As filed with the Securities and Exchange Commission on August 5, 1998
Registration No. 333-47323
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4 TO FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
USABG CORP.
(Exact Name of Registrant as Specified in Charter)
Delaware 1700 11-2974406
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(State of Incorporation) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification No)
53-09 97th Place
Corona, New York 11368
(718) 699-0100
(Address and Telephone Number of Principal Executive Offices and Principal Place
of Business)
Joseph M. Polito, President
53-09 97th Place
Corona, New York 11368
(718) 699-0100
(Name, Address, and Telephone Number of Agent for Service)
Copies to:
David S. Klarman, Esq.
Klarman & Associates
2303 Camino Ramon, Suite 200
San Ramon, California 94583
(925) 327-6200
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective Registration
Statement for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration number of the earlier effective Registration Statement for the same
offering. [ ]
If delivery of a prospectus is expected to be made pursuant to Rule 434, please
check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with ss. 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said ss. 8(a), may determine.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Each Class Maximum Maximum Amount of
of Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered Per Share (2) Offering Price Fee
---------------- ---------- ------------- -------------- ---
<S> <C> <C> <C> <C>
Common Stock,
$.001 par value (1) 562,500 $1.00 $562,500 $193.95
Common Stock,
$.001 par value (3) 50,000 $1.125 $ 56,250 $ 19.40
Common Stock,
$.001 par value (3) 50,000 $1.41 $ 70,500 $ 24.31
Totals........... $689,250 $237.66
</TABLE>
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(1) Represents an estimate of the shares of Common Stock issuable on conversion
of the subordinated debentures (the "Debentures") equal to 100% of the 5
day average closing bid price, as reported by Bloomberg, LP, for the 5
trading days immediately preceding the closing date (February 3, 1998) of
the private placement offering ($.80) being sold by certain selling
security holders (the "Selling Securityholders"), issuable upon conversion
of Debentures, together with additional shares of Common Stock, which may
be issued upon conversion of the Debentures by reason of the conversion
terms of the Debentures. See "Description of Securities - 8% Convertible
Debentures."
(2) Total estimated solely for the purpose of determining the registration fee,
based on the closing price ($1.00) reported by a market maker on February
25, 1998.
(3) Represents the resale of shares of Common Stock issuable upon the exercise
of Warrants owned by the Selling Securityholders, together with such
indeterminate number of securities as may be issuable by reason of
anti-dilution provisions contained therein.
<PAGE>
<TABLE>
<CAPTION>
Cross Reference Sheet Pursuant to Rule 404(a)
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
Item in Form SB-2 Prospectus Caption
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<S> <C>
1. Front of Registration Statement and Outside Cover Page and Cover Page of Registration Statement
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Continued Cover Page, Table of Contents
3. Summary Information and Risk Factors Prospectus Summary, Risk Factors, Summary Financial
Information
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Risk Factors
7. Selling Securityholders Selling Securityholders
8. Plan of Distribution Cover Page, Plan of Distribution
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters and Certain Management
Control Persons
11. Security Ownership of Certain Beneficial Owners and Principal Securityholders, Selling Securityholders
Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal Opinions, Experts
14. Disclosure of Commission Position on Securities Act Management and Item 24. Indemnification Officers and Directors
Liabilities
15. Organization Within Five Years Prospectus Summary, Business, Principal Securityholders,
Certain Relationships and Related
Transactions, Risk Factors
16. Description of Business Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Financial Condition
Operation and Results of Operations
18. Description of Property Business
19. Certain Relationships and Related Transactions Certain Relationships and Related Transactions
20. Market for Common Equity and Related Stockholder Matters Market for Common Equity and Related Stockholder Matters
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants and Not Applicable
Financial Disclosure
</TABLE>
<PAGE>
Prospectus Preliminary prospectus subject to completion, dated August 5, 1998
USABG CORP.
662,500 Shares of Common Stock
This Prospectus covers the resale of shares of common stock (the
"Shares"), par value $.001 per share (the "Common Stock"), of USABG Corp.,
which shares were issued in a private transaction, exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Act"), in accordance with ss. 4(2) thereof. The Shares include (i) an
estimated 562,500 Shares, subject to adjustment, issuable upon the conversion
of $450,000 in principal amount of 8% convertible subordinate debentures (the
"Debentures"); and (ii) an aggregate of 100,000 Shares underlying Common Stock
Purchase Warrants (the "Warrants") being sold by certain "Selling
Securityholders." The Shares, Warrants, and Debentures were issued in a
private transaction, exempt from the registration requirements of the Act in
accordance with ss. 4(2) thereof. The Debentures, plus interest accrued
thereon, are convertible into shares of Common Stock at the lesser of (i) 100%
of the 5 day average closing bid price, as reported by Bloomberg, LP, for the
5 trading days immediately preceding the closing date (February 3, 1998) of
the private placement (the "Private Placement" or "Private Placement
Offering") ($.80); or (ii) 75% of the 5-day average closing bid price, as
reported by Bloomberg, LP, for the 5 trading days immediately preceding the
date(s) of conversion of all or a portion of the Debentures. See "Business -
1998 Private Placement," "Selling Securityholders," and "Description of
Securities."
The Warrants to purchase an aggregate of 100,000 shares of Common
Stock are exercisable as follows: 1/2 of the Warrants entitle the holders
thereof to purchase an aggregate 50,000 shares at an exercise price of $1.125;
the remaining 1/2 of the Warrants entitle the holders thereof to purchase an
aggregate 50,000 shares at an exercise price of $1.41. The shares may be
resold from time to time in negotiated transactions, at fixed prices which may
be changed, at market prices prevailing at the time of resale, or via a
combination thereof. The Company will not receive any of the proceeds from the
resale of any securities sold by the Selling Stockholders. See "Plan of
Distribution."
The Company's Common Stock is quoted on the Nasdaq SmallCap Market
("Nasdaq") under the symbol "USBG." Quotation on Nasdaq does not imply that
there is a meaningful sustained market for the Common Stock, or that if one is
developed, it will be sustained for any period of time. In the absence of a
listing on Nasdaq, the Common Stock will be available for trading in the
over-the-counter market on the OTC Bulletin Board. See "Market For Common
Equity."
THE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION; NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 5,
1998.
<PAGE>
AVAILABLE INFORMATION
For further information with respect to the Company and the Securities
offered hereby, reference is made to the Public Reference Section of the
Securities and Exchange Commission (the "Commission") at its principal office at
450 Fifth Street, N.W., Washington, D.C., 20549. The Commission maintains a Web
site that contains reports, proxy and information statements, and other
information which is filed electronically through the Commission's Edgar system,
all of which may be viewed through accessing the Commission's Web site located
at http://www.sec.gov.
The Company's fiscal year end is June 30. The Company is subject to the
informational reporting requirements of the Exchange Act, and in accordance
therewith, files periodic reports, proxy statements, and other information with
the Commission. In the event the Company's obligation to file such periodic
reports, proxy statements, and other information is suspended, the Company will
voluntarily continue to file such information with the Commission. The Company
will distribute to its stockholders annual reports containing audited financial
statements, together with an opinion by its independent auditors. In addition,
the Company may, in its discretion, furnish quarterly reports to stockholders
containing unaudited financial information for the first three quarters of each
year.
<PAGE>
PROSPECTUS SUMMARY
The following summary is intended to set forth certain pertinent facts
and highlights from material contained in the body of this Prospectus. The
summary is qualified in its entirety by, and should be read in conjunction with,
the detailed information and financial statements appearing elsewhere in this
Prospectus. Statements contained in this Prospectus which are not historical
facts are forward looking statements as defined under the Private Securities
Litigation Reform Act of 1995. These forward looking statements include
statements with respect to plans, projections, or future performance of the
Company and are subject to risks and uncertainties which could cause actual
results to differ materially from those projected.
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 is the parent of USA Bridge Construction of N.Y.,
Inc. ("NY"). In addition, it owns 100% of the outstanding shares of common stock
Royal Steel Services, Inc. ("Royal Steel") and 100% of the outstanding shares of
common stock of Worldwide Construction Limited ("Worldwide"). These three
subsidiaries are the only ones through which the Company operates. Unless the
context requires otherwise, all references to the Company include its
subsidiaries.
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 operated initially only as
a subcontractor. NY's goals were to become a general contractor for municipal
projects; however, NY needed financing to enable it to obtain bonding which is
required for all municipal projects. To date, NY has provided steel erection for
building, roadway, and bridge repair projects for general contractors who have
been engaged by private and municipal/governmental customers. In May 1998, its
bid on a project to build a medical building in Queens, New York was accepted by
the developer thereof, 47-01 Queens Blvd. Realty Corp. NY shall act as general
contractor for the project as well as a subcontractor providing structural steel
fabrication and erection therefor. The project is valued at approximately $2.4
million. In addition, NY has been given the exclusive right to perform the
interior tenant work on the medical building which is valued at approximately $3
million. NY expects to have executed all relevant contracts with respect to this
project and to commence work on same in August 1998.
As of March 31, 1998, NY completed in excess of twenty-one (21)
projects with an aggregate project value of approximately $40,000,000 and was
engaged in two (2) projects with an aggregate value of approximately
$10,790,000. NY plans to maintain its subcontractor presence in the steel
industry; however, it intends also to focus on obtaining projects as a general
contractor. During fiscal year ended June 30, 1998, NY did not act as a general
contractor for any of its projects and, hence, did not generate any revenues as
such.
NY shall continue to bid on both private and public sector projects as
a general contractor and a subcontractor. Most of the steel fabrication
projects, both public and private sector, require Bid Bonds and Payment and
Performance Bonds. Rarely do the steel erection projects require such bonds, and
when NY performs erection and fabrication services together on a project,
typically only the fabrication portion of the job is bonded. NY's ability to
obtain bonding and its bonding capacity are primarily determined by its net
worth, liquid working capital (consisting of cash and accounts receivable), past
performance, management expertise, the number and size of projects under
construction, and various other factors.
In December 1996, for its general contracting projects, NY obtained a
commitment for a Surety Bond Line of Credit ($10,000,000 single project limit)
from United American Guarantee Company, Ltd. ("UAGC"). 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 EklecCo., Grand Central Terminal, and
Korean Mission projects. Since New York State and City agencies require bonds
from bonding companies licensed by the State of New York, however, and UAGC is
not a New York licensed bonding company, NY is as yet unable to bid as a general
contractor on projects for New York State and City agencies.
Royal Steel was formed by the Company in November 1997 to undertake
steel erection projects which carry a considerably smaller dollar value than
those which NY undertakes. Worldwide was formed by the Company in December 1997,
in the British Virgin Islands, as a holding company which owns 80% of each of
Falcon TChad S.A. ("Falcon") and Portshop S.A. ("Portshop"), both of which
companies were incorporated in Chad, a country located in North Central Africa.
Chad is a country with abundant natural resources such as cattle, cotton,
limestone, and crude oil. 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 and Portshop were jointly formed by
Worldwide and DIA, both of which received their shares in the companies as
founders thereof and as facilitators of the relationships between Falcon and
Portshop and the entities with which Falcon and Portshop intend to do business
in Chad; accordingly, no cash consideration was paid to either of Falcon or
Portshop by Worldwide or DIA. DIA facilitated the commencement of the Chadian
operation for both companies by acting as a liaison with the Chadian government
and by developing business contacts and operations in Chad. 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, Falcon, and the governmental or private entities with which these
companies intend to contract in Chad.
Falcon shall offer full transportation services including forwarding
(i.e., trucking), customs clearance, and warehousing. In January 1998, Falcon
purchased 16 transport vehicles and a communications system. It is currently
engaged in discussions with the Chadian governmental authorities regarding the
transportation of cotton, the country's main export, though no agreement with
respect to same has been executed. In addition, Falcon has commenced discussions
with several large foreign corporations setting up to do business in Chad in
order to provide their trucking needs. In May 1998, Falcon executed a contract
with ELF Oil TChad S.A., a French oil company for whom Falcon has agreed to
transport diesel fuel and gasoline for a period of three years. The trucks are
currently in the port of Douala, Cameroon awaiting port clearance, and Falcon
expects to load same for transport on or about August 15, 1998. In June 1998,
Falcon and Total Chad, a French company registered in Chad, executed a letter of
intent for the transportation of fuel from Limbe, Cameroon to N'Djamena, Chad.
The contract is expected to commence in October 1998.
In February 1998, through the sale of the Debentures, the Company
raised a gross aggregate of $450,000 for the Chadian operation. These funds are
being used to purchase trucks and to establish offices and operations in Chad.
The Company's executive offices are located at 53-09 97th Place,
Corona, New York 11368. The Company's telephone number at its principal office
is (718) 699-0100.
<PAGE>
<TABLE>
<CAPTION>
The Offering (1)
<S> <C>
Securities Offered ............... 662,500 shares of Common Stock, an estimated 562,500 of
which, subject to adjustment, are issuable upon
conversion of the Debentures and 100,000 of which are
issuable upon exercise of the Warrants.
Common Stock Outstanding Prior to the Offering 7,844,148 shares
Common Stock Outstanding After the Offering (2) 8,506,648 shares
Use Of Proceeds The proceeds of the resale of the 562,500 shares of
Common Stock will be received by the respective Selling
Stockholders. The proceeds generated by the exercise of
the Warrants will be paid to the Company; such funds
shall be used by the Company for its Chadian operation.
All expenses of this Offering will be paid by the
Company. See "Use of Proceeds."
Terms of the Warrants The Warrants entitle the holders thereof to
purchase an aggregate of 100,000 shares of Common
Stock as follows: 50,000 shares at an exercise
price of $1.125 and 50,000 shares at an exercise
price of $1.41, commencing March 31, 1998 and
expiring March 31, 2001.
Risk Factors This Offering involves a high degree of risk. See
"Risk Factors."
Nasdaq Symbol(3) Common Stock.............USBG
</TABLE>
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(1) Unless otherwise indicated, no effect is given in this Prospectus to the
issuance of (i) 100,000 shares of Common Stock reserved for issuance upon
the exercise of the Warrants; (ii) 562,500 shares of Common Stock, subject
to adjustment, issuable upon conversion of the Debentures; and (iii)
2,000,000 shares of Common Stock reserved for issuance under the Company's
1994 Senior Management Incentive Plan (the "Plan"), except for such shares
as have been issued under the Plan. See "Management - Senior Management
Incentive Plan" "Certain Relationships and Related Transactions"
"Description of Securities - 8% Convertible Debentures" and "--Warrants."
(2) Includes (i) the issuance of 562,500 shares of Common Stock, subject to
adjustment, upon conversion of the Debentures in accordance with the
provisions of the Debentures; and (ii) 100,000 shares issuable upon
exercise of the Warrants. See "Description of Securities -- 8% Convertible
Debentures" and "-- Warrants."
(3) The Company's Common Stock is listed on Nasdaq. Quotation on Nasdaq does
not imply that a meaningful, sustained market for the Common Stock has
developed or will develop. In addition, continued inclusion on Nasdaq is
subject to certain maintenance criteria which, if not met in the future,
may result in the discontinuance of the listing of the Company's Common
Stock on Nasdaq which may have an adverse effect on the market for the
Company's Securities. See "Risk Factors."
<PAGE>
Summary Financial Data:
Set forth below is the historical summary financial information with
respect to the Company for the years ended June 30, 1997 and 1996 and for the
nine months ended March 31, 1998 and 1997. The annual financial data for the
Company has been derived from audited financial statements by Scarano & Tomaro,
P.C., Certified Public Accountants. The selected historical financial data
presented below at March 31, 1998 and 1997 is unaudited. In the opinion of
management, the unaudited financial statements include all adjustments,
consisting of normal recurring adjustments and accruals, necessary for a fair
presentation of the financial position and results of operations of the Company
for these periods. The summary historical financial data presented below should
be read in conjunction with the audited financial statements of the Company and
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Summary of Operations Data:
Nine Months Nine Months
Ended Ended Year Ended Year Ended
3/31/98 3/31/97 06/30/97 06/30/96
Revenues $14,284,651 $7,714,698 $15,494,447 $7,401,433
===================== ------------------- --------------------- -------------------- =====================
<S> <C> <C> <C> <C>
Net Income (loss) $ (405,545) $ (779,394) ($875,238) 40,569
--------------------- ------------------- --------------------- -------------------- =====================
Net Income (loss)
per share (1) $ (.05) $ (.12) ($.13) $.01
--------------------- ------------------- --------------------- -------------------- =====================
</TABLE>
(1) Weighted average number of shares outstanding at March 31, 1998;
June 30, 1997; March 31, 1997; June 30, 1996 are 7,472,591; 6,854,390;
6,499,369; and 6,137,530, respectively.
