the rent for the period January
1 through December 31, 1998 by issuance of stock valued at
$113,067 as compared to the $240,000 it would have been
required to pay under the lease agreement. Accordingly,
included in general and administrative expenses is rent
expense which amounted to $38,767 and $70,500, respectively,
for the three months ended March 31, 1998 and 1997 and
$179,767 and $211,500, respectively for the nine months ended
March 31, 1998 and 1997. As of March 31, 1998, $98,000 and
$66,500, respectively, of rent remains unpaid and is included
in accounts payable.
c) Significant customers
For the nine months ended March 31, 1998 and 1997, NY had
three and three unrelated customers, respectively, which
accounted for approximately 60%, 12% and 12%, and 34%, 31% and
17% of total revenues. As of March 31, 1998, approximately 17%
and 55% of contracts and retainage receivables are due from
two customers.
For the three months ended March 31, 1998 and 1997, NY had two
and four unrelated customers, respectively, which accounted
for approximately
11
<PAGE>
USABG CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
76% and 24% and 48%, 19%, 12%, and 10%, respectively, of total
revenues. As of June 30, 1997, approximately 22%, 21%, 15%,
and 24% of contracts and retainage receivables net of
allowances for doubtful accounts are due from four customers.
d) Seasonality
NY operates in an industry which may be seasonal, generally
due to inclement weather occurring during the winter months.
Accordingly, the Company may experience a seasonal pattern in
its operating results with lower revenue in the third quarter
of each fiscal year. Quarterly results may also be affected by
the timing of bid solicitations by governmental authorities
and the stage of completion of major projects.
e) Bonding requirements
NY is required to provide bid and/or performance bonds in
connection with governmental construction projects. To date,
NY has been able to obtain sufficient bonding for its private
projects. NY is continuously pursuing obtaining bonding for
its governmental construction projects. In addition, new or
proposed legislation in various jurisdictions may require the
posting of substantial additional bonds or require other
financial assurances for particular projects. NY has been
unable to bid as a general contractor on New York State and
New York City projects as a result of its inability to obtain
bonding from a New York licensed bonding company.
f) Payroll Taxes
As of December 31, 1997 and June 30, 1997, NY and MD owe
approximately $2,186,484 and $1,634,614, respectively, of
payroll taxes and related estimated interest and penalties.
Although as of December 31, 1997 NY and MD have not entered
into any formal repayment agreements with the respective tax
authorities, they have been making payments based on oral
agreements.
h) Mechanic's liens
As of June 30, 1997, three actions to foreclose upon mechanics
liens filed during the fiscal year were commenced. Such
actions seek relief in the amount of $3,278,775. As of
December 31, 1997, additional mechanic's liens were filed,
bringing the total relief sought to $16,919,542.
The mechanic's liens have been filed in relation to work
completed and billed. As such, these amounts are included in
contracts and retainage receivable. Based upon the assessment
of management and legal counsel, the Company has recorded on
allowance for doubtful account to adjust the receivables to
their estimated realizable amount.
i) Legal proceedings
The Company's subsidiaries are parties to various claims and
legal proceedings incidental to its business. In management's
opinion, the
12
<PAGE>
USABG CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
outcome of these claims and proceedings will not have a
material adverse effect on the financial statements of the
Company taken as a whole.
j) Claims
The Company elected not to recognize any portion of the
revenue associated with any contract claims until the amounts
recoverable can be accurately estimated. Claims are amounts in
excess of the agreed contract price which the Company seeks to
collect for customer caused delays, errors in specifications
and designs, contract terminations, change orders in dispute
or unapproved.