<PAGE>
<TABLE>
<CAPTION>
Summary Balance Sheets Data:
======================== ================================== ---------------- =================
June 30, March 31, March 31,
======================== ---------------- ----------------- ---------------- =================
1997 1996 1998 1997
======================== ---------------- ----------------- ---------------- =================
<S> <C> <C> <C> <C>
Total Assets $15,396,254 $9,544,047 $14,147,334 $11,936,082
======================== ---------------- ----------------- ---------------- =================
Total Liabilities $9,902,048 $4,973,023 $ 8,319,658 $ 7,291,718
======================== ================ ================= ---------------- =================
Stockholders' Equity $2,779,906 $2,417,167 $ 2,396,171 $ 2,010,405
======================== ================ ================= ---------------- =================
</TABLE>
<PAGE>
RISK FACTORS
The Securities offered hereby are speculative and involve a high degree
of risk. The purchase of Securities should not be considered by anyone who
cannot afford the risk of loss of his entire investment. The statements
contained in this Prospectus which are not historical facts contain forward
looking information with respect to plans, projections, or future performances
of the Company, the occurrences of which involve certain risks and uncertainties
as detailed herein.
1. Unanticipated Costs, Expenses, and Difficulties in Commencing
Projects as a General Contractor. Although NY and Joseph M. Polito have
experience as subcontractors in the erection and fabrication of steel
structures, neither has experience as a general contractor. NY is expanding its
operations and is seeking projects in its capacity as a general contractor,
however. There can be no assurances that NY will be able to implement this
aspect of its business plan successfully or that unanticipated expenses,
problems, or difficulties will not result in material delays in the
implementation or ability of NY to implement such plan.
As general contractor, NY will contract directly with the
owner to perform an entire project at a set value. NY will be responsible for
all aspects of the project and will be required to hire and oversee the work of
subcontractors. In addition to the unanticipated costs or problems that may be
incurred as a general contractor, many contracts are also subject to completion
requirements with liquidated damages assessed against NY if schedules are not
met. NY has not been materially adversely affected by these provisions in the
past as a subcontractor. NY has submitted general contracting bids on several
public and private sector projects, one of which has been accepted, and work
therefor is expected to commence in August 1998. See "Business - Recent
Developments."
NY has commenced two projects as a prime contractor. A prime
contractor is a contractor which performs a specific category of work on a
project. Unlike the general contractor, the prime contractor is responsible for
performance of that category alone, not the entire project. Like the general
contractor, the prime contractor typically contracts directly with the owner or
via the owner's construction manager acting as agent therefor; thus, unlike the
subcontractor, the prime contractor is responsible exclusively to the owner.
2. Operations Conducted in Chad, a Country Located in Africa;
Dependence on Political and Economic Stability of Chad. The Chadian operation
will be conducted in N'Djamena, Chad, a country located in Central Africa. To
effectively manage operations thereat, the Company must (i) engage persons with
managerial skills appropriate to Chad's business operations; and (ii) implement
an effective supervisory program which will include a continual flow of reliable
current information to its Officers in the United States and frequent reports
from, and visits to, the operation. Likewise, the Company must ensure compliance
with Chadian laws, rules, and regulations, particularly with respect to
licenses, permits, and governmental authority.
Richard Miller has been engaged by Falcon and Portshop,
respectively, as Chief Executive Officer thereof, and is charged with running
the Chadian operation. This operation is subject to more administrative costs
and greater security and operational risks than would be incurred if the
operations were conducted solely in the United States. Mr. Miller has no prior
experience working in Chad; therefore, no assurances can be given that he (or
other persons hired to work in Chad) effectively will be able to supervise and
operate the Chadian operation.
Chad is located in a region where there is ongoing political
turmoil. Accordingly, the success of the Chadian operation is, and will continue
to be, dependent on the political and economic stability of the country in
general.
3. Expansion of Business Activities; Entrance into New Market Segment.
The Company presently operates as a contractor primarily for large steel
erection projects. Recently, however, with the formation of Royal Steel, the
Company has expanded its operations and has entered a new market segment in the
construction industry whereby, via Royal, it shall undertake small steel
erection projects having a maximum contract value approximating $350,000. In
addition, with the formation of Falcon and Portshop, the Company has undertaken
operations in which it has no prior experience, wherein it shall (i) provide
trucking, warehousing, and forwarding services; and (ii) stock and operate a
duty free store in Chad's sole international airport. The Company's Royal Steel
venture constitutes its entree into a new market segment of the construction
industry, whereas its Falcon and Portshop ventures constitute its entree into
two entirely new industries. There can be no assurance that the Company will be
successful in the new construction market segment or in the new industries it
has undertaken in Chad. Moreover, (i) the Company's management's lack of
trucking and duty free shop operating experience; and (ii) Chad's political
instability may result in unanticipated problems, expenses, difficulties,
complications, and delays in the Company's operations.
4. Dependence on Bonding; Bonding Requirements. As a general
contractor, and to some extent as a subcontractor, NY anticipates being required
to provide bonding in the form of Bid and/or Performance Bonds. Most government
contracts require bonding. Bids are submitted to the company accepting the bids
together with Bid Bonds. A Bid Bond is a bond issued by a bonding company which
is usually in an amount equal to 10% of the bid price and which guarantees that
the contractor will be able to produce such other additional documents and
information required in order to commence the project including the issuance of
a Performance Bond. A Performance Bond is a guarantee by a surety, customarily
100% of the value of the contract amount, that the contractor will complete the
project pursuant to the terms and conditions of the contract.
In determining whether to issue a bond, surety companies
perform credit checks and other due diligence disclosure requirements and
investigate NY's capitalization, working capital, past performance, management's
expertise, and other factors. The surety companies require companies receiving
bonding to maintain certain amounts of capital and liquid assets and base the
amount of bonding they will issue on a formula, which is usually based on
certain industry standards which take into account such factors. There can be no
assurance that the Company will meet all or any of these requirements and
continue to maintain bonding for its projects. See "Business - Insurance and
Bonding."
5. Inability to Obtain New York State and City Agency Projects as a
General Contractor. New York State agencies require bonds from bonding companies
they have approved. NY has received bonding from a company which is not approved
for state and city projects; therefore, NY is unable to bid as a general
contractor on projects for New York State and City agencies. NY has approached
several New York approved bonding companies; however, as of the date hereof, it
has not been approved by any such company to receive bonding.
There can be no assurance that NY will be able to obtain
bonding from a New York licensed bonding company. 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.
Therefore, there can be no assurances that NY will be able to implement its
proposed business plan to obtain projects as a general contractor. See "Business
- - The Company," "-- The Contract Process; Bidding" and "-- Insurance and
Bonding."
6. Risk Associated with Type of Bid. There are two types of bid
requests made by a soliciting entity: a unit cost bid and a lump-sum bid. The
unit cost bid is based upon a cost per unit basis; a lump-sum bid obligates NY
to complete the project at a fixed price. With a lump-sum bid, the risk of
estimating the quantity of units required for a particular project is on NY,
while with a unit cost bid, NY must estimate the per unit cost, not the number
of units needed. Any increase in NY's unit cost over its unit bid price or cost
over its lump-sum bid, whether due to inefficiency, faulty estimates, weather,
inflation, or other factors, must be borne by NY and may adversely affect its,
and hence the Company's, results of operations. See "Business - The Contract
Process; Bidding."
7. Amount and Concentration of Construction Projects and Receivables.
For the year ended June 30, 1997, NY had three unrelated customers, which
accounted for approximately 86% of total revenues. For the nine months ended
March 31, 1998, NY had three unrelated customers, which accounted for
approximately 84% of total revenues. At June 30, 1997 and March 31, 1998,
approximately 83% and 72% of contracts receivables are due from four and two
customers, respectively. The discontinuance of any of these projects, or a
general economic downturn in the State of New York, in which the projects are
located, could have a material adverse effect on NY's results of operations.
8. Competition. All aspects of NY's business are and will continue to
be highly competitive. Many subcontractors and general contractors have
substantially greater personnel and financial resources and sales than those of
NY. When general contractors seek construction contracts, they request bids from
numerous subcontractors based on the various requirements of the project. These
subcontractors compete primarily as to price, name recognition, and prior
performance.
In steel erection, NY competes with the following construction
companies, all of which are of the approximate same size as (or larger than) NY:
American Bridge Co.; Empire City Iron Works; Falcon Steel Co., Inc.; Grow
Tunneling Corp.; Karl Koch Erecting Co., Inc.; A.J. McNulty & Co., Inc.; Metro
Steel Company, Inc.; Midlantic Erectors, Inc.; Midwest Steel, Inc./Canron; Rice
Mohawk U.S. Construction Co.; Steel Services Corporation; and Thunderbird
Constructors, Inc. In general contracting, NY competes with Enterprises, Inc.;
Felix Industries; Frontier Kemper Construction; Halmar Contracting; John P.
Picone, Inc.; Judlau Contracting, Inc.; Keystone Construction; Kiska
Construction Corp.; R.A. Gottlieb, Inc.; Seacrest Construction Co.; Schiavone
Construction; Silverite Construction Co.; Yonkers Contracting Co., Inc.; and
Zollo Construction Corp.
The driving force behind NY's name recognition in the
construction industry is the thirty plus year presence therein of Joseph Polito
(and many of his employees), which presence serves also to confirm NY's prior
performance; therefore, the loss of Mr. Polito and other Company employees could
have an adverse effect on the Company's ability to compete in the industry. In
addition, regarding prior performance, while NY has operated only since 1993,
other companies owned by Mr. Polito (i.e., Atlas Gem Erectors Co. Inc. ("Atlas
Gem"), a former steel erector subcontractor or prime contractor for private and
governmental construction projects) was incorporated in 1986 and operated as
such until NY purchased its assets in 1993. See Risk Factor No. 15 - "Dependence
on Management; Ailing Health of Joseph M. Polito."
As a general contractor, NY will be competing with many larger
and more experienced (and thus more established) contractors whose names are
more readily recognized and whose relationships with federal and state
municipalities and agencies - and those private companies who solicit bids for
bridge and roadway repair and replacement projects and the furnishing and
erection of steel structure for buildings projects - have been established. NY's
competitors are numerous, and many have substantially greater research and
development, marketing, financial, and human resources than NY. There can be no
assurance that NY will be able to compete successfully. See Risk Factor No. 15
"Dependence on Management; Ailing Health of Joseph M. Polito" and "Business -
Competition."
9. Dependence on Suppliers; Subcontractors; Union Employees. NY
receives approximately 60% of the steel it requires from Hirschfeld Steel Co.,
Inc. ("Hirschfeld"). NY currently depends upon various vendors to supply spare
parts, cranes, and other heavy equipment, and its ability to hire skilled
workers depends upon its ability to comply with certain union agreements and
contracts. NY does not depend on any one vendor to provide it with spare parts,
cranes, and other heavy equipment. NY rents an immaterial amount of cranes from
Crown Crane, Inc. ("Crown"), a company of which Joseph M. Polito is a 50%
shareholder, and an immaterial amount of generators and other equipment from
Atlas Gem Leasing Inc. ("AGLI"), a company which is wholly-owned by Joseph M.
Polito. NY believes that there are a sufficient number of vendors so that in the
event any individual or group of vendors can no longer service NY's needs, NY
will be able to find other vendors at competitive prices.
NY hires skilled steel workers represented by the
International Union of Structural Ironworkers, Locals 40, 361, & 417 and
International Operating Engineers Locals 14, 14B, 15, 15A, 15C, 15D, and 825 and
Cement Masons Local 472 (collectively referred to as the "Unions"). NY must
comply with agreements with the unions, which agreements regulate all employment
issues - including pay, overtime, working conditions, vacations, benefits, etc.
- - between NY and the union employees. These agreements expire on June 30, 1999.
No assurance can be given that NY will continue to be in compliance with the
Unions or successfully negotiate extensions to NY's agreements with such Unions.
In the event problems or conflicts with the Unions arise or there is a loss of
skilled steel and operating engineers, this would have a detrimental effect on
NY's operations.
NY's success as a general contractor, in part, will be
dependent upon its ability to hire workers and comply with union contracts and
agreements and to oversee and retain qualified subcontractors to perform certain
work for projects NY receives as general contractor. Although NY believes that
it will be able to attract subcontractors to bid on projects it bids as general
contractor, there can be no assurances that NY will in fact be able to attract
such subcontractors. As a general contractor, NY will be responsible for
performance of the entire contract, including the work to be performed by
subcontractors. Accordingly, NY may be subject to substantial liability if a
subcontractor fails to perform as required. In addition, unanticipated
difficulties may arise in hiring and overseeing subcontractors. See "Business -
Suppliers and Subcontractors" and "-- The Contract Process."
10. Government Regulation; Potential Liability for Environmental
Damages and Personal Injuries. NY must comply with the Occupational Safety and
Health Administration ("OSHA"), a federal agency which regulates and enforces
the safety rules and standards for the construction industry. It also must
comply with (i) the New York City Department of Buildings, which regulates the
placement and testing of cranes; and (ii) the New York Department of
Transportation which regulates the location of the cranes, vehicular traffic,
and the routing of pedestrian traffic. In addition, NY must comply with a wide
range of other state and local rules and regulations applicable to its business,
including regulations covering labor relations, safety standards, affirmative
action, and the protection of the environment including requirements in
connection with water discharge, air emissions, and hazardous and toxic
substance discharge. Continued compliance with OSHA and the broad federal,
state, and local regulatory network is essential and costly, and the failure to
comply with such regulations may have an adverse effect on NY's operations.
The construction industry is subject to significant risks of
statutory, contractual, and common law liability for environmental damages and
personal injury. NY, and in certain instances, its Officers, Directors, and
employees, may be liable for claims arising from its on-site or off-site
services, including mishandling of hazardous or non-hazardous waste materials or
environmental contamination caused by NY or its subcontractors, the costs of
which could be substantial, even if NY exercises due care and complies with all
relevant laws and regulations. NY is also subject to worker and third party
claims for personal injury, resulting in substantial liability for which it may
be uninsured. NY carries insurance which it considers sufficient to meet
regulatory and customer requirements and to protect NY's assets and operations.
Nevertheless, an uninsured claim against NY could have a material adverse effect
on NY's financial condition and results of operations. Moreover, any inability
to obtain insurance of the type and in the amounts required in connection with
specific projects could impair NY's ability to bid on or complete such projects.
See "Business Government Regulations" and " --Litigation."
11. Payroll Taxes. As of March 31, 1998, the Company's subsidiaries, NY
and MD, owe the Internal Revenue Service, New York State, and New York City
withholding taxes (including estimated penalties and interest) of approximately
$2,186,484. If such amounts are not paid, the aforesaid authorities can levy on
the accounts, assets, and future earnings of these companies, which levy could
potentially force NY to cease operations (MD ceased operations in November
1996). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
12. Seasonality; Weather Conditions. Though NY does not believe its
business is seasonal, its operations slow during the winter months due to the
decreased productivity of the workers caused by the inability to work in severe
weather conditions. As a result of the foregoing, NY's costs are increased.
13. Control by Management and Joseph M. Polito. Joseph M. Polito,
President and a Director of the Company owns approximately 66.3% of the Common
Stock of the Company. Accordingly, Mr. Polito will continue to be able to elect
the entire Board of Directors of the Company and to direct the affairs of the
Company. The investors in this Offering will not be able to elect any Directors.
14. Conflicts of Interest. Joseph M. Polito estimates that he devotes
80% of his business time to the operations of NY and a combined 20% to all of
the other companies he owns and operates. Because Mr. Polito is an Officer,
Director, and principal shareholder in other companies, some of which transact
business with the Company and NY, certain issues may pose conflicts of interest,
and decisions made by Mr. Polito with respect to such issues may compromise Mr.
Polito's fiduciary duty to the Company and NY. Any remedy under state law, in
the event such circumstances arise, most likely would be prohibitively expensive
and time consuming.
In June 1995, the Board of Directors formed an audit committee
which comprises two outside Directors and one inside Director, Ronald Polito.
The audit committee reviews the Company's audited financial statements and any
potential conflicts of interest between any of the Company's Officers,
Directors, employees, affiliates, or associates. In addition to the audit
committee reviewing and resolving any conflicts of interest, the Officers and
Directors of the Company have a fiduciary obligation to deal fairly and in good
faith with the Company. See "Management," "Certain Relationships and Related
Transactions," "Business - History" and "Description of Securities."
15. Dependence on Management; Ailing Health of Joseph M. Polito. The
Company and NY are dependent upon the personal efforts and abilities of Joseph
M. Polito, the President and majority shareholder of the Company, of which NY is
a majority owned subsidiary. Mr. Polito's three year employment agreement with
NY terminated in June 1998. Pursuant to the terms of the agreement, he is
restricted from competing with NY for a period of one year after the
termination. Mr. Polito has agreed to devote 80% of his business time to the
operations of NY.
Mr. Polito's cardiologist and neurologist have diagnosed him
with (i) coronary artery disease, severe angina, significant hypertension, and
(ii) cerebrovascular compromise and recurrent TIA, respectively. These diagnoses
are indicative of a high probability of acute heart attack, stroke, and possibly
sudden death given high levels of stress and anxiety. The threat of such
occurrences has prevented and shall continue to prevent Mr. Polito from
performing certain functions, such as completing full work weeks or working
excessive hours, which would exert too great a physical strain on his health.
Because the relationships forged by Mr. Polito throughout the years in the
industry are a significant factor in NY's obtaining projects from general
contractors, the loss of the services of Mr. Polito would adversely affect the
business of NY, and hence, the Company. Neither NY nor the Company has key-man
insurance on the lives of Mr. Polito or any other Officer or Director. See
"Management - Employment Agreements."
16. Indemnification of Officers and Directors. As permitted under the
Delaware General Corporation Law, the Company's Certificate of Incorporation
provides for the indemnification and elimination of the personal liability of
the Directors to the Company or any of its shareholders for damages for breaches
of their fiduciary duty as Directors. As a result of the inclusion of such
provision, shareholders may be unable to recover damages against Directors for
actions taken by them which constitute negligence or gross negligence or that
are in violation of their fiduciary duties. The inclusion of this provision in
the Company's Certificate of Incorporation may reduce the likelihood of
derivative litigation against Directors and other types of shareholder
litigation. Insofar as indemnification for liabilities arising under the Act may
be permitted to Directors, Officers, and controlling persons of the Company,
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. See "Business - Recent Developments" and "Management."
17. Limited Public Market for Securities. At present, there is a
limited public market for the Company's Securities, which are traded on Nasdaq
under the symbol "USBG." There is no assurance that a continued regular trading
market will develop, or that if one does develop, it will be sustained for any
period of time; therefore, purchasers of the Company's Securities may be unable
to resell same at or near their original offering price or at any price.
Furthermore, it is unlikely that a lending institution will accept the Company's
securities as pledged collateral for loans even if a regular trading market does
develop. The underwriter of the Company's Initial Public Offering ("IPO") was a
dominant influence in the market for the Company's Securities until the
underwriter ceased operating in August 1996. The market for the Company's
Securities has been significantly affected, and may continue to be affected, by
the loss of this market maker's participation in the market, and this lack of
participation may cause a significant decrease in the liquidity of an investment
in such Securities.
18. No Dividends and None Anticipated. The Company has not paid any
dividends; nor, because of its present financial status and its contemplated
financial requirements, does it contemplate or anticipate paying any dividends
upon its Common Stock in the foreseeable future. See "Dividend Policy."
19. Increased Public Float Through Shares Available for Resale. A total
of 7,844,148 shares of Common Stock have been issued by the Company,
approximately 5,084,156 of which may be deemed "restricted securities" (as such
term is defined in Rule 144 issued under the Act). In the future, such shares
may be publicly sold only if registered under the Act or pursuant to an
exemption from registration. Most of the 5,084,156 shares have been held in
excess of one year and may be sold in accordance with Rule 144. In connection
with the Offering, which closed in February 1998, the Company generated proceeds
in the gross aggregate of $450,000 through the sale of Debentures, each
Debenture convertible into Common Stock pursuant to a conversion schedule. It is
estimated that the number of shares actually issuable upon conversion of the
Debentures shall be 562,500 shares though this amount may increase in accordance
with the conversion provisions of the Debentures. This Registration Statement
registers the resale of the Shares issuable upon conversion of the Debentures as
well as the Shares underlying the Warrants which were granted to the private
placement investors. The Debentures and Warrants, as well as the Shares
underlying same, were issued in a private transaction, exempt from the
registration requirements of the Act in accordance with ss.4(2) thereof. See
"Capitalization." Any sales under Rule 144 or resales pursuant to this
prospectus, would, in all likelihood, have a depressive effect on the market
price for the Company's Common Stock. See "Shares Eligible for Future Sale."
20. Possible Future Dilution. The Company has authorized capital stock
of 50,000,000 shares of Common Stock, par value $.001 per share, and 10,000,000
shares of Preferred Stock, par value $.0001 per share. Inasmuch as the Company
may use authorized but unissued shares of Common Stock without stockholder
approval in order to acquire businesses, to obtain additional financing, or for
other corporate purposes, there may be further dilution of the stockholders'
interests.
21. Possible Delisting of Securities from Nasdaq Stock Market; Risks of
Low Priced Stocks. In August 1997, Nasdaq increased its maintenance
requirements, whereby in order to continue to be listed on Nasdaq, the Company
is required to maintain (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 April 1998, the Company was
notified by Nasdaq that it did not meet criteria (iv) above and, therefore, that
its securities would be delisted if said criteria was not met within a 90 day
compliance period expiring July 24, 1998. In an attempt to remedy this
deficiency, the Company held a special meeting at which it obtained shareholder
approval for a reverse split (1 for 4) of the outstanding shares of its Common
Stock. The reverse split was effected on August 3, 1998. Notwithstanding the
reverse split, however, the Company's Common Stock continues to trade at less
than $1.00 per share rendering it probable that the Company's securities will be
delisted. As is its right, the Company requested a hearing to oppose the
delisting. This request stays the delisting pending a determination on the
hearing which shall be held on September 3, 1998. There can be no assurance that
the Company's Securities will not be delisted after such hearing. 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. See "Market for Common Equity."
22. Penny Stock Regulation. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on Nasdaq,
provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system). The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document that
provides information about penny stocks and the risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in connection with the transaction, and monthly account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules generally require that prior to a transaction in
a penny stock, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock rules. If the
Company's securities become subject to the penny stock rules, investors in this
Offering may find it more difficult to sell their securities.
23. Risks Associated with Holding Company Status. The Company is a
holding company with no operations of its own, and its principal assets comprise
the outstanding stock of its operating subsidiaries through which the Company
operates. Accordingly, in order to pay its expenses and meet its obligations and
to pay any cash dividends or distributions (which may be authorized by its Board
of Directors) on its Common Stock, the Company depends on (i) the earnings and
cash flows of its operating subsidiaries; and (ii) the dividends and
distributions from such subsidiaries. There can be no assurance (i) that the
Company's operating subsidiaries will generate sufficient earnings and cash
flows to pay dividends or distribute funds to the Company to enable the Company
to meet its obligations and pay its expenses; or (ii) that applicable
contractual restrictions, including negative covenants contained in the
instruments and agreements covering indebtedness of such operating subsidiaries,
will permit such distributions or dividends.
24. Mechanic's Liens. Three actions to foreclose upon mechanic's liens,
in the aggregate amount of $3,323,837, were commenced by NY in fiscal year 1997.
In fiscal year 1998, NY commenced suit to foreclose a mechanic's lien in the
amount of $13,640,767: this lien was discharged on the posting by the
lien-debtor of a $14,254,730 bond. The amounts of the mechanic's liens filed by
NY in the Perini, Kiska, and EklecCo actions were determined by final
requisitions remitted by NY to the lien-debtors who failed to tender payment for
same. Such amounts may include claims which have not been recorded in accordance
with NY's revenue recognition accounting policy and SOP 81-1, paragraph 66 as
such amounts have not been received or awarded. The actions to foreclose the
liens, which are typically resolved within two to four years from commencement
(via trial on the merits or settlement), are based on filed mechanic's liens and
general contract law and, specifically, seek payment for labor performed and
materials supplied pursuant to and outside the respective contracts.
While NY expects to proceed with the aforesaid actions through
trial, there can be no assurance that judgment will be rendered in its favor, or
that if judgment is rendered in its favor, that NY will recover the entire
amount due and owing it under the liens plus attorney's fees, interests, and
additional costs of litigation. See "Business - Legal Proceedings."
DIVIDEND POLICY
The Company has not paid cash dividends and intends to retain earnings,
if any, in the foreseeable future for use in its activities. Payment of cash
dividends on the Company's Common Stock in the future will be wholly dependent
upon the Company's earnings, financial condition, capital requirements, and
other factors deemed relevant by the Board of Directors. It is not likely that
cash dividends will be paid on the Company's Common Stock in the foreseeable
future.
USE OF PROCEEDS
The maximum net proceeds to be received if all Warrants are exercised
is $126,750. However, there can be no assurance that all or any portion of the
Warrants will be exercised, and due to the current bid price of the Common
Stock, the Company does not expect any of the Warrants to be exercised at this
time. Should, however, any or all of the Warrants be exercised, the Company
intends to use the funds generated thereby for general working capital purposes.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information.
The Company's Common Stock began trading on the Nasdaq SmallCap Market
on July 25, 1996. Prior to that, from August 25, 1994 to July 24, 1996, the
Common Stock traded sporadically and on a limited basis in the over-the-counter
market on the OTC Bulletin Board. Prior to August 25, 1994, there was no trading
market for the Company's Common Stock. The following table sets forth
representative high and low closing bid prices for the period the stock traded
on the OTC Bulletin Board and the high and low sales prices for the period the
stock traded on the Nasdaq SmallCap Market, by calendar quarters, as reported by
a market maker during the periods provided for herein. The bid quotations
reflect inter-dealer prices, without retail mark-ups, mark-downs, or
commissions, and may not represent actual transactions. Sales quotations
represent prices between dealers, do not include resale mark-ups, mark-downs, or
other fees or commissions, and do not necessarily represent actual transactions.
Calendar Quarter Prices
Ended Low High
------------------- ----- -----
1996
01/01/96 - 03/31/96 1 1/4 2
04/01/96 - 06/30/96 2 1/4 3
07/01/96 - 07/24/96(1) 1 3/4 3 1/4
07/25/96 - 09/30/96(1) 1 3/4 3 3/8
10/01/96 - 12/31/96 1 3
1997
01/01/97 - 03/31/97 1 2 3/8
04/01/97 - 06/30/97 1 2 1/8
07/01/97 - 09/30/97 15/16 1 5/8
10/01/97 - 12/31/97 15/16 1 5/8
1998
01/01/98 - 03/31/98 5/8 1 1/4
04/01/98 - 05/31/98 5/16 1
06/01/98 - 07/31/98 5/32 21/32
(1) As indicated above, the Company's Common Stock traded on the
over-the-counter market of the OTC Bulletin Board from August 25, 1994 to
July 24, 1996. Since July 25, 1996, the Common Stock has traded on the
Nasdaq SmallCap Market. Therefore, the amounts provided from January 1, 1996
to July 24, 1996 represent bid quotations, and the amounts thereafter
represent sales price.
As of March 31, 1998, there were 129 registered holders of record of
the Company's Common Stock, $.001 par value, which number, determined by the
Company's stockholder records, does not include beneficial owners of the Common
Stock whose shares are held in names of various security holders, dealers, and
clearing agencies. The Company believes there are in excess of 500 such
beneficial holders of the Common Stock. As of March 31, 1998, there were
7,844,148 shares of Common Stock outstanding.
In August 1997, Nasdaq increased its maintenance requirements. In order
to continue to be listed on Nasdaq, the Company is required to maintain (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 April 1998, the Company was notified by Nasdaq that it did not
meet criteria (iv) above and, therefore, that its securities would be delisted
if said criteria was not met within a 90 day compliance period expiring July 24,
1998. In an attempt to remedy this deficiency, the Company held a special
meeting at which it obtained shareholder approval for a reverse split (1 for 4)
of the outstanding shares of its Common Stock. The reverse split was effected on
August 3, 1998. Notwithstanding the reverse split, however, the Company's Common
Stock continues to trade below $1.00 per share rendering it probable that the
Company's securities will be delisted. As is its right, the Company requested a
hearing to oppose the delisting. This request stays the delisting pending a
determination on the hearing which shall be held on September 3, 1998. 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.
The Company has paid no dividends for the last two fiscal years or in
the 1st three quarters of fiscal 1998; nor does it have any present plan to pay
such dividends. Payment of future dividends will be determined from time to time
by the Company's Board of Directors based upon its future earnings, if any,
financial condition, capital requirements, and other factors. The Company is not
subject to any contractual or similar restrictions on its present or future
ability to pay such dividends.
<PAGE>
BUSINESS
History
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 is the parent of NY and additionally owns 100% of the
outstanding shares of common stock of Royal Steel and 100% of the outstanding
shares of common stock of Worldwide. These three subsidiaries are the only ones
through which the Company operates. Two additional wholly-owned subsidiaries of
the Company - One Carnegie Court Associates, Inc. ("One Carnegie") and USA
Bridge Construction Corp. (Maryland) ("MD") - ceased operations in August 1997
and November 1996, respectively, though neither company has formally dissolved.
Unless the context requires otherwise, all references to the Company include its
subsidiaries.
1998 Private Placement
In February 1998, the Company raised a gross aggregate of $450,000 for
the Chadian operation, through its sale of Debentures and Warrants through
VenGua Capital, a London, England firm, as placement agent (the "Private
Placement" or "Private Placement Offering"). The Company paid a 10% commission
and a 1% nonaccountable expense allowance to the placement agent and paid the
placement agent's attorney's fee of $7,500. The Debentures and Warrants, as well
as the Shares underlying same, were issued in a private transaction, exempt from
the registration requirements of the Act in accordance with ss. 4(2) thereof.
The Debentures, plus interest accrued thereon (at 8% per annum, payable in
shares of Common Stock upon conversion of the Debentures), are convertible into
shares of Common Stock at the lesser of (i) 100% of the 5 day average closing
bid price, as reported by Bloomberg, LP, for the 5 trading days immediately
preceding the closing date (February 3, 1998) of the Private Placement ($.80);
or (ii) 75% of the 5-day average closing bid price, as reported by Bloomberg,
LP, for the 5 trading days immediately preceding the date(s) of conversion of
all or a portion of the Debentures. See "Selling Securityholders" and
"Description of Securities."
Pursuant to the terms of the Private Placement, the Company has filed
this Registration Statement covering the resale of the Shares underlying the
Warrants and the Shares to be issued upon conversion of the Debentures. If the
Registration Statement is not declared effective within 90 days following the
closing of the Private Placement, then as liquidated damages, the discount set
forth in the Subscription Agreement and Debenture will increase by 2.5% per 30
day period or portion thereof pro rata until the Registration Statement is
declared effective, or alternatively, if the Registration Statement has not been
declared effective within said 90-day period, then at the purchaser's sole
option, which option must be exercised by written notice to the Company, the
Debentures shall convert to having been issued pursuant to Regulation S for
qualifying Investors, with immediate availability to convert the Debentures.
The Warrants issued pursuant to the Private Placement, to purchase an
aggregate of 100,000 shares of Common Stock, are exercisable as follows: 1/2 of
the Warrants entitle the holders thereof to purchase an aggregate 50,000 Shares
at an exercise price of $1.125; the remaining 1/2 of the Warrants entitle the
holders thereof to purchase an aggregate 50,000 Shares at an exercise price of
$1.41. The Shares may be sold from time to time in negotiated transactions, at
fixed prices which may be changed, at market prices prevailing at the time of
resale, or via a combination thereof.