NOTE 8 - RELATED PARTY TRANSACTIONS
a) Due to related parties
As of March 31, 1998 and June 30, 1997, the total due to
officer and related parties, amounting to $152,376 and
$166,540, respectively represents advances made by the
President of the Company and affiliated entities which bear no
interest and are due on demand.
b) Due from related parties
As of March 31, 1998, the Company has advanced funds to its
President and certain affiliates. These advances are
non-interest bearing and are due on demand. As of March 31,
1998, such advances amounted to $492,411.
c) Purchase of material and labor
For the nine months ended March 31, 1998 and 1997, NY paid $0
and $33,500, respectively, to MD for certain materials and
labor necessary to perform steel erection services.
d) Rent expense
Included in general and administrative expenses is rent
expense paid pursuant to a signed lease agreement with a
Company owned by the Company's majority stockholder. Such rent
amounted to $28,267 and $60,000 for the three months ended
March 31, 1998 and 1997, respectively. As of March 31, 1998,
$88,400 of rent is prepaid (see Note 5(f)(i)) and is included
as a reduction of equity.
NOTE 9 - SUBSEQUENT EVENTS
a) During April 1998, NY redeemed its certificate of deposit of
approximately $222,000, repaying a loan of approximately
$147,000 on behalf of the Company. The balance of the funds
were deposited into NY's operating account.
<PAGE>
b) On May 12, 1998, the Company executed a letter of intent to
sell all of its holdings in NY to Amalgamated Resources
Management S.A. ("ARM") for an aggregate of $10,220,000. This
sale shall occur simultaneously with the closing of NY's
acquisition of 51% of the common stock of First Anglo-Swiss
Holdings, Inc. ("FAS") in exchange for 510,000 shares of NY's
13
<PAGE>
USABG CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
common stock. The acquisition is contingent upon approval by
the Boards of Directors and Stockholders of both companies as
well as consummation of the ninety day due diligence, contract
drafting, and auditing processes. The acquisition is also
contingent upon FAS' consummation of acquisitions of certain
other companies and assets and the completion of an audit of
FAS' (and its subsidiaries') financial statements within
ninety days.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 ("Act") provides a
safe harbor for forward-looking information made on behalf of NY. All
statements, other than statements of historical facts, which address NY's
expectation of sources of capital or which express NY's expectation for the
future with respect to financial performance or operating strategies can be
identified as forward-looking statements. Forward-looking statements made by NY
are based on knowledge of the environment in which it operates; however, because
of the factors previously listed, as well as other factors beyond the control of
NY, actual results may differ materially from the expectations expressed in the
forward-looking statements.
General
USABG Corp. (the "Company") was incorporated on September 12, 1988, in
the State of Delaware, as Colonial Capital Corp. The Company's current name was
established via the filing, in January 1998, of an amendment to its Certificate
of Incorporation. The Company currently owns 48.46% of the outstanding shares of
USA Bridge Construction of N.Y., Inc. ("NY"), 100% of the outstanding shares of
common stock of Worldwide Construction Limited ("Worldwide"), and Royal Steel
Services, Inc. ("Royal Steel"). These three subsidiaries are the only ones
through which the Company currently operates. Two additional subsidiaries of the
Company (each a wholly-owned subsidiary), One Carnegie Court Associates, Inc.
and USA Bridge Construction Corp. (Maryland) ("MD") ceased operations in August
1997 and November 1996, respectively.
Royal Steel was formed during November 1997, in order for the Company
to conduct work on its smaller base contracts. Worldwide was formed by the
Company in December 1997 and is a British Virgin Islands corporation. It was
formed as a holding company intended to own 80% of each of Falcon TChad SA
("Falcon") and Portshop S.A. ("Portshop"), both of which companies are
registered in Chad, a country located in Central North Africa. The remaining 20%
of each of Falcon and Portshop is owned by Diversified Investments Africa S.A.
("DIA"), a Luxembourg company unaffiliated with the Company. Falcon will operate
as a full service transportation, forwarding, and warehousing company in the
city of N'Djamena. Portshop shall stock and operate a duty free store in Chad's
sole international airport. Worldwide shall operate as the liaison between
Portshop and Falcon and the governmental or private entities with which Falcon
and Portshop intend to contract in Chad.
<PAGE>
The following management's discussion and analysis for the three and
nine months ended March 31, 1998 and 1997 are that of the Company's subsidiaries
since the Company itself did not have any material operations of its own except
for primarily stock related transactions.
NY's operations are substantially controlled by Joseph M. Polito since
he owns approximately 66% of the outstanding shares of the Company and may be
considered the
14
<PAGE>
beneficial owner of NY. Mr. Polito is also a 100% shareholder of R.S.J.J. Realty
Corp. ("RSJJ"). RSJJ leases the administrative office space to NY at a cost of
$20,000 per month pursuant to a signed lease agreement which extends through
December 31, 1998. Mr. Polito also has ownership interests in Waldorf Steel
Fabricators, Inc. ("Waldorf") (which ceased operations on August 1, 1995), Crown
Crane, Inc., and Atlas Gem Leasing, Inc. which provided services to NY for the
three and nine months ended March 31, 1998 and 1997. Lastly, NY purchased from
MD, certain materials and labor to perform steel erection service. For the three
months ended March 31, 1998 and 1997, no such services were utilized. For the
nine months ended March 31, 1998 and 1997, purchases by NY from MD amounted to
$0 and $33,500, respectively. MD ceased operations during September 1996 and,
accordingly, NY has since purchased its steel from unrelated parties.
NY commenced operations in or about June 1993 to serve primarily as a
general contractor for construction projects sponsored by federal, state, and
local government authorities in the New York State and Metropolitan areas.
Though formed to operate as a general contractor, NY has operated primarily as a
subcontractor and as a prime contractor on two projects. As of March 31, 1998,
NY has completed in excess of twenty-one (21) projects with an aggregate project
value of approximately $40,000,000 and is currently engaged in two (2) projects
with an aggregate value of approximately $10,790,150. NY plans to maintain its
subcontractor presence in the steel industry; however, it intends also to focus
on obtaining projects as a general contractor.
In December 1996, NY obtained a commitment for a Surety Bond Line of
Credit ($10,000,000 single project limit) from UAGC for its general contracting
projects. This commitment allows NY to pursue those general contracting projects
in the public and private sectors which require Performance Bonds. To date, it
has also allowed NY to obtain Performance Bonds and Labor and Material Bonds for
the three subcontracting projects which have required same; the EkleCo., Grand
Central Terminal, and Korean Mission projects. However, since New York State and
City agencies require bonds from bonding companies licensed by the State of New
York and UAGC is not a New York licensed bonding company, NY has been unable to
bid as a general contractor on projects for New York State and City agencies. NY
has approached several New York licensed bonding companies, but as of the date
hereof, has not been approved by any company to receive bonding.
Though NY does not believe its business is seasonal, its operations are
generally slow in the winter months due to the decrease in worker productivity
because of weather conditions. Accordingly, NY may experience a seasonal pattern
in its operating results with lower revenue in the third quarter of each fiscal
year. Interim results may also be affected by the timing of bid solicitation,
the stage of completion of major projects and revenue recognition policies. For
the year ended June 30, 1997 and for the nine months ended March 31, 1998, NY
obtained new contracts valued at approximately $1,889,000 and $20,000,
respectively. NY did not obtain any material new contracts for the nine months
ended March 31, 1998 because it did not provide the lowest bids for the projects
for which it submitted same.
NY recognizes revenue and costs for all contracts under the percentage
of completion method. Cost of contract revenues includes all direct material and
labor costs and those indirect costs related to contract performance. General
and administrative expenses are accounted for as period costs and are,
therefore, not included in the calculation of the estimates to complete
construction contracts in progress. Material project losses are provided for in
their entirety without reference to the percentage of completion. As contracts
can extend over one or more accounting periods, revision in costs and earnings
15
<PAGE>
estimated during the course of the work are reflected during the accounting
period in which the facts become known.
The current asset "costs and estimated earnings in excess of billings
on uncompleted contracts" represents revenues recognized in excess of amounts
billed on respective uncompleted contracts at the end of each period. The
current liability "billings in excess of costs and estimated earnings on
uncompleted contracts" represents billings which exceed revenues recognized on
respective uncompleted contracts at the end of each period.