The funds obtained through the Private Placement have been, and shall
continue to be, loaned to Falcon and/or Portshop to purchase trucks and to stock
a duty free store to be operated out of Chad's sole international airport. See
"Business - Business of Worldwide Construction Limited and Subsidiaries Falcon
TChad S.A. and Portshop S.A."
Recent Developments
On August 3, 1998, after shareholder approval obtained at the Company's
special meeting of July 29, 1998, the Company effected a reverse split (1 for 4)
of its outstanding shares of Common Stock.
In June 1998, Falcon and Total Chad, a French company registered in
Chad, executed a letter of intent for the transportation of fuel from Limbe,
Cameroon to N'Djamena, Chad. The contract is expected to commence in October
1998.
In May 1998, the Company executed a letter of intent to sell all of its
stock 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 common stock. The aforesaid
transactions are contingent upon approval by the Boards of Directors and
Stockholders of these companies as well as consummation of a ninety-day due
diligence, contract drafting, and auditing process. The transactions are 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 the aforesaid ninety-day period. As the Company's operations
are comprised substantially of the operations of NY, the Company's sale of its
NY common stock shall result in the Company's retention of interests in
Worldwide and Royal Steel, two subsidiaries with minimal historical operations.
The acquisitions are not deemed probable at this juncture for the
following reasons: (i) the Company and NY have executed only a letter of intent
in connection with the respective sale and acquisition; no share purchase
agreement has been agreed upon or executed; (ii) the letter of intent requires
approval by the shareholders of all companies: this approval has not been
obtained to date; (iii) closure of the acquisitions is contingent upon FAS'
acquisition of certain companies, all of which acquisitions have not been
consummated to date; (iv) the Company and NY have not yet been able to commence
their respective due diligence reviews of FAS and ARM as neither has been
provided with ARM's and FAS' audited financial statements, the content of which
is essential to the companies' due diligence analysis; hence, neither FAS nor
ARM has provided sufficient evidence that it has the financial wherewithal to
complete the contemplated transactions; and (v) the letter of intent requires
the successful resolution of all legal and accounting matters, all of which have
not been identified as yet given the status of the due diligence review.
Also in May 1998, NY's bid on a project to build a medical building in
Queens, New York was accepted by the developer thereof, 47-01 Queens Blvd.
Realty Corp. NY shall act as general contractor for the project as well as a
subcontractor providing structural steel fabrication and erection therefor. The
project is valued at approximately $2.4 million. In addition, NY has been given
the exclusive right to perform the interior tenant work on the medical building
which is valued at approximately $3 million. NY expects to execute all relevant
contracts with respect to this project and to commence work on same in August
1998.
In addition, in May 1998, Falcon executed a contract with ELF Oil TChad
S.A., a French oil company for whom Falcon has agreed to transport diesel fuel
and gasoline for a period of three years. The trucks are currently in the port
of Douala, Cameroon awaiting port clearance, and Falcon expects to load same for
transport on or about August 15, 1998.
In February 1998, the Company agreed to issue 192,000 shares of Common
Stock to R.S.J.J Realty Corp. ("RSJJ") in exchange for 106,667 shares of NY's
Common Stock. These issuances were made in accordance with an agreement between
NY and RSJJ pursuant to which NY remitted $240,000 in annual lease payments (in
stock, via the aforesaid issuance of the Company's stock to RSJJ) for the
January 1 through December 31, 1998 extended lease term. The value of the
Company's shares was recorded at the value of the rent otherwise due under the
lease ($240,000). The stock was issued in March 1998. See "Certain Relationships
and Related Transactions."
By agreement executed March 10, 1997, One Carnegie entered into an
Agreement for Deed in Lieu of Foreclosure ("the Agreement") with Trinity
Industries, Inc. ("Trinity"). The transaction, which was not closed and
completed until August 1, 1997, was necessitated by One Carnegie's having
defaulted on (i) a $3,000,000 Note (of which Trinity was the holder), and (ii) a
Deed of Trust and Security Agreement which secured said Note for certain
property located in Waldorf, Maryland. Pursuant to the Agreement, in lieu of
foreclosing upon the property owned by One Carnegie, Trinity, through its
affiliate, Waldorf Properties, Inc. ("WPI"), accepted the deed to such property.
See "Business - Description of Property."
Joseph M. Polito's Corporate Affiliations and Holdings
The following table lists, as of March 31, 1998, (i) those companies
with which the Company and/or its subsidiaries do business and of which Joseph
M. Polito is either an Officer, Director, or principal shareholder; and (ii) the
activities engaged in by such companies with the Company and/or its
subsidiaries:
<PAGE>
<TABLE>
<CAPTION>
Year J. Polito's Activities with the Place of
Name(1) of Inc. Title Ownership(%) Company and NY Business
------- ------- ----- ------------ -------------- --------
<S> <C> <C> <C> <C> <C>
USABG Corp.(2) 1988 Pres./Director 66.3% Parent company Queens, NY
R.S.J.J. Realty Leases the offices and
Corp.(3) 1983 Pres./Director 100% storage space to the Company Queens, NY
and NY
Supplies cranes to NY
Crown Crane, Ltd.(3) 1988 -- 50% for use in the erection of Brooklyn, NY
steel
Atlas Gem Leasing, Supplies welding machines and
Inc. (3) 1986 Pres./Director 100% compressors to NY Queens, NY
Sold certain construction
Atlas Gem Erectors contracts to NY; ceased
Co., Inc. (3) 1986 Pres./Director 100% operations 9/94 No office
USA Bridge Provides steel erection for
Construction of N.Y., buildings, roadway, and
Inc. (3)(4) 1990 Pres./Director 56.3% bridge repair projects Queens, NY
Formed to provide steel
Royal Steel Services, erection for projects smaller
Inc. (5) 1997 -- 100% than NY's projects Queens, NY
Worldwide Construction
Limited (6) Parent company of Falcon
1997 -- 100% TChad S.A. and Portshop S.A. Chad, Africa
</TABLE>
- ---------------
(1) Except as disclosed hereunder, no company listed is beneficially owned
by another entity; nor does any company have any subsidiaries.
(2) Incorporated in the State of Delaware.
(3) Incorporated in the State of New York.
(4) Joseph M. Polito, through his ownership of approximately 66.3% of the
outstanding shares of the Company's Common Stock, may be deemed the
beneficial owner of the shares of NY common stock owned by the Company.
(5) Incorporated in the State of New York. Joseph M. Polito, through his
ownership of approximately 66.3% of the outstanding shares of the
Company's Common Stock, may be deemed the beneficial owner of the
shares of Royal Steel common stock owned by the Company.
(6) Incorporated in the British Virgin Islands in December 1997. Worldwide
is a wholly-owned subsidiary of the Company and the parent company of
Falcon and Portshop, two companies registered under the laws of Chad
and authorized to operate therein in November 1997. Joseph M. Polito,
through his ownership of approximately 66.3% of the outstanding shares
of the Company's Common Stock, may be deemed the beneficial owner of
the shares of Worldwide common stock owned by the Company.
<PAGE>
Business of Royal Steel Services, Inc.
Royal Steel was incorporated by the Company, in New York, in November
1997 to undertake and perform steel erection services on a considerably smaller
scale than those undertaken by NY. Specifically, these projects generally will
not exceed an aggregate contract amount of $350,000. To date, Royal Steel has
completed three projects and is engaged in an additional three projects. The
pending projects are valued at approximately $150,000.
Business of Worldwide Construction Limited and Subsidiaries Falcon TChad S.A.
and Portshop S.A.
Falcon TChad S.A.
In December 1997, the Company formed Worldwide, a British Virgin
Islands corporation, as a wholly-owned subsidiary. Worldwide was formed as a
holding company to own 80% of Falcon, a company incorporated in Chad. The
remaining 20% of Falcon is owned by DIA, the company which, jointly with
Worldwide, formed Falcon. Worldwide and DIA received their shares in Falcon as
founders thereof and as facilitators of the relationships between Falcon and the
entities with which Falcon intends to do business in Chad; accordingly, they
paid no cash consideration to Falcon. Falcon shall provide full service
transportation services (including trucking, customs clearance, and warehousing)
and forwarding services in N'Djamena, Chad. Worldwide shall operate as the
liaison between Falcon and the governmental or private entities with which
Falcon intends to contract in Chad.
In January 1998, in furtherance of its goals, Falcon purchased 16
transport vehicles and a communications system. Falcon is currently engaged in
discussions with (a) several large foreign corporations setting up to do
business in Chad in order to provide their trucking and certain materials needs,
and (b) the Chadian government (i) to transport cotton, the country's primary
export; (ii) to purchase and operate 65-75% of a construction company (whereby
the Chadian government will own the remaining 25-35%) for road and bridge
building; (iii) for the right to utilize 1/2 of a "mountain" of gravel, at no
cost to Falcon, to crush and sell same to a certain contractor with whom Falcon
is engaged in negotiating a four year requirements contract; and (iv) for the
rights to 1/2 of another "mountain" of gravel to be used to build a road to
encircle Chad. Despite the aforesaid negotiations, no contracts have been
executed with respect thereto, and there can be no assurance that any of the
negotiations will result in executed contracts; moreover, given the political
instability of Chad, there can be no assurance that if the aforesaid contracts
are executed, same will be performed fully. To date, Falcon has generated no
revenues. In May 1998, however, it executed a contract with ELF Oil TChad S.A.,
a French oil company for whom Falcon has agreed to transport diesel fuel and
gasoline for a period of three years. The trucks are currently in the port of
Douala, Cameroon awaiting port clearance, and Falcon expects to load same for
transport on or about August 15, 1998. In addition, in June 1998, Falcon and
Total Chad, a French company registered in Chad, executed a letter of intent for
the transportation of fuel from Limbe, Cameroon to N'Djamena, Chad. The contract
is expected to commence in October 1998.
Portshop S.A.
In addition to its holdings in Falcon, Worldwide was formed to own 80%
of Portshop, a company registered to stock and operate a duty free store in
Chad's sole international airport. The remaining 20% of Portshop is owned by
DIA. Portshop was jointly formed by Worldwide and DIA, both of which received
their shares in Portshop as founders thereof and as facilitators of the
relationships between Portshop and the entities with which Portshop intends to
do business in Chad; accordingly, no cash consideration was paid to Portshop by
either of Worldwide or DIA. Worldwide shall operate as the liaison between
Portshop and the governmental or private entities with which Portshop intends to
contract in Chad.
In February 1998, Portshop executed a contract with the Chadian
government to stock and operate a duty free store at Chad's sole international
airport. The Company expects the store to be opened by the end of August 1998.
To date, Portshop has generated no revenues.
Business of USA Bridge Construction of N.Y., Inc.
General
The Company commenced operations, through NY, in or about June 1993. NY
was formed 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; however, it operated initially only as a
subcontractor as it needed financing to enable it to obtain bonding which is
required for all municipal projects. To date, NY has provided steel erection for
building, roadway, and bridge repair projects for general contractors who have
been engaged by private and municipal/governmental customers. As of March 31,
1998, NY completed in excess of twenty-one (21) projects with an aggregate
project value of approximately $40,000,000 and was engaged in two (2) projects
with an aggregate value of approximately $10,790,000. While NY plans to maintain
its subcontractor presence in the steel industry, it intends also to focus on
obtaining projects as a general contractor.
On June 15, 1993, NY purchased, from Atlas Gem, six then existing
contracts to perform steel erection services for the following projects:
Stillwell Avenue, 39th Street Bridge Rehabilitation, Honeywell Street Bridge,
New England Thruway, Lemon Creek, and Kosciuszko Bridge. Upon its sale of these
contracts to NY and its completion of its final project in September 1994, Atlas
Gem ceased operations. NY purchased Atlas Gem's contracts to add to its then
backlog in order to avoid a conflict of interest, as the two entities - which
were controlled by Joseph M. Polito as Officer, Director, and principal
stockholder - were engaging in similar, but different work.
<PAGE>
Schedule of Completed Projects
Below is a table detailing the projects completed by NY since its
formation.
<TABLE>
<CAPTION>
Schedule of Completed Contracts as of March 31, 1998
Costs and
Estimated
Contract Contract Earnings in
Project Name Amount Date Completion Date Type of Contract Excess of Billings Gross Receivables
(1)
<S> <C> <C> <C> <C> <C> <C>
Van Wyck $ 195,500 April 1992 October 1996 Lump Sum 0
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
39th Street
Bridge 2,538,252 June 1993 December 1995 Lump Sum 918,511
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
39th Street
(Demolition) 679,046 February August 1995 Lump Sum 563,090
1993
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
New England
Thruway 2,409,058 June 1993 November 1994 Lump Sum 254,327
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Consulting
Honeywell (2) 1,100,000 June 1993 March 1996 Agreement 430,000
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Kosciuszko
Bridge 3,034,281 June 1993 November 1996 Lump Sum 575,316
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Stillwell
Avenue Bridge
8,084,655 June 1993 March 1996 Lump Sum 2,382,366
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Cross Bronx
Expressway 60,176 March 1994 March 1994 Lump Sum 0
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Robert Moses December
Causeway 540,118 1994 March 1996 Lump Sum 44,330
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
4th Avenue
Bridge 387,965 March 1995 April 1997 Lump Sum 67,769
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
201 East 80th
Street 1,692,797 May 1995 June 1996 Lump Sum 0
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Centereach 186,500 June 1995 October 1995 Lump Sum 21,255
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Pro-Camera 50,275 August 1995 August 1995 Lump Sum 1,250
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
UDC 82,400 August 1995 September 1995 Lump Sum 0
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Williamsburg
Houses(3) 543,627 April 1996 August 1996 Lump Sum 161,102
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
South Avenue
Plaza 286,051 May 1996 August 1996 Lump Sum 0
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Hellgate
Viaduct
Structures 286,080 October 1996 March 1997 Lump Sum 69,000 135,456
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Indonesian November
Mission 348,000 1996 April 1997 Lump Sum 108,000 24,000
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
EklecCo. 16,711,041 June 1996 October 1997 Lump Sum 5,917,455
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Korean Mission
1,342,096 January 1997 February 1998 Lump Sum 599,316
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Others(4) 207,902 N/A N/A N/A N/A 28,925
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
- --------------- ---------------- ------------- ---------------- ----------------- ----------------- -----------------
Total $40,765,820 $177,000 12,124,468
</TABLE>
<PAGE>
(footnotes from previous page)
(1) "Costs and estimated earnings in excess of billings," represents costs and
profits which were unbilled until after March 31, 1998.
(2) Consulting agreement with John P. Picone, Inc. ("Picone"), whereby NY
entered into a consulting agreement with Picone, who was awarded the
project. The agreement provided that for 50% of the profits of the project,
NY would provide Picone with its expertise in steel erection, supply
qualified workers, and oversee the rehabilitation of the bridge. Picone put
NY's employees on its payroll and incurred most direct expenses of the
project. NY recorded as expenses of the project certain allocated overhead
as well as other expenses incurred directly. The Company has recorded, as
revenue, its share of the gross profit on the project as per its consulting
agreement. The indirect expenses associated with the project including, but
not limited to, yard and equipment rent, miscellaneous tools, supplies, and
vehicle expenses, consulting costs, and certain payroll and related costs
not paid by Picone - are recorded as expenses against the project. The
total revenue recorded by the Company during the entire project was
$1,100,000. The total expenses recorded by the Company during the entire
project were $338,838. During the year ended June 30, 1996, the Company
recorded revenue of $190,000 and expenses of $235,433. No revenues or
expenses were recorded during the year ended June 30, 1997 or the nine
months ended March 31, 1998 and 1997.
(3) This project, which bore an original contract price of $2,517,651, was on
hold for a considerable period of time pending a dispute not involving NY.
NY believes that it will not return to this project and thus deems the
project complete.
(4) Total estimated project value of a collection of smaller projects completed.