An amount equal to the costs attributable to unapproved change orders
and claims is included in the total estimated revenue when realization is
probable and the amount can be estimated. NY has elected not to recognize any
portion of the revenue associated with such unapproved change orders and claims
until the amounts have been received or awarded. Claims are amounts in excess of
the agreed contract price which NY seeks to collect for customer-caused delays,
errors in specifications and designs, contract terminations, or change orders
which are either in dispute or unapproved.
Three months ended March 31, 1998 as compared to three months ended March 31,
1997
Contract revenues for the three months ended March 31, 1998 and 1997
amounted to $1,969,865 and $1,915,553, respectively. This net increase,
amounting to $54,312 (or approximately 3%) is partially a result of NY's backlog
as of June 30, 1997, which amounted to approximately $7,900,000, and the change
orders and termination of the EklecCo and Korean projects. The change orders for
the three months ended March 31, 1998 amounted to approximately $175,000 for
ongoing projects. During the three months ended March 31, 1998, approximately
$290,000 (or 17%) of the revenue recognized during the period was collected. The
remaining amounts uncollected represent retainage expected to be collected
within the next one to two years or amounts which NY is attempting to collect
under mechanic's liens for which actions to foreclose same have been commenced.
Approximately $213,000 (or 11%) of the revenue recognized was not billed at
March 31, 1998.
During the three months ended March 31, 1998, NY did not provide the
lowest bids for the projects for which it submitted bids, and thus, obtained no
new contracts during that period. As of March 31, 1998, NY's backlog amounted to
approximately $600,000. Backlog represents the amount of revenue NY expects to
realize from work to be performed on uncompleted contracts in progress and from
contractual agreements for which work has not yet begun.
On October 14, 1997, NY filed a mechanic's lien in the amount of
$13,640,767 against EklecCo (f/k/a Pyramid Company of Rockland). On October 16,
1997, in New York State Supreme Court, Rockland County, EklecCo commenced suit
against NY seeking to vacate the mechanic's lien filed against same and seeking
specific enforcement of the contract, declaratory relief, damages for slander of
title, and approximately $500,000,000 in damages from NY for breach of contract
and intentional interference with contractual relations. The lien was not
vacated, however, and on February 9, 1998, EklecCo posted a bond in the amount
of $14,254,730 to secure payment of NY's $13,640,747 mechanic's lien, interest,
and court costs; accordingly, the court granted EklecCo's motion to discharge
said lien.
The Company's gross profit for the three months ended March 31, 1998
and 1997 amounted to 31% and 41%, respectively. The decrease in gross profit for
the three months ended March 31, 1998 as compared to the three months ended
March 31, 1997 is primarily a result of an overall different mix of contracts
with a lower gross profit percentage and a
16
<PAGE>
decrease in estimated gross profit on the Louis Vuitton and Grand Central jobs
resulting from high than expected remobilization costs and change orders with
lower gross profits.. The overall estimated gross profit for the three months
ended March 31,1998 was approximately 21% as compared to the three months ended
March 31, 1997 whereby the overall estimated average gross profit was 28%.
Additionally, the effect of change orders and adjustments to estimated costs, as
well as the interruption and termination of certain jobs, has resulted in
reductions of overall gross profit.
Below is a summary of NY's billings and collections for the three
months ended March 31, 1998:
<TABLE>
<CAPTION>
Gross contract and Allowances for Net contracts
Retainage receivables uncollectible receivables
--------------------- ------------- -----------
<S> <C> <C> <C>
Balances at December 31, 1997 $ 12,304,153 $ 2,159,000 $ 10,145,153
Billings 1,481,683 - 1,481,683
Collections 795,068 - 795,068
Balances at March 31, 1998 12,990,768 $2,159,000 10,831,768
</TABLE>
Through May 15, 1998, NY collected approximately $815,000 (or 8%) of
its net contract receivables. As of March 31, 1998, $5,917,454 (or approximately
55%) of its net receivables is due from the EklecCo project. The project was to
be performed in two phases. NY commenced work on Phase I during June 1996. The
project was terminated in October 1997, when it was approximately 98% complete.
On October 14, 1997, NY filed a mechanic's lien in the amount of $13,640,767
against EklecCo (f/k/a Pyramid Company of Rockland), for the EklecCo project.
In addition to the EklecCo lien, NY has filed various other liens on
certain other projects with net receivables amounting to approximately
$1,877,214. With regards to the remaining receivables, amounting to
approximately $3,018,000 (approximately $795,000 of which represents retainage
that is not expected to be collected within one year), NY expects to collect
approximately the remaining $2,223,000 by the end of the fiscal year ended June
30, 1999.
As of March 31, 1998, NY was engaged in two (2) major projects (Grand
Central Terminal and Louis Vuitton), with a total contract value amounting to
$10,732,750 whereby the backlog associated therewith amounted to $600,000. The
contract receivables associated with these ongoing projects is approximately
$1,244,000. In January 1998, due to certain disputes on the Korean Mission
project, NY received a contract termination letter from the general contractor
thereof.
General and administrative expenses have increased by $393,553 (or 53%)
to $1,137,245 for the three months ended March 31, 1998 from $743,692 for the
three months ended March 31, 1997.
17
<PAGE>
The increase in general administration costs is mainly attributable to
an overall increase of NY's administrative salaries associated with the material
increase in contract revenue and certain general corporate overhead.
For the three months ended March 31, 1998, the Company recorded an
estimated income tax benefit of $7,468 whereby for the three months ended March
31, 1997 the Company recorded an estimated income tax expense of $76,445.
Nine months ended March 31, 1998 as compared to the nine months ended March 31,
1997
Contract revenues for the nine months ended March 31, 1998 and 1997
amounted to $14,239,151 and $7,691,412, respectively. This net increase of
$6,547,739 (or approximately 85%) is a direct result of NY's $7,900,000 backlog
as of June 30, 1997. This backlog amount represents the contracts NY entered
into during the latter part of its June 30, 1997 fiscal year. During the nine
months ended March 31, 1998, NY obtained new contracts and change orders to
previous contracts aggregated approximately $2,608,000. Revenues for the nine
months ended March 31, 1998 increased 85% as compared to the nine months ended
March 31, 1997.
As of March 31, 1998, NY's backlog amounted to approximately $600,000.
Backlog represents the amount of revenue NY expects to realize from work to be
performed on uncompleted contracts in progress and from contractual agreements
for which work has not yet commenced. NY's gross profit for the nine months
ended March 31, 1998 and 1997 amounted to 21% and 31%, respectively, a decrease
of 10%.
Below is a summary of NY's billings and collections for the nine months
ended March 31, 1998:
<TABLE>
<CAPTION>
Gross contract and Allowances for Net contracts
retainage receivables uncollectibles receivables
--------------------- -------------- -----------
<S> <C> <C> <C>
Balances at June 30, 1997 $ 11,249,297 $ 2,287,000 $ 8,962,297
Billings 14,489,359 - 14,489,359
Collections 12,747,888 128,000 12,619,888
Balances at March 31, 1998 12,990,768 $2,159,000 10,831,768
==========
</TABLE>
As of March 31, 1998, NY collected $128,000 of its allowance to reserve
for the uncollectibility of certain receivables for which mechanic's liens were
filed.
General and administrative expenses have increased by $274,718 (or 12%)
to $2,585,647 for the nine months ended March 31, 1998 from $2,310,929 for the
nine months ended March 31, 1997. The increase in general administration costs
is mainly attributable to an overall increase in NY's administrative salaries
associated with the material amount of increase in contract revenue and the
18
<PAGE>
Company's stock-based compensation expenses.
Liquidity and Capital Resources
Of the $10,800,000 of net contract and retainage receivables as of
March 31, 1998 through May 15, 1998, NY has collected approximately $815,000 or
8%. The timing of the collectibility of $7,866,448, which represents the amount
of receivables (net of allowances) associated with mechanic?s liens placed by NY
on certain jobs, cannot be determined by NY due to the surrounding circumstances
and the legal process associated in collecting funds whereby a lien has been
placed on a project. The remainder of the receivables is expected to be
collected by the end of the first quarter of fiscal 1998 - 99.