Prior to leasing equipment from Crown or AGLI, NY compares the costs
thereof to those costs it might otherwise incur from like companies. NY will
transact business with Crown and AGLI only on terms which may be considered
similar to the terms it might achieve elsewhere. In connection with such
transactions, the audit committee of NY's Board of Directors intends to exercise
reasonable judgment and take such steps as it deems necessary under the
circumstances to resolve any specific conflict of interest which may occur and
will determine what, if any, specific measures, such as retention of an
independent advisor, independent counsel, or special committee, may be necessary
or appropriate. The fact that Joseph M. Polito is an Officer, Director, and
principal shareholder in other companies, including those that transact business
with NY and the Company, opens the potential that there may be conflicts of
interest in decisions made by Mr. Polito, which decisions may compromise his
fiduciary duty to the Company. Any remedy under state law, in the event such
circumstances arise, most likely would be prohibitively expensive and time
consuming. See "Business - Suppliers and Subcontractors."
Industry Overview
In recent years, there has been a resurgence in the construction
industry in the New York City metropolitan area. Major transportation arteries
in New York are under extensive construction programs to increase their ability
to handle the ever increasing volumes of traffic they carry. Work is in progress
on the major thruways, expressways, and parkways across New York State. NY is
preparing subcontracting and general contracting bids for some of the roadway
projects in the Metropolitan area and is continuing to submit bids on private
projects as well. These projects positively affect the availability of work in
diverse disciplines in the construction industry: landscaping, concrete, paving,
steel, etc.
Apart from the infrastructure construction programs, there has been an
impressive increase in the restoration, alteration, and expansion of office
space, residential properties, and public facilities. This increase resulted in
attainment of the Korean Mission subcontracting project, which has since
terminated. There also appears to be an infusion of foreign investment capital
into the depressed real estate market in New York, prompting major renovations
and alterations. This capital infusion enhances the value of property and
therefore increases the incentive for new development.
The Contract Process; Bidding
NY obtains its projects primarily through the process of competitive
bidding. In order to be fully apprised of bid solicitations, NY (i) subscribes
to bid reporting services; (ii) monitors trade journals including Engineering
Record News, Dodge Report, and Brown's Letter, Inc.; (iii) monitors daily
newspapers and real estate publications; (iv) utilizes membership and networking
in affiliated organizations including Allied Building Trades; (v) maintains
contracts with developers and other general contractors; and (vi) requests
notification from various government agencies as to bid solicitations being
requested.
In response to bid requests, NY submits to the soliciting entity a
proposal detailing its qualifications, the services to be provided, and the cost
of its services. Based on its evaluation of the proposals submitted, the
soliciting entity awards the contract to the bidder it deems appropriate.
Generally, the contract for a project is awarded to the lowest bidder, although
other factors may be taken into consideration.
NY submits its bids after management performs a detailed review of the
project specifications, an internal review of NY's capabilities and equipment
availability, and an assessment of whether the project is likely to attain
targeted profit margins. In bidding on contracts, there are two types of bid
requests made by the soliciting entity: a unit cost bid and a lump-sum bid. The
unit cost bid is based upon a cost per unit basis; a lump-sum bid obligates NY
to complete the project at a fixed price. With a lump-sum bid, the risk of
estimating the quantity of units required for a particular project is on NY,
while with a unit cost bid, NY must estimate the per unit cost, not the number
of units needed. Any increase in NY's unit cost over its unit bid price or cost
over its lump-sum bid, whether due to inefficiency, faulty estimates, weather,
inflation, or other factors, must be borne by NY and may adversely affect its
results of operations.
Upon receipt by a New York City agency of notification that a bid
submitted for a project has been declared the low bid, the city's procurement
policy requires that the New York Finance Committee then approve all funds to be
allocated to such project. During this time, if NY is the low bidder, it must
provide the New York City agency with such documents as are required - including
a Payment and Performance Bond and a Labor and Material Bond - in order to be
approved to undertake the project. Once the New York City Finance Committee has
cleared the allocation of funds for a project and the agency has cleared all
documentation required to be submitted by the contractor, a starting date and
time table is set up for the project.
Most government contracts provide for termination of the contract at
the election of the customer, although in such event, NY is generally entitled
to receive a small cancellation fee. Many of NY's contracts are also subject to
completion requirements with liquidated damages assessed against it if schedules
are not met.
While Joseph M. Polito has been in the construction business for many
years, NY has only recently started bidding on projects as a general contractor,
and NY may incur unanticipated expenses, problems, or difficulties which may
affect its bid prices and project profitability. Though NY has been the low
bidder on several public sector and private sector bids, until recently it had
not commenced any such projects as a general contractor. In May 1998, however,
NY's general contractor and subcontractor bids were accepted in connection with
the erection of a medical building in Queens, New York. The total project, on
which work is expected to commence in August 1998, includes steel fabrication
and erection, interior work, and general contracting work and is valued at
approximately $5.4 million. In addition to the foregoing, NY has commenced two
projects as prime contractor and shall continue to seek subcontracting projects.
A prime contractor is a contractor which performs a specific category of work on
a project. Unlike the general contractor, the prime contractor is responsible
for performance of that category alone, not the entire project. Like the general
contractor, the prime contractor typically contracts directly with the owner or
via the owner's construction manager acting as agent therefor; thus, unlike the
subcontractor, the prime contractor is responsible exclusively to the owner.
As general contractor, NY will be responsible for the performance of
the entire contract, including work assigned to subcontractors. Accordingly, NY
is subject to liability associated with the failure of subcontractors to perform
as required under the contract; thus, NY may require its subcontractors to
furnish Performance Bonds.
Affirmative action regulations, however, require that NY use its best
efforts to hire minority subcontractors for a portion of the project and some of
these minority subcontractors may not be able to obtain such surety bonds.
Insurance and Bonding
NY maintains general liability and excess liability insurance,
insurance covering its construction equipment, and workers' compensation
insurance in amounts it believes are consistent with industry practices. NY
carries liability insurance of $1,000,000 per occurrence which management
believes is adequate for its current operations.
Although NY generally has not been required to provide Performance
Bonds to general contractors when acting as a subcontractor, it may be required
to furnish bonds guaranteeing its performance as a subcontractor in the future.
Currently, NY is serving as a subcontractor on one projects. For the EklecCo
prime contracting project, which terminated in November 1997, and the Grand
Central Terminal subcontracting project, which continues, NY has been required
to provide, and has provided, Performance Bonds and Labor and Material Bonds.
NY expects to bid on both private and public sector projects as a
general contractor. Most of these projects, both public and private sector,
shall require Bid Bonds and Payment and Performance Bonds. A Bid Bond is a bond
issued by a bonding company which is usually in an amount equal to 10% of the
bid price and which guarantees that the contractor will be able to produce such
other additional documents and information required in order to commence the
project including the issuance of a Performance Bond. A Performance Bond is a
guarantee by a surety, customarily 100% of the value of the contract amount,
that the contractor will complete the project pursuant to the terms and
conditions of the contract. Most government contracts allow for termination of
the contract at the election of the customer, although in such event, NY is
generally entitled to receive a small cancellation fee. Many of NY's contracts
are also subject to completion requirements with liquidated damages assessed
against NY if schedules are not met. In the past, NY has not been materially
adversely affected by these provisions as a subcontractor.
NY's ability to obtain bonding and its bonding capacity are primarily
determined by its net worth, liquid working capital (consisting of cash and
accounts receivable), past performance, management expertise, the number and
size of projects under construction, and various other factors. The larger the
project and/or the more projects in which NY is engaged, the greater the
bonding, net worth, and liquid working capital requirements. Surety companies
consider such factors in light of the amount of NY's surety bonds then
outstanding and the surety companies' current underwriting standards, which
standards may change periodically. Therefore, NY may be required to maintain
certain levels of tangible net worth in connection with establishing and
maintaining bonding limits. As a practical matter, such levels may limit
dividends, if NY, which might have been declared and which would limit corporate
funds available for other purposes.
In determining whether to issue a bond, surety companies perform credit
checks and other due diligence disclosure requirements and investigate NY's
capitalization, working capital, past performance, management's expertise, and
such other factors, as are discussed above. The surety companies require
companies receiving bonding to maintain certain amounts of capital and liquid
assets and base the amount of bonding they will issue on a formula, which is
usually based on certain industry standards which take into account such
factors. The surety companies also require that the bonds be personally
guaranteed by Joseph M. Polito.
Bonding requirements vary depending upon the nature of the project to
be performed. NY anticipates paying premiums of between 1 1/4% to 3 1/2% of the
total amount of the contracts to be performed. Since these premiums are
generally payable at the beginning of a project, NY must maintain sufficient
working capital to satisfy the premium prior to receiving revenue from the
project. Bonding premiums are a line item in the submitted bid and are included
as part of NY's billing to its client.
In December 1996, NY obtained a commitment for a Surety Bond Line of
Credit ($10,000,000 single project limit) from United American Guarantee
Company, Ltd. ("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 one prime
contracting and two subcontracting projects which have required same: the
EklecCo, Grand Central Terminal, and Korean Mission projects.
UAGC is not a New York licensed bonding company; thus, NY may be
precluded from working on certain projects. This is not always an issue,
however, as the requirement is sometimes waived (as in the Grand Central
Terminal project) for although general contractors prefer that a subcontractor
be licensed by a New York licensed bonding company, they will waive the
requirement when necessary. In addition, NY may engage in joint ventures with
other companies who are bonded by a New York licensed bonding company, thereby
allowing it access it might otherwise not have had.
Work in Progress; Backlog and Concentration of Customers
Contracts as a subcontractor and general contractor often involve work
periods in excess of one year. Revenue on uncompleted fixed price contracts is
recorded under the percentage of completion method of accounting. NY begins to
recognize profit on its contracts when it first accrues direct costs. As is
standard construction industry practice, a portion of billings may be retained
by the customer until certain contractual obligations are fulfilled.
<PAGE>
The following is a list of those projects in which NY was engaged as of
March 31, 1998.
<TABLE>
<CAPTION>
(2)
Contract Costs (1) Costs &
Date/ incurred/ % of Job Est. Backlog
Contract Party/ Contract Est. Type of Est. Costs Complete Profit in Gross Amount at
Project Name Amount Completion Contract to Complete Billings Excess of Receivables 03/31/98
- ------------ ------ ---------- -------- ----------- -------- --------- ----------- --------
- ------------------ -------------- ------------- --------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lehrer McGovern,
Bovis, May 1996 Lump Sum 3,414,380
Inc./Grand 4,535,000 August 1998 31,620 99% 649,856 532,607 54,312
Central Terminal
- ------------------ -------------- ------------- --------- ------------ ----------- ------------ ------------ ------------
- ------------------ -------------- ------------- --------- ------------ ----------- ------------ ------------ ------------
Tishman
Construction
Corp./ Louis July 1996 Lump Sum 3,467,889
Vuitton N.A.(3) 6,197,750 August 1998 324,953 91% 341,148 710,961 557,797
- ------------------ -------------- ------------- --------- ------------ ----------- ------------ ------------ ------------
- ------------------ -------------- ------------- --------- ------------ ----------- ------------ ------------ ------------
Total Signed $6,882,269
Contracts $10,732,750 $ 356,573 991,004 1,243,568 612,109
</TABLE>
Completion percentage is as of March 31, 1998 and is based on the percentage of
costs incurred through that date to the estimated cost of the project. (2)
"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. "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. (3) NY is prime contractor (similar to general contractor) on this
project.
For the year ended June 30, 1997, NY had three unrelated customers
which accounted for approximately 87% of total revenues. For the nine months
ended March 31, 1998 NY had three unrelated customers, which accounted for
approximately 84% of total revenues. At June 30, 1997 and March 31, 1998,
approximately 82% and 72% of contracts receivables are due from four and two
customers, respectively, of total accounts receivable. The discontinuance of any
of these projects, or a general economic downturn in the State of New York, in
which the projects are located, could have a material adverse effect on NY's
results of operations.
Seasonality
Though NY does not believe its business is seasonal, its operations
slow during the winter months due to the decreased productivity of the workers
caused by the inability to work in severe weather conditions. As a result of the
foregoing, NY's costs are increased.
Suppliers; Subcontractors; Unions
For the year ended June 30, 1997, NY received approximately 43% of the
fabricated steel it required from MD, a subsidiary of the Company. MD provided
NY with fabricated steel until November 1996, at which time MD ceased operating.
Queens County Ironworks and New York Iron, Inc. provided the remainder of the
steel. Since January 1998, NY has received approximately 60% of its steel from
Hirschfeld. Neither Queens County Ironworks nor New York Iron, Inc. is
affiliated with the Company, NY, or any other Director or principal stockholder
of either company. The prices paid and the terms for the steel purchased from MD
were comparable to competitive prices and terms; therefore, NY believes it now
will be able to acquire same through other suppliers at similar prices and on
similar terms.
NY currently depends upon various vendors to supply spare parts,
cranes, and other heavy equipment, and its ability to hire skilled workers
depends upon its ability to comply with certain union agreements and contracts.
NY rents cranes from Crown, a company of which Joseph M. Polito is a 50%
shareholder, and rents generators and other equipment from AGLI, a company which
is wholly-owned by Mr. Polito. NY believes that there are a sufficient number of
vendors, so that in the event any individual or group of vendors can no longer
service NY's needs, NY will be able to find other vendors at competitive prices.
As is standard practice in the construction industry, NY's employees,
other than its office employees, are not salaried individuals. They are union
employees who are hired on an as-needed, or per project, basis and are paid an
hourly wage which is set by the unions with which they are associated. NY hires
skilled steel workers represented by the International Union of Structural
Ironworkers local 40, 361, & 417 and International Operating Engineers locals
14, 14B, 15, 15A, 15C, 15D, and 825 and Cement Masons local 472. NY must comply
with its agreements with the unions, which agreements regulate all employment
issues - including pay, overtime, working conditions, vacations, benefits, etc.
between NY and the union employees. These agreements expire on June 30, 1999.
NY believes that it has a good relationship with the Unions and is in
compliance with all union agreements. No assurance can be given that NY will
continue to be in compliance with the Unions or successfully negotiate
extensions to NY's agreements with such Unions. In the event problems or
conflicts with the Unions arise or there is a loss of skilled steel and
operating engineers, this would have a detrimental effect on NY's operations.
NY's success as a general contractor, in part, will be dependent upon
its ability to hire workers and comply with union contracts and agreements and
its ability to oversee and retain qualified subcontractors to perform certain
work. NY will be responsible for performance of the entire contract, including
the work done by subcontractors. Accordingly, NY may be subject to substantial
liability if a subcontractor fails to perform as required. Although NY believes
that it will be able to attract subcontractors for general contracting projects
it may obtain, there can be no assurance that it will be able to do so. In
addition, in hiring and overseeing subcontractors, there may be difficulties of
which NY is not aware. Competition
NY is one of many subcontractors which erect and furnish steel for
projects. All aspects of NY's business are, and will continue to be, highly
competitive. NY is a subcontractor and a general contractor specializing, but
not exclusively, in bridge and roadway repair and replacement as well as in
fabricating and erecting steel structures for buildings. NY's competitors are
numerous, and many have substantially greater marketing, financial, bonding, and
human resources. When contractors seek construction contracts, they request bids
from numerous subcontractors based on the various requirements of the project.
These subcontractors compete primarily as to price, name recognition, and prior
performance.
The driving force behind NY's name recognition in the construction
industry is the thirty plus year presence therein of Joseph Polito (and many of
his employees), which presence serves also to confirm NY's prior performance. In
addition, regarding prior performance, while NY has operated only since 1993,
Atlas Gem, a former steel erector subcontractor or prime contractor for private
and governmental construction projects owned by Mr. Polito, was incorporated in
1986 and operated as such until NY purchased its assets in 1993.
There are approximately twelve companies against which NY competes for
subcontracting projects: American Bridge Co.; Empire City Iron Works; Falcon
Steel Co., Inc.; Grow Tunneling Corp.; Karl Koch Erecting Co., Inc.; A.J.
McNulty & Co., Inc.; Metro Steel Company, Inc.; Midlantic Erectors, Inc.;
Midwest Steel, Inc./Canron; Rice Mohawk U.S. Construction Co.; Steel Services
Corporation; and Thunderbird Constructors, Inc. The number of the subcontracting
companies which may bid for projects for which NY is also bidding varies widely,
from approximately three to nine. These companies vary in the number of
employees and union laborers they utilize.
As a general contractor, NY will be competing with many larger and more
experienced (and thus more established) contractors whose names are more readily
recognized and whose relationships with federal and state municipalities and
agencies - and those private companies who solicit bids for bridge and roadway
repair and replacement projects and the furnishing and erection of steel
structure for buildings projects - have been established. There are
approximately fourteen such companies against which NY competes for general
contracting projects: AFC Enterprises, Inc.; Felix Industries; Frontier Kemper
Construction; Halmar Contracting; John P. Picone, Inc.; Judlau Contracting,
Inc.; Keystone Construction; Kiska Construction Corp.; R.A. Gottlieb, Inc.;
Seacrest Construction Co.; Schiavone Construction; Silverite Construction Co.;
Yonkers Contracting Co., Inc.; and Zollo Construction Corp. These companies vary
in the number of employees and union laborers they utilize.
Government Regulation
NY must comply with the Occupational Safety and Health Administration
("OSHA"), a federal agency which regulates and enforces the safety rules and
standards for the construction industry. It also must comply with (i) the New
York City Department of Buildings, which regulates the placement and testing of
cranes; and (ii) the New York Department of Transportation which regulates the
location of the cranes, vehicular traffic, and the routing of pedestrian
traffic. In addition, NY must comply with a wide range of other state and local
rules and regulations applicable to its business, including regulations covering
labor relations, safety standards, affirmative action and the protection of the
environment including requirements in connection with water discharge, air
emissions, and hazardous and toxic substance discharge. Continued compliance
with OSHA and the broad federal, state, and local regulatory network is
essential and costly. The failure to comply with such regulations or amendments
to current laws or regulations imposing more stringent requirements may have an
adverse effect on NY's operations. NY believes that it is in substantial
compliance with all applicable laws and regulations.
Employees
As of March 31, 1998, NY had three Executive Officers, two
administrative assistants, one comptroller, one project estimator, and two
employees in the accounting department. The number of union employees NY
utilizes depends on the number and size of projects in which NY is engaged and
can range from 10-200 employees, some of whom are employed full-time and others
of whom are employed part-time. These union employees are represented by the
International Union of Structural Ironworkers locals 40, 361 and 417;
International Operating Engineers locals 14, 14B, 15, 15A, 15C, 15D, 825; and
Cement Masons local 472. NY's contracts with these Unions, which contracts
regulate all employment issues between NY and the union employees - including
pay, overtime, working conditions, vacations, benefits, etc. - expire on June
30, 1999. NY considers its relationships with the unions and its employees to be
good.
Description Of Property
The Company's office (located at 53-09 97th Place, Corona, New York
11368) consists of approximately 25,000 square feet of office space
(approximately 24,000 square feet of which is utilized for storage space) which
is leased by NY from an affiliate company, RSJJ. RSJJ is owned by the Company's
President, Joseph M. Polito. The lease, pursuant to which NY pays rent of
$20,000 per month to RSJJ, expires in December 1998. The Company also leases a
yard from an unrelated party for storage material pursuant to an oral agreement
which requires monthly payments of $3,500. The Company believes that the terms
of these leases are comparable and competitive with that which would have been
negotiated with an unaffiliated landlord.
In February 1998, NY agreed to issue 106,667 shares of its common stock
to the Company as consideration for the Company's issuance of 192,000 shares of
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 was recorded at the value of the rent otherwise due under the
lease ($240,000). The stock was issued in March 1998.
As of May 1997, NY was in arrears in the amount of $480,000 in payments
due under its lease with RSJJ. This arrearage was converted into equity as
follows: NY issued 270,000 shares of its common stock to the Company for the
cancellation of the debt owed to RSJJ. The Company, in turn, issued 200,000
shares of Common Stock to Joseph M. Polito and 150,000 shares of Common Stock to
RSJJ. RSJJ then transferred all of such shares to RSJJ's mortgagor, which agreed
to accept said shares as payment of RSJJ's outstanding mortgage.
Legal Proceedings
The Company is not a party to any material litigation and is not aware
of any threatened litigation that would have a material adverse effect on its
business, except for the litigation matters discussed below. The Company
believes that the nature and number of these proceedings are typical for a
construction firm of its size and scope.
In accordance with the laws of the State of New York, the Company and
its subsidiaries carry workers' compensation in those jurisdictions wherein they
have contracts.
Claims Against and By State Insurance Fund
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 to annul the cancellation
of NY's workers' compensation policy and to annul the rates, classifications,
and premiums assigned to NY. This action claims that defendants audited NY's
books for purposes of assigning the workers' compensation rates and premiums to
be assessed against NY and thereafter (i) "arbitrarily and capriciously and
without any foundation in law or in fact" assigned to NY's employees improper
job classifications which were then used unlawfully as the basis for improperly
assessing the highest premium rates which could be assessed against NY; (ii)
improperly applied said premiums retroactively; (iii) billed NY for premiums
which were improper and excessive; and (iv) canceled NY's workers' compensation
policy upon NY's failure to tender payment in the improper and excessive amount
demanded by defendants.
In December 1995, 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, One Carnegie Court Associates, Inc. ("One
Carnegie"), and three other individuals and eleven other corporations alleging
that certain workers' compensation insurance policies obtained for various
insured defendants were obtained fraudulently and that the defendant
corporations failed to pay the appropriate premiums.
Though the parties are negotiating settlement documents on the basis of
a $750,000 proposed settlement to which they have verbally agreed (payable by
the corporate defendants), material terms of the settlement remain in
negotiation, and no Stipulation of Settlement has been filed with the courts.
The Company hopes to complete settlement negotiations by the end of August 1998.
As material terms of the agreement remain in dispute (and thus continue to be
negotiated), settlement cannot be deemed "probable" at this time; accordingly,
no accrual beyond that already recorded by the Company is necessary. For the
period April 29, 1993 through December 1994 (that period for which plaintiffs
seek recovery), the Company accrued approximately $85,000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Claims Against Perini Corporation
Three actions to foreclose upon mechanic's liens were commenced by NY
in fiscal year 1997. 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. NY's claim for relief
in this action is $2,199,560. The claim is based upon filed mechanic's liens and
general contract law and, specifically, seeks payment for (i) furnishing and
erecting, pursuant to the contract, structural steel and metal deck at the
Stillwell Avenue Station of the Coney Island Line in Brooklyn, New York; (ii)
furnishing and erecting, pursuant to the contract, structural steel and metal
deck at the Stillwell Avenue Dispatcher's Office; and (iii) extra costs incurred
by NY (outside of the contract) for additional labor expended and equipment
furnished by NY at the instruction of Perini Corporation. This action is still
in the discovery phase.
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. NY's claim for relief in
this action is $844,932. This claim is based upon filed mechanic's liens and
general contract law. The claim is for labor performed and materials supplied
including money owed under the contract regarding the rehabilitation of the 39th
Street Bridge over the Long Island Rail Road and Amtrak located in Queens, New
York. Specifically, NY seeks payment for furnishing structural steel and
erecting, pursuant to the contract, the 39th Street Bridge. This action is still
in the discovery phase.
On February 7,1997, Perini Corporation filed a related action against
NY and Metro Steel Structures, Ltd. in New York State Supreme Court, Kings
County. Perini's claims against NY total $1,140,560 and allege defective work on
the Stillwell Avenue project and upon a loss/profit agreement for both the
Stillwell Avenue project and the 39th Street Bridge project. NY has
counterclaimed for the amounts set forth above in the discussion of the two
actions involving Perini Corporation, and its claims are based upon the same
theories as are set forth above.
Claim Against Kiska Construction
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. NY's claim for relief in this
action is $279,346. This claim is based upon filed mechanic's liens and general
contract law. Specifically, NY seeks payment for furnishing and erecting steel,
pursuant to and outside the contract, on the Robert Moses Causeway Northbound
Bridge located in Suffolk County, New York.
This action is still in the discovery phase.
Claim Against EklecCo
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 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
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
court further ordered that discovery be expedited in this matter. This action is
in the discovery phase.
The amounts of the mechanic's liens filed by NY in the Perini, Kiska,
and EklecCo actions were determined by final requisitions remitted by NY to the
lien-debtors who failed to tender payment for same. Such amounts may include
claims which have not been recorded in accordance with NY's revenue recognition
accounting policy and SOP 81-1, paragraph 66 as such amounts have not been
received or awarded.
<PAGE>
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 the Company. All
statements, other than statements of historical facts, which address the
Company's expectation of sources of capital or which express the Company'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 the Company 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 the Company, 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 is the parent of USA Bridge Construction of N.Y.,
Inc. ("NY") and owns 100% of the outstanding shares of common stock of each 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
wholly-owned), One Carnegie Court Associates, Inc. ("One Carnegie") and USA
Bridge Construction Corp. (Maryland) ("MD"), ceased operations in August 1997
and November 1996, respectively.
Royal Steel was formed in 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.
The following management's discussion and analysis for the nine months
ended March 31, 1998 and 1997 and the years ended June 30, 1997 and 1996 is 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, its
President, since he owns approximately 66.3% of the outstanding shares of the
Company and may be considered the 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 expiring on December 31, 1998. Mr. Polito 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 years ended June 30, 1997 and 1996.
Lastly, NY purchased from MD certain materials and labor to perform steel
erection service. For the years ended June 30, 1997 and 1996, purchases by NY
from MD amounted to $371,321 and $622,050, respectively. MD ceased operations
during November 1996 and, accordingly, NY began purchasing 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 $10,790,000. 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 one prime contracting and two subcontracting projects which have required
same: the EklecCo, 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 New York 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 $1,113,000 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. Subsequent to March 31, 1998, NY's bid on a project
to build a medical building in Queens, New York was accepted by the developer
thereof, 47-01 Queens Blvd. Realty Corp. NY shall act as general contractor for
the project as well as a subcontractor providing structural steel fabrication
and erection therefor. The project is valued at approximately $2.4 million. In
addition, NY has been given the exclusive right to perform the interior tenant
work on the medical building which is valued at approximately $3 million. NY
expects to have executed all relevant contracts with respect to this project and
to commence work on same in August 1998. NY continues to bid on available
contracts and is confident it will be successful on a sufficient number of bids
to continue profitably in the future.
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, revisions in costs and earnings
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.
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 $14,284,651 and $7,714,698, respectively. This net increase,
amounting to $6,569,953 (or approximately 85%), 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 project. The change orders for the
nine months ended March 31, 1998 amounted to approximately $6,337,489 for
EklecCo and a total of $2,406,077 for the remaining projects: Grand Central and
Louis Vuitton. In January 1998, due to certain project disputes, NY received a
contract termination letter from the general contractor for the Korean Mission
project. The dispute arose from the delivery, by a subcontractor, of improperly
fabricated steel to NY. As a result of the dispute, the general contractor on
the project subcontracted the steel fabrication and erection to a third party in
breach of its contract with NY. NY intends to seek legal redress from the steel
fabricator and from the general contractor. The Company expects to complete the
Grand Central and Louis Vuitton projects by August 31, 1998. After such
completion, the Company's only project will be the Queens Boulevard project,
valued at approximately $5,400,000, the performance of which is expected to
begin in August 1998. During the nine months ended March 31, 1998, approximately
$1,616,000 (or 11.3%) 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. Approximately $1,075,000 (or 7.5%) of the revenue
recognized was not billed at March 31,1998.
During the nine months ended March 31, 1998, NY did not provide the
lowest bids for the projects for which it submitted bids; thus, NY 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. The Company's failure
to obtain new contracts could have a material impact on net revenues and income
from continuing operations in the future if this trend continues. The Company's
current backlog and the expected collection on liens over the next six to twelve
months is anticipated to be sufficient to meet the Company's operating needs.
The Company has obtained a new contract subsequent to March 1998, valued at
approximately $5,400,000. The Company continues to bid on available contracts
and is confident it will be successful on a sufficient number of bids to
continue profitably in the future.
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 a mechanic's lien filed against EklecCo 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 nine months ended March 31, 1998 and
1997 amounted to 20% and 33%, respectively. The decrease in gross profit for the
nine months ended March 31, 1998 as compared to the nine months ended March 31,
1997 is primarily a result of an overall different mix of contracts with a lower
gross profit percentage. The overall estimated gross profit for the nine months
ended March 31, 1998 was approximately 21% as compared to the nine months ended
March 31, 1997 whereby the overall estimated averages 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.
For the nine months ended March 31, 1998 and 1997, NY paid $35,000 and
$371,321, respectively, to MD for material and labor necessary to perform steel
erection services. In November 1996, MD ceased substantially all of its
operations, and NY began purchasing material and labor from unrelated third
party steel fabricators.
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 uncollectible receivables
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Balances at June 30,
1997 $ 11,249,297 $ 2,287,000 $ 8,962,297
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
Billings 14,866,627 -- 14,866,627
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
Collections 12,747,888 128,000 12,619,888
---------- ------- ----------
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
Balances at March 31, 1998 $13,368,036 $2,159,000 $11,209,036
=========== ========== ===========
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
</TABLE>
(1) Through May 15, 1998, NY collected approximately $815,000 (or 6%) of its
gross contract receivables. As of March 31, 1998, $5,917,454 (or approximately
44%) of its gross 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. NY determined that no additional allowance in regard to the EklecCo
project was necessary as the lien filed (which was subsequently secured by a
bond posted by EklecCo) significantly exceeded the receivable recorded, and the
Company expects that it will collect all of such receivable through the legal
process. See Business -- Legal Proceedings -- Claim Against EklecCo.
In addition to the EklecCo lien, NY has filed various other liens on
certain other projects with gross receivables amounting to approximately
$3,863,994. With regards to the remaining receivables, amounting to
approximately $3,586,588, (approximately $663,000 of which represents retainage
that is not expected to be collected within one year), NY expects to collect
approximately the remaining $2,924,000 by the end of September 1998.
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 approximately
$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 $211,578 (or 9%)
to $2,650,482 for the nine months ended March 31, 1998 from $2,438,904 for the
nine months ended March 31, 1997. The increase in general and administrative
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 nine months ended March 31, 1998, the Company recorded an
estimated income tax expense of $105,300 whereby for the nine months ended March
31, 1997, the Company had recorded an estimated income tax expense of $301,000.
Year ended June 30, 1997 as compared to the year ended June 30, 1996
Contract revenues for the years ended June 30, 1997 and 1996 amounted
to $15,494,447 and $7,401,433, respectively. This net increase of $8,093,014 (or
approximately 109%) is a direct result of NY's $17,943,400 backlog as of June
30, 1996. This backlog amount represents the contracts NY entered into during
the latter part of its June 30, 1996 fiscal year. During the year ended June 30,
1997, NY obtained new contracts and change orders to previous contracts
aggregated approximately $3,600,347. Included in contract revenues are revenues
from consulting and profit sharing agreements on certain projects. Consulting
revenues for the year ended June 30, 1997 totaled $0 as compared to the year
ended June 30, 1996 wherein same totaled $200,000. Accordingly, revenues for the
year ended June 30, 1997 from NY's core business, construction contracts,
increased by approximately $8,293,000 as compared to the year ended June 30,
1996. During the year ended June 30, 1997, approximately $7,469,000 (or 48%) of
the revenue recognized was collected. Approximately $4,850,000 (or 31%) was
collected during the subsequent nine month period ended March 31, 1998. 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. Approximately $1,718,000 (or 11%) of the revenue
recognized was not billed at June 30, 1997.
As of June 30, 1997, NY's backlog amounted to approximately $6,100,000.
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 years ended June
30, 1997 and 1996 has remained fairly constant between 27% and 28%,
respectively.