As a result of the slow collection process associated with the above
circumstances, the Company was unable to pay its payroll tax obligations and
rent on a timely basis. Upon the collection or settlement of a major portion of
contracts receivable, the Company?s first priority is to pay down its payroll
tax obligations as much as possible. The accrued and unpaid rent has been
settled by NY with NY issuing stock to its landlord, RSJJ. Although the lack of
no new contracts has an effect on revenues and net income the Company is
confident that based on its bidding process, it will obtain new contracts. Based
on the Company?s backlog at December 31, 1997, amounting to approximately
$600,000 and its vigorous attempts to collect a portion of its contract
receivables, as well as the progress on the EklecCo lien, the Company expects to
generate sufficient cash flow to satisfy its cash requirements during the next
twelve months.
Net cash provided by operating activities amounted to $111,694 for the
nine months ended March 31, 1998. The major components of such provision of cash
was directly attributed to the Company?s loss amounting to $275,211 and
increases in accounts receivables net of increases of its payroll taxes payable
and accrued expenses. For the nine months ended March 31, 1997, the net cash
used for operating activities amounted to $140,741 which were principally
attributable to increases in account receivables, decreases in costs and
estimated earnings in excess of billings on uncompleted contracts, and increases
in accounts payable.
With regards to investing activities, the Company used $96,058 of cash
for the nine months ended March 31, 1998 for the acquisition of fixed assets,
primarily in regard to Worldwide activity, and an increase in the value of
restricted cash.
The Company used $59,682 in cash from financing activities for the nine
months ended March 31, 1998. Such cash was used primarily by advances to
affiliates and officers, and payments on long-term obligations, net of new
borrowings.
As of March 31, 1998, the Company owes approximately $2,186,000 of
payroll taxes and related estimated penalties and interest. Although as of March
31, 1998, the Company has not entered into any formal repayment agreements with
the respective tax authorities, it has been making payments to same based on
oral arrangements negotiated therewith.
In November 1997, NY entered into an agreement with the Iron Workers
Locals 40, 361, and 417 Joint Security Funds (the "Union") in order to liquidate
$1,750,000 owed for unpaid union dues and benefits. NY agreed to pay $75,000 by
January 1998 and at least $25,000 monthly commencing March 1, 1998 with interest
at 9.5% per annum. As collateral, NY assigned its retainage receivable from the
EklecCo project as well as $1,750,000 of NY's related mechanic's lien (which was
discharged on the lien-debtor's payment of a bond with the court). Upon the
distribution of any funds under such
19
<PAGE>
bond, the Union will be repaid any balance it is owed, in full, and NY shall
receive the remainder thereof. NY will receive credit for any payments received
by the Union related to the assigned portion of the bond.
During December 1997, the Company authorized the issuance of 250,000
shares of its common stock pursuant to its Senior Management Incentive Plan. Of
the 250,000 shares, 150,000 were issued to the Company's President, and 25,000
each to the Company's Secretary and Treasurer. These shares vest 50% on June 1,
1998 and 50% on January 1, 1999. The remaining 50,000 shares were issued to
consultants to the Company and vest immediately. The Company also authorized the
filing of an amended Form S-8 Registration Statement filed during February 1997
to reflect the increase to 2,000,000 shares which may be issued under the plan
and the registration of the above shares. In connection with such issuance, the
Company recorded compensation and consulting expense amounting to $115,000 which
is based on the average closing bid price of $0.92 share for the third quarter
of the Company?s fiscal year, with a 50% discount due to the restricted nature
of the stock. The above shares which do not vest immediately have been recorded
as deferred compensation and are being amortized over the vesting period.
During December 1997, NY authorized the issuance of 290,000 shares of
its common stock during the third quarter of its fiscal year pursuant to its
Senior Management Incentive Plan. Of the 290,000 shares, 150,000 were issued to
the NY's President, 70,000 to NY's Secretary, and 70,000 to NY's Treasurer.