<PAGE>
Below is a summary of NY's billings and collections for the year ended
June 30, 1997:
<TABLE>
<CAPTION>
Gross contract and Allowances for Net contracts
retainage receivables uncollectibles receivables
- ------------------------------ ------------------------------ ----------------------------- -------------------------
- ------------------------------ ------------------------------ ----------------------------- -------------------------
<S> <C> <C> <C>
Balances at June 30,
1996 $ 4,613,665 $ 1,000,000 $ 3,613,665
- ------------------------------ ------------------------------ ----------------------------- -------------------------
- ------------------------------ ------------------------------ ----------------------------- -------------------------
Billings for the year ended
June 30, 1997 15,672,846 1,287,000 14,385,946
- ------------------------------ ------------------------------ ----------------------------- -------------------------
- ------------------------------ ------------------------------ ----------------------------- -------------------------
Collections for the year
ended June 30, 1997 9,037,214 - 9,037,214
--------- ---------
- ------------------------------ ------------------------------ ----------------------------- -------------------------
- ------------------------------ ------------------------------ ----------------------------- -------------------------
Balances at June 30, 1997 $11,249,297 $2,287,000 $ 8,962,297
=========== ========== ===========
- ------------------------------ ------------------------------ ----------------------------- -------------------------
</TABLE>
As of June 30, 1997, NY increased its allowance up to $2,287,000 to
reserve for the uncollectibility of certain receivables for which mechanic's
liens were filed. Of the total gross contract receivable amounting to
$11,249,297, approximately $2,382,366 was due from the Stillwell project,
$1,481,601 was due from the 39th Street Bridge projects, $1,888,221 was due from
the EklecCo project, $1,312,904 was due from the Grand Central Project, and
$2,132,035 was due from the Louis Vuitton project. For the years ended June 30,
1997 and 1996, NY had three unrelated customers, which accounted for
approximately 86% and 62%, respectively, of total revenues. As of June 30, 1997
and 1996, approximately 83% and 89%, respectively, of contracts and retainage
receivables are due from four and three customers respectively.
For the years ended June 30, 1997 and 1996, NY purchased from Waldorf,
approximately $0 and $180,333, respectively, of the materials and labor
necessary to perform fabrication services. Lastly, for the years ended June 30,
1997 and 1996, NY paid $371,321 and $622,050, respectively, to MD for materials
and labor necessary to perform steel erection services. In November 1996, MD
ceased operations, and NY began purchasing material and labor from unrelated
third party steel fabricators. At June 30, 1997, NY owed MD $62,606, principally
for advances in connection with the above services: such amounts are
non-interest bearing and are due on demand.
General and administrative expenses have increased by $628,630 (or 25%)
to $3,122,029 for the year ended June 30, 1997, from $2,493,399 for the year
ended June 30, 1996. 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 Company's
stock-based compensation expenses.
Liquidity and Capital Resources
As of March 31, 1998 and June 30, 1997, the Company's contract
receivable amounted to $10,831,768 and $8,962,297, respectively.
Of the $10,831,768 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 $7,794,668, 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 September 1998. The Company's failure to obtain
new contracts has impacted the Company's liquidity and profitability; however,
during May 1998, NY executed a contract currently valued at $2,400,000. In
addition, NY has been given the exclusive right to perform the interior tenant
work on the medical building which is valued at approximately $3 million.
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.
Net cash provided by operating activities amounted to $111,694 for the
nine months ended March 31, 1998. For the nine months ended March 31, 1997, the
net cash used for operating activities amounted to $140,741.
With regards to investing activities, the Company used $96,058 of cash
for the nine months ended March 31, 1998 for the acquisition of assets.
As of March 31, 1998, the NY and MD owe approximately $2,186,484 of
payroll taxes and related estimated penalties and interest. Although as of March
31, 1998, NY and MD have not entered into any formal repayment agreements with
the respective tax authorities, they have been making payments to same based on
oral arrangements negotiated therewith.
In December 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 and benefits 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 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 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. The
amount outstanding at March 31, 1998 is $1,650,000, $300,000 of which has been
classified as current and $1,350,000 of which has been classified as
non-current.
Net cash provided by operating activities for the year ended June 30,
1997 amounted to $578,792. The major component of such cash provision was
increases in accounts payable, payroll taxes payable, and accrued expenses net
of increases in contracts receivables. For the year ended June 30, 1996, the net
cash used for operating activities amounted to $2,055,771 which amount is
principally attributable to increases in accounts receivable and costs and
estimated earnings in excess of billings on uncompleted contracts and accounts
payable.
The Company used $200,852 in cash from financing activities for the
year ended June 30, 1997. Such cash was provided primarily by advances to
affiliates and officers.
As of June 30, 1997, NY and MD owed approximately $1,634,614 in payroll
taxes and related penalties and interest. At June 30, 1997, the breakdown was
$1,289,960 owing to the IRS and $344,654 owing to state payroll tax authorities.
As of June 30, 1997, NY and MD have been making monthly payments to the
respective tax authorities pursuant to oral agreements negotiated with same.
In August 1996, the Company issued 400,000 shares of common stock in
payment of a loan of $300,000. The stock has been valued at $1.00 per share,
representing the average market value at the time of the loan. Accordingly,
interest expense in the amount of $100,000 has been recorded.
In October 1996, the Company issued 250,000 shares of common stock as
an advisory fee pursuant to a previous agreement. These shares have been valued
at $1.20 per share with a 10% discount due to the restricted nature of the stock
for a total of $270,000. The value of these services are being amortized over
the advisory period of two years.
In December 1996, the Company issued 114,617 shares of common stock to
officers and employees of the Company under its Management Plan. These shares
have been valued at $1.875 per share with a 10% discount due to the restricted
nature of the stock for a total of $193,415.
In February 1997, the Company issued 575,000 options to officers of the
Company under its Management Plan. The shares were exercisable at the then fair
market value, and no additional compensation was recorded. Under the terms of
the issue, the officer could execute a note for payment of the shares. In March
1997, 125,000 shares of common stock were issued pursuant to these options. The
officer elected to execute a note, resulting in a reduction of stockholders'
equity for the balance of the note of $240,625.
In December 1997, the Company authorized the issuance of 250,000 shares
of its common stock pursuant to its Management 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. 1/2 of these shares vested on June 1,
1998, and 1/2 vest 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 to register for resale those 250,000 shares
which were issued to management. In connection with the issuance, the Company
recorded compensation and consulting expense amounting to $207,000 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 10% 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.
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
Management 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. 1/2 of these
shares vested on June 1, 1998, and 1/2 vest 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 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 $459,000 which is based on the average closing bid price of $1.50
per share for the month of March 1998, with a 10% 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.
In February 1998, the Company raised a net of $393,000 after a 10%
commission (and placement fees), in connection with a private placement to fund
the Chadian operation, 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 to the foregoing, 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 fund the Chadian operation.
Legal Proceedings
NY is a party to various claims and legal proceedings incidental to its
business. While the amounts claimed may be substantial, the ultimate liability
cannot now be determined because of the considerable uncertainties that exist
with respect thereto. Accordingly, it is possible that results of operations or
liquidity in a particular period could be materially affected by certain
contingencies. However, based on facts currently available, management believes
that the disposition of matters that are pending or asserted will not have a
materially adverse effect on the financial position of the Company.
Claims Against and By State Insurance Fund
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 to annul the cancellation
of NY's workers' compensation policy and to annul the rates, classifications,
and premiums assigned to NY. In December 1995, 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, One Carnegie Court
Associates, Inc. ("One Carnegie"), and three other individuals and eleven other
corporations alleging that certain workers' compensation insurance policies
obtained for various insured defendants were obtained fraudulently and that the
defendant corporations failed to pay the appropriate premiums.
Though the parties are negotiating settlement documents on the basis of
a $750,000 proposed settlement to which they have verbally agreed (payable by
the corporate defendants), material terms of the settlement remain in
negotiation, and no Stipulation of Settlement has been filed with the courts.
The Company hopes to complete settlement negotiations by the end of August 1998.
As material terms of the agreement remain in dispute (and thus continue to be
negotiated), settlement cannot be deemed "probable" at this time; accordingly,
no accrual beyond that already recorded by the Company is necessary. For the
period April 29, 1993 through December 1994 (that period for which plaintiffs
seek recovery), the Company accrued approximately $85,000.
Claims Against and By Perini Corporation
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. NY's claim for relief in this
action is $2,199,560. 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. NY's claim for
relief in this action is $844,932. Both claims are for labor performed and
materials supplied including money owed under the contract regarding the
rehabilitation of the 39th Street Bridge over the Long Island Rail Road and
Amtrak in Queens, New York. This action is still in the discovery phase.
On February 7,1997, Perini Corporation filed a related action against
NY and Metro Steel Structures, Ltd. in New York State Supreme Court, Kings
County. Perini's claims against NY total $1,140,560 and allege defective work on
the Stillwell Avenue project and upon a loss/profit agreement for both the
Stillwell Avenue project and the 39th Street Bridge project. NY has
counterclaimed for the amounts set forth above in the discussion of the two
actions involving Perini Corporation, and its claims are based upon the same
theories as are set forth above.
Claim Against Kiska Construction
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. NY's claim for relief is
$279,346. The claim is for labor performed and materials supplied including
money owed under the contract and money due for "extra" work regarding the
rehabilitation of the Robert Moses Causeway Northbound Bridge over the State
Boat Channel in Suffolk County, New York. This action is in the discovery phase.
Claim Against EklecCo
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 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
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. This
action is in the discovery phase.
The amounts of the mechanic's liens filed by NY in the Perini, Kiska,
and EklecCo actions were determined by final requisitions remitted by NY to the
lien-debtors who failed to tender payment for same. Such amounts may include
claims which have not been recorded in accordance with NY's revenue recognition
accounting policy and SOP 81-1, paragraph 66 as such amounts have not been
received or awarded. Such amounts may include claims which have not been
recorded as revenue by the Company in accordance with its revenue recognition
policy as such amount has not been received. The amounts also may include
interest and court costs as are allowable under the mechanic's lien laws. The
liens are resolved via commencement of actions to foreclose same: these actions
typically are not resolved (i.e. on the merits at trial or via settlement) for a
period of two to four years after commencement.
<PAGE>
MANAGEMENT
Officers and Directors.
The names, ages, and positions of the Company's Executive Officers and
Directors are as follows:
Position with the
Name Age Company
- ---- --- -------
Joseph M. Polito 63 President and Director
Ronald J. Polito 38 Secretary and Director
Steven J. Polito 35 Treasurer and Director
Marvin Weinstein 66 Director
Ronald Murphy 56 Director
- -------------
All Directors hold office until the next annual meeting of stockholders
or until their successors are elected and qualify. Vacancies on the Board of
Directors may be filled by the remaining Directors. Officers are elected
annually by, and serve at the discretion of, the Board of Directors. There are
no family relationships between or among any Officers or Directors of the
Corporation, except that Joseph Polito is the father of both Steven and Ronald
Polito. The Company has an audit committee and compensation committee, both of
which include the outside Directors and Ronald Polito as the inside Director.
Joseph M. Polito has been the President and Director of the Company
since April 1994. He has been the president and a Director of NY since its
inception in 1990, and prior to the Acquisitions in April 1994, he was the sole
shareholder of NY. Mr. Polito oversees all of the Company's operations. Since
its inception in 1994, Mr. Polito has been the president and a Director of MD, a
wholly-owned subsidiary of the Company. Since December 1990, Mr. Polito has been
the president and sole Director and shareholder of One Carnegie, also a
wholly-owned subsidiary of the Company. Since 1988, Mr. Polito has been a 50%
shareholder of Crown, a company which leases cranes for construction projects.
Since 1986, Mr. Polito has been the president and 100% shareholder of Atlas Gem
Leasing, Inc., a company which leases generators and other construction
equipment. Mr. Polito has also been the president and sole Director and
shareholder of Waldorf since 1990. Before it ceased operating in August 1995,
Waldorf fabricated steel and sold same to NY. Since 1983, Mr. Polito has been
the president and 100% shareholder of RSJJ, a company which owns and leases real
property.
Since 1976, Mr. Polito has been a member of the Allied Building Metal
Industries, Inc. ("ABMII"), a trade association which has the authority to
negotiate with the unions in order to better the construction industry. He was
the president of same from 1992 until 1993. Since approximately 1987, Mr. Polito
has been the Chairman of the Steel Institute of New York, a trade association
similar to the ABMII. From the mid-1980's to the mid-1990's, Mr. Polito was a
member of the Building Trades Association Joint Safety Committee. Since the
mid-1980's, he has served on the Council of Presidents of New York Building
Congress, Inc. Since the mid-1970's, Mr. Polito has been a member of the of the
International Union of Structural Ironworkers, locals 40, 361, and 417: he has
been co-chairman since the early 1990's.
Ronald J. Polito has been the Secretary and a Director of the Company
since April 1994. Mr. Polito has been the secretary and a Director of NY since
its inception in 1990. Mr. Polito oversees the daily progress on all projects
and analysis of the final costs and profits of jobs completed and the
preparation and bidding on new projects. Since its inception in 1994, Mr. Polito
has been the secretary and a Director of MD. From its inception in 1990 until
March 1995, he was also the treasurer of NY. Since December 1990, Mr. Polito has
been the secretary of One Carnegie and Waldorf. Since 1983, Mr. Polito has been
the secretary of RSJJ. Mr. Polito received a Bachelor of Science Degree in Civil
Engineering from Brooklyn Polytechnical Institute in 1981. He is the son of Mr.
Joseph Polito.
Steven J. Polito has been Treasurer of the Company since March 1995 and
a Director of the Company since April 1994. Mr. Polito was elected treasurer of
NY in March 1995. Mr. Polito oversees the daily operations for projects in
process and projects completed, including purchasing and leasing of materials
and machinery and the distribution of labor. He had previously been a Project
Manager and has been a Director of NY since its inception in 1990. Since its
inception in 1994, Mr. Polito also has been the treasurer and a Director of MD.
Since 1988, Mr. Polito has been the treasurer of One Carnegie, Waldorf, and
RSJJ. He is the son of Mr. Joseph Polito.
Marvin Weinstein was elected Director of the Company in January 1998.
Mr. Weinstein was the President and sole shareholder of M. Weinstein Associates
from 1988 to 1996. This company provided consulting services to the companies in
the steel industry. Mr. Weinstein retired in 1996. Neither NY nor the Company
engaged M. Weinstein Associates to provide any consulting services.
Ronald Murphy was elected Director of the Company in February 1998. Mr.
Murphy has been a private investigator since 1997. Prior thereto, from 1983 to
1996, Mr. Murphy was involved in the construction industry. From 1993-1996, he
was Field Operations Supervisor for The Steel Institute of New York. From
1983-1993, he was office manager and supervisor for Crown and Atlas Gem,
respectively. Prior to entering the construction industry, from 1966 to 1982,
Mr. Murphy was a New York City police officer.
Significant Employees of the Company
Richard Miller has been an employee of the Company since September
1997. When Falcon was formed, he became chief executive officer thereof.
Significant Employees of NY
John G. Bauer has been the chief administrative officer (a
non-executive position) of the Company since February 1995. Since its inception
in March 1992, Mr. Bauer has been the President and a Director of Dynamic
Construction Consulting, Inc. ("Dynamic"), a company of which Mr. Bauer was the
founder. Dynamic provides construction management and consulting services to NY
and other companies. From July 1988 to March 1992, Mr. Bauer was a Vice
President of Tishman Construction Corp. of N.Y., a construction company.
Michael Panayi has been a structural engineer for NY since June 1993.
From 1987 to 1993, Mr. Panayi was a structural engineer for Atlas Gem.
William J. Kubilus, a professional estimator in the field of general
contracting and subcontracting since 1966, joined NY in 1996 to provide
estimating expertise for the Company's general contracting and subcontracting
bids. Prior to joining NY, from 1993 to 1996, Mr. Kubilus was an estimator for
Lazzinarro General Contracting. From 1989 to 1993, he was an estimator for NICO
Construction.
As permitted under Delaware's General Corporation Law, the Company's
Certificate of Incorporation eliminates the personal liability of the Directors
to the Company or any of its shareholders for damages for breaches of their
fiduciary duty as Directors. As a result of the inclusion of such provision,
stockholders may be unable to recover damages against Directors for actions
taken by them which constitute negligence or gross negligence or that are in
violation of their fiduciary duties. The inclusion of this provision in the
Company's Certificate of Incorporation may reduce the likelihood of derivative
litigation against Directors and other types of shareholder litigation.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, Officers, and controlling persons of the Company,
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a Director, Officer, or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
Director, Officer, or controlling person in connection with the Securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue by such court.