These shares vest 50% on June 1, 1998 and 50% on January 1, 1999. NY also
authorized the issuance of 50,000 shares to employees and consultants of NY
which vest immediately. NY authorized the filing of an amended Form S-8
Registration Statement to reflect the increase to 1,000,000 shares the shares
which may be issued under the plan and the registration of the above shares. In
connection with such issuance, NY recorded compensation and consulting expense
amounting to approximately $255,000 which is based on the average closing bid
price of $1.50 per share for the month of March 1998, with a 50% discount due to
the restricted nature of the stock. The above shares which do not vest
immediately have been recorded as deferred compensation and are being amortized
over the vesting period.
During December 1997, NY agreed to issue 106,667 shares of its common
stock to the Company as consideration to the Company for issuing 192,000 shares
of its own common stock to RSJJ in consideration for payment in full of the rent
due by NY to RSJJ for the period from January 1, 1998 to December 31, 1998. The
value of the shares issued by NY are recorded at their estimated market value at
the date of issuance of $2.12 per share, with a 50% discount due to the
restricted nature of the stock. The value of the shares issued by the Company
are recorded at their estimated market value at date of issuance ($1.06 per
share) with a 50% discount due to the restricted nature of the stock.
During January 1998, the Company raised a net of $393,000 after
expenses and a 10% commission, in connection with a private placement, to fund
the Worldwide operations, from the sale of $450,000 of convertible debentures.
Such debentures are due January 30, 2000 with interest accruing at 8% per annum.
Holders of the debentures are entitled to convert the entire face of the
debentures plus accrued interest, at the lesser of a) 100% of the 5-day average
closing bid price, for the 5 trading days immediately preceding the closing date
of the offering (February 3, 1998) or b) 75% of the 5-day average closing bid
price for the 5 trading days immediately preceding the date of conversion. The
Company agreed to file a Registration Statement covering the shares of common
stock to be issued upon conversion of the debentures, and if not declared
effective within 90 days following the closing of the offering, then there shall
be a decrease of the conversion ratios by 2.5% per 30 day period or portion
thereof pro rata, until the Registration Statement has been declared effective.
In addition, the purchasers of the debentures received warrants to purchase an
aggregate of 100,000
20
<PAGE>
shares of common stock, 50,000 shares at an exercise price of $1.125 per share
and 50,000 shares at $1.41 per share.
On May 12, 1998, the Company, NY and the Company's President entered
into an agreement with First Anglo Swiss Holding, Inc. ("FAS") whereby NY would
issue 510,000 shares of common stock for 2,550,000 or 51% of FAS' outstanding
shares of common stock.
Simultaneously, with the closing, the Company agrees to sell 1,350,000
shares of NY's common stock to Amalgamated Resources Management S.A.
("?malgamated") for $10,220,000. In addition, at the closing at the acquisition,
the holders of FAS' preferred stock shall exchange all of their shares of the
preferred stock of FAS for shares of a series of preferred stock of NY with the
same rights and preferences as the shares of FAS' preferred stock except for
certain limitations.
21
<PAGE>
PART II
Item 1. Legal Proceedings
In April 1995, NY commenced an Article 78 proceeding in the Supreme
Court of the State of New York, County of New York, against the Commissioners of
the State Insurance Fund and the State Insurance Fund. In December 1995, in the
United States District Court, Southern District of New York, the Commissioners
of the State Insurance Fund for and on behalf of the State Insurance Fund
commenced suit against Joseph Polito, Ronald Polito, Steven Polito, NY (f/k/a
Metro Steel Structures, Ltd.), One Carnegie, and others. See the Company's and
NY's Forms 10-QSB for the quarters ended December 31, 1997 and September 30,
1997 for more information concerning this matter. These actions settled in April
1998 for $750,000.
On February 25, 1997, in New York State Supreme Court, Kings County, NY
and Metro Steel Structures, Ltd. commenced suit against Perini Corporation,
Metropolitan Transportation Authority, New York City Transportation Authority,
and Fidelity and Deposit Company of Maryland. This action is in the discovery
phase. See the Company's and NY's Forms 10-QSB for the quarters ended December
31, 1997 and September 30, 1997 for more information concerning this matter.
On February 26, 1997, in New York State Supreme Court, Queens County,
NY, Metro Steel Structures, Ltd., and McKay Enterprises, Inc. commenced suit
against Perini Corporation, Department of Transportation of the City of New
York, and Fidelity and Deposit Company of Maryland. This action is in the
discovery phase. See the Company's and NY's Forms 10-QSB for the quarters ended
December 31, 1997 and September 30, 1997 for more information concerning this
matter.
On February 7, 1997, in New York State Supreme Court, Kings County,
Perini Corporation commenced an action against NY and Metro Steel Structures,
Ltd. This action is in the discovery phase. See the Company's and NY's Forms
10-QSB for the quarters ended December 31, 1997 and September 30, 1997 for more
information concerning this matter.
On or about May 13, 1997, in the New York Supreme Court, Suffolk
County, NY commenced suit against Kiska Construction, the State of New York,
acting through the New York State Comptroller, the New York State Department of
Transportation, and the Seaboard Surety Company. This action is in the discovery
phase. See the Company's and NY's Forms 10-QSB for the quarters ended December
31, 1997 and September 30, 1997 for more information concerning this matter.
On October 14, 1997, NY filed a mechanic's lien in the amount of
$13,640,767 against EklecCo (f/k/a Pyramid Company of Rockland). On October 16,
1997, in New York State Supreme Court, Rockland County, EklecCo commenced suit
against NY. On February 9, 1998, the plaintiff posted a bond in the amount of
$14,254,730 to secure payment of NY's $13,640,747 mechanic's lien, interest, and
court costs; accordingly, the court granted the plaintiff's motion to discharge
said lien. The court further ordered that discovery be expedited in this matter.
This action is in the discovery phase. See the Company's and NY's Forms 10-QSB
for the quarters ended December 31, 1997 and September 30, 1997 for more
information concerning this matter.
ITEM 2. Changes In Securities And Use Of Proceeds: None
ITEM 3. Defaults Upon Senior Securities: None
22
<PAGE>
ITEM 4. Submission Of Matters To A Vote Of Security Holders: None, except as
reported in the Company's Form 10-QSB for the quarter ended December 31, 1997.
ITEM 5. Other Information: None
ITEM 6. Exhibits And Reports On Form 8-K:
In January 1998, the Company filed a Form 8-K, dated January 22, 1998,
wherein it reported the results of its annual meeting held on January 7, 1998.
In February 1998, the Company filed a Form 8-K, dated February 12, 1998, wherein
it reported the resignation of Philip Nielson as a Director and the election of
Ronald Murphy as a Director.
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, this 21st day of May 1998.
USABG Corp.
By: /s/ Joseph M. Polito
--------------------
Joseph M. Polito, President
/s/ Steven J. Polito
--------------------
Steven J. Polito, Treasurer
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statement of Cash Flows and Notes thereto
incorporated in Part I, Item 1 of this Form 10-QSB and is qualified in its
entirety be reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 773,669
<SECURITIES> 0
<RECEIVABLES> 10,831,768
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,997,697
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,128,334
<CURRENT-LIABILITIES> 7,120,324
<BONDS> 0
7,448
0
<COMMON> 0
<OTHER-SE> 2,325,914
<TOTAL-LIABILITY-AND-EQUITY> 14,128,334
<SALES> 2,018,534
<TOTAL-REVENUES> 2,018,534
<CGS> 1,350,392
<TOTAL-COSTS> 1,350,392
<OTHER-EXPENSES> 1,137,245
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,624
<INCOME-PRETAX> (522,679)
<INCOME-TAX> 25,300
<INCOME-CONTINUING> (515,211)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (515,211)
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.98
</TABLE>