<PAGE>
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to, earned by, or paid by NY, the Company's subsidiary, during the years ended
June 30, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
(a) (b) (c) (d) (e) (f) (g)
Name Restricted
and Principal Other Annual Stock Options/
Position Year Salary ($) Bonus ($) Compensation ($) Awards ($) (1) SARS (#)
- -------- ---- ---------- --------- ---------------- -------------- --------
<S> <C> <C> <C> <C> <C>
Joseph M. Polito 1997 $330,000 - $ 68,642 (2) $175,000 (2) 500,000 (3)
President and 1996 300,000 - 111,911 (2) 93,750 (4)
Director 1995 378,000 - 68,200 (2) - 25,000 (5)
Ronald Polito 1997 $118,800 - $ 17,194 (6) $ 4,375 (7) 100,000
Secretary and 1996 125,000 - 15,144 (6) - -
Director 1995 121,000 - 21,200 (6) - -
Steven Polito 1997 $86,580 - $ 8,572 (8) $ 4,375 (7) 75,000
Treasurer and 1996 94,000 - 8,275 (8) - -
Director 1995 91,575 - 9,900 (8) - -
</TABLE>
- -----------------
(1) At the end of the fiscal year, Joseph M. Polito held 4,497,156 shares
of Restricted Stock valued at $5,059,301. Ronald Polito and Steven
Polito each held 2,500 shares of Restricted Stock valued at $2,812.50.
Valuations are based on the closing bid price of Common Stock ($1.125)
on June 30, 1997, as reported by a market maker.
(2) Includes (i) the payment of premiums on a life insurance policy of
$10,722, $54,362, and $46,000 for the years ended June 30, 1997, 1996,
and 1995, respectively; (ii) the payment of travel expenses of $50,000,
$50,000, and $22,200 for the years ended June 30, 1997, 1996, and 1995,
respectively; and (iii) the payment of an automobile lease of $7,920
and $7,549 for the years ended June 30, 1997 and 1996. See "-Employment
and Consulting Agreements."
(3) Represents (i) 100,000 shares of Common Stock issued as a bonus in
December 1996 under the Company's 1994 Senior Management Incentive
Plan; (ii) an option to purchase 400,000 shares of Company Common stock
under the Company's Stock Option Plan, exercisable at $1.925 per share
(which is 110% of the market price of same on December 2, 1996); and
(iii) an option to purchase 125,000 shares of common stock of NY at
$1.10 per share, all of which option has been exercised (60,000 shares
exercised have been resold and 10,000 shares were transferred in a
private transaction). See "-1994 Senior Management Incentive Plan."
Valuation on the 100,000 restricted shares is based on the closing bid
price of Common Stock ($1.75) on December 2, 1996, as reported by a
market maker.
<PAGE>
(footnotes continued from previous page)
(4) Based on the closing bid price of Common Stock ($.625) on August 15,
1995, as reported by a market maker. As a bonus upon completion of NY's
initial public offering, Mr. Polito was issued 150,000 shares of Common
Stock subject to a vesting whereby 50,000 shares vested upon issuance;
50,000 vested on August 15, 1996; and 50,000 vested on August 15, 1997.
All of these shares have vested and have been issued.
(5) In accordance with his employment agreement, Mr. Polito received an
option to purchase 25,000 shares of common stock of NY at $5.50 per
share. These shares vested over a three year period. See "-Employment
and Consulting Agreements."
(6) Includes (i) payments on the lease of an automobile of $5,416, $5,416,
and $8,000 for the years ended June 30, 1997, 1996, and 1995,
respectively; (ii) the payment of premiums on a term life insurance
policy of $8,510, $4,684, and $5,800 for the years ended June 30, 1997,
1996, and 1995, respectively; and (iii) a travel allowance of $12,705,
$2,971, and $7,400 for the years ended June 30, 1997, 1996, and 1995,
respectively.
(7) Reflects the value of the ownership of 2,500 shares of Common Stock at
$1.125, the market price on June 30, 1997. (8) Includes (i) the payment
of an automobile lease of $5,304, $5,304, and $6,700 for the years
ended June 30, 1997, 1996, and 1995, respectively; and (ii) a travel
allowance of $3,268, $2,971, and $3,200 for the years ended June 30,
1997, 1996, and 1995, respectively.
<PAGE>
Stock Options
The following table sets forth certain information concerning the grant of
stock options made during the year ended June 30, 1997 under the Company's 1994
Senior Management Incentive Plan.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Individual Grants
(a) (b) (c) (d) (e)
% of Total
# of Securities Options/SAR's
underlying Granted to
Options/SARs Employees in Exercise or Base
Name Granted(1) Fiscal Year Price ($/share) Expiration Date
---------------------------- ------------------------ ------------------ ---------------------- ======================
---------------------------- ------------------------ ------------------ ---------------------- ======================
<S> <C> <C> <C> <C>
Joseph M. Polito 400,000 69.56% $1.925 December 1, 2001
Ronald J. Polito 100,000 17.39% $1.75 December 1, 2001
Steven J. Polito 75,000 13.04% $1.75 December 1, 2001
---------------------------- ------------------------ ------------------ ---------------------- ======================
</TABLE>
(1) Represents incentive stock options granted under the Company's 1994
Senior Management Incentive Plan (the "Management Plan").
<PAGE>
The following table contains information with respect to employees of
the Company concerning options held as of June 30, 1997:
<TABLE>
<CAPTION>
AGGREGATE OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
--------------------------- -------------------- -------------------- ---------------------- ====================
--------------------------- -------------------- -------------------- ---------------------- ====================
Value of
Number of Unexercised
Unexercised In-The-Money
Options/SAR's at Options/SAR's at
FY-End (#) FY-End($)
Shares Acquired on Value Realized($) Exercisable/ Exercisable/
Name Exercise (#) (1) Unexercisable Unexercisable
---- ------------ --- ------------- -------------
--------------------------- -------------------- -------------------- ---------------------- ====================
--------------------------- -------------------- -------------------- ---------------------- ====================
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Polito 125,000 $ 0 275,000/0 0/0 (2)
Ronald J. Polito 0 0 100,000/0 0/0 (3)
Steven J. Polito 0 0 75,000/0 0/0 (3)
--------------------------- -------------------- -------------------- ---------------------- ====================
</TABLE>
- -----------
(1) Based upon the average bid and asked prices for such Common Stock on
June 30, 1997 ($1.125), as reported by a market maker.
(2) Since the options are exercisable at $1.925, there is no value to such
options as of June 30, 1997.
(3) Since the options registered to Ronald and Steven Polito under the
February 1997 S-8 are exercisable at $1.75, there is no value to such
options as of June 30, 1997.
Employment and Consulting Agreements
Joseph Polito entered into an employment agreement with NY dated April
4, 1995, whereby Mr. Polito agreed to devote 80% of his business time to the
affairs of NY. The agreement is for a term of approximately three years and
terminated on June 30, 1998. Pursuant to the terms of the agreement Mr. Polito
is to receive an annual salary of $300,000 per annum until June 30, 1998 with
10% yearly escalation, subject to adjustment by the Board of Directors. Mr.
Polito is also to receive a yearly non-accountable expense allowance of $50,000.
Mr. Polito received a stock option under NY's 1994 Senior Management Incentive
Plan to purchase 25,000 shares at $5.50 per share, vesting at the rate of 7,500
in each of April 1996 and 1997 and 10,000 in April 1998. Mr. Polito also has the
right to receive a yearly bonus equal to five percent (5%) of the first
$1,000,000, upon reaching $1,000,000 and five percent (5%) of the next $500,000,
upon reaching $1,500,000 and five percent (5%) after $1,500,000, of all the
pre-tax profits of NY. NY shall pay to Mr. Polito a monthly draw of $10,000
against the bonus.
Pursuant to the agreement, NY shall pay the premiums on a $3,500,000
life insurance policy for the benefit of individuals as directed by Mr. Polito,
with an estimated yearly premium of $80,000. The agreement restricts Mr. Polito
from competing with NY for a period of one year after the termination of his
employment. The agreement provides for severance compensation to be paid to Mr.
Polito if his employment with NY is terminated or there is a decrease in
responsibilities or duties following a change in control of NY. The severance
compensation shall be made in one payment equal to three times the aggregate
annual compensation paid to the Employee during the preceding calendar year.
Steven and Ronald Polito receive annual salary compensations of $94,000
and $125,000, respectively, from NY, which compensation levels commenced in
March 1995 and April 1994, respectively. Both individuals also receive a car
allowance equal to the monthly lease payments on their automobiles and travel
expenses. Ronald Polito receives the payment of premiums on a life insurance
policy of which he chooses the beneficiaries. Neither individual has entered
into an employment agreement with NY.
1994 Senior Management Incentive Plan
In December 1994, the Board of Directors adopted the 1994 Senior
Management Incentive Plan (the "Management Plan") which was thereafter approved
by shareholder consent. The Management Plan provides for the issuance of up to
2,000,000 shares of the Company's Common Stock in connection with the issuance
of stock options and other stock purchase rights to Executive Officers and
consultants.
In December 1996, the Company issued 575,000 stock options to Messrs.
Joseph, Ronald, and Steven Polito as follows: Mr. Polito received an option to
purchase 400,000 shares of Common Stock (he exercised the option and purchased
125,000 shares in March 1997 and shortly thereafter sold 60,000 of said shares);
Steven Polito received an option to purchase 100,000 shares of Common Stock; and
Ronald Polito received an option to purchase 75,000 shares of Common Stock. In
March 1998, pursuant to the Management Plan, the Company issued bonuses of
150,000 shares of Common Stock to Joseph M. Polito and 25,000 shares of Common
Stock to each of Ronald Polito and Steven Polito.
The adoption of the Management Plan was prompted by the Company's
desire (i) to attract and retain qualified personnel, whose performance is
expected to have a substantial impact on the Company's long-term profit and
growth potential, by encouraging those persons to acquire equity in the Company;
and (ii) to provide the Board with sufficient flexibility regarding the forms of
incentive compensation which the Company will have at its disposal in rewarding
Executive Officers, key employees, and consultants without unnecessarily
depleting the Company's cash reserves. The Management Plan is designed to
augment the Company's existing compensation programs and is intended to enable
the Company to offer executives, key employees, and consultants a personal
interest in the Company's growth and success through the grant of stock options
and/or other rights pursuant to the Management Plan. It is contemplated that
only those executive management employees (generally the Chairman of the Board,
Vice Chairman, Chief Executive Officer, Chief Operating Officer, President, and
Vice President of the Company), key employees, and consultants who perform
services of special importance to the Company will be eligible to receive
compensation under the Management Plan. A total of 2,000,000 shares of Common
Stock are reserved for issuance under the Management Plan.
Unless otherwise indicated, the Management Plan is to be administered
by the Board of Directors or a committee of the Board, if such a committee is
appointed for this purpose (the Board or such committee, as the case may be,
shall be referred to in the following description as "the Administrator").
Subject to the specific provisions of the Management Plan, the Administrator
will have the discretion to determine (i) the recipients of the awards; (ii) the
nature of the awards to be granted; (iii) the dates such awards will be granted;
(iv) the terms and conditions of the awards; and (v) the interpretation of the
Management Plan, except that any award granted to any employee of the Company
who is also a Director of the Company shall also be subject - in the event the
persons serving as members of the Administrator of the Management Plan at the
time such award is proposed to be granted do not satisfy the requirements
regarding the participation of "disinterested persons" set forth in Rule 16b-3
("Rule 16b-3") promulgated under the Exchange Act - to the approval of an
auxiliary committee consisting of not less than two individuals who are
considered "disinterested persons" as defined under Rule 16b-3. As of the date
hereof, the Company has not yet determined who will serve on such auxiliary
committee, if one is required.
The Management Plan generally provides that, unless the Administrator
determines otherwise, each option or right granted shall become exercisable in
full upon certain "change of control" events as described in the Management
Plan, or subject to any right or option granted under the Management Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure, or otherwise), the Administrator will make appropriate adjustments to
such plans and the classes, number of shares, and price per share of stock
subject to outstanding rights or options. Generally, the Management Plan may be
amended by action of the Board of Directors, except that any amendment which (i)
would increase the total number of shares subject to such plan; (ii) extend the
duration of such plan; (iii) materially increase the benefits accruing to
participants under such plan; or (iv) change the category of persons who can be
eligible for awards under such plan, must be approved by the affirmative vote of
a majority of the shareholders entitled to vote. The Management Plan permits
awards to be made thereunder until November 2004.
Directors who are not otherwise employed by the Company will not be
eligible for participation in the Management Plan. The Management Plan provides
for five types of awards: stock options, incentive stock rights, stock
appreciation rights (including limited stock appreciation rights), restricted
stock purchase agreements, and restricted stock (as described below).
Stock Options. Options granted under the Management Plan may be either
incentive stock options ("ISOs") or options which do not qualify as ISOs
("non-ISOs"). ISOs may be granted at an option price of not less than 100% of
the fair market value of the Common Stock on the date of grant, except that an
ISO granted to any person who owns capital stock representing more than 10% of
the total combined voting power of all classes of Common Stock of the Company
("10% stockholder") must be granted at an exercise price of at least 110% for
the fair market value of the Common Stock on the date of the grant. The exercise
price of the non-ISOs may not be less than 85% of the fair market value of the
Common Stock on the date of grant. Unless the Administrator determines
otherwise, no ISO or non-ISO may be exercisable earlier than one year from the
date of grant. ISOs may not be granted to persons who are not employees of the
Company. ISOs granted to persons other than 10% stockholders may be exercisable
for a period of up to ten (10) years from the date of grant; ISOs granted to 10%
stockholders may be exercisable for a period of up to five years from the date
of grant. No individual may be granted ISOs that become exercisable in any
calendar year for Common Stock having a fair market value at the time of grant
in excess of $100,000. Non-ISOs may be exercisable for a period of up to
thirteen (13) years from the date of grant.
Payment for shares of Common Stock purchases pursuant to exercise of
stock options shall be paid in full in (i) cash, (ii) by certified check, or,
(iii) at the discretion of the Administrator by shares of Common Stock having a
fair market value equal to the total exercise price or (iv) by a combination of
the above. The provision that permits the delivery of already owned shares of
stocks as payment for the exercise of an option may permit "pyramiding." In
general, pyramiding enables a holder to start with as little as one share of
common stock and, by using the shares of common stock acquired in successive,
simultaneous exercises of the option, to exercise the entire option, regardless
of the number of shares covered thereby, with no additional cash or investment
other than the original share of common stock used to exercise the option.
Upon termination of employment or consulting services, an optionee will
be entitled to exercise the vested portion of an option for a period of up to
three months after the date of termination, except that if the reason for
termination was a discharge for cause, the option shall expire immediately, and
if the reason for termination was for death or permanent disability of the
optionee, the vested portion of the option shall remain exercisable for a period
of twelve (12) months thereafter.
Incentive Stock Rights. Incentive stock rights consist of incentive
stock units equivalent to one share of Common Stock in consideration for
services performed for the Company. Each incentive stock unit shall entitle the
holder thereof to receive, without payment of cash or property to the Company,
one share of Common Stock in consideration for services performed for the
Company or any subsidiary by the employee, subject to the lapse of the incentive
periods, whereby the Company shall issue such number of shares upon the
completion of each specified period. If the employment or consulting services of
the holder with the Company terminate prior to the end of the incentive period
relating to the units awarded, the rights shall thereupon be null and void,
except that if termination is caused by death or permanent disability, the
holder or his/her heirs, as the case may be, shall be entitled to receive a pro
rata portion of the shares represented by the units, based upon that portion of
the incentive period which shall have elapsed prior to the holder's death or
disability.
Stock Appreciation Rights (SARs). SARs may be granted to recipients of
options under the Management Plan. SARs may be granted simultaneously with, or
subsequent to, the grant of a related option and may be exercised to the extent
that the related option is exercisable, except that no general SAR (as
hereinafter defined) may be exercised within a period of six months of the date
of grant of such SAR, and no SAR granted with respect to an ISO may be exercised
unless the fair market value of the Common Stock on the date of exercise exceeds
the exercise price of the ISO. A holder may be granted general SARs ("General
SARs") or limited SARs ("Limited SARs"), or both. General SARs permit the holder
thereof to receive an amount (in cash, shares of Common Stock, or a combination
of both) equal to the number of SARs exercised multiplied by the excess of the
fair market value of the Common Stock on the exercise date over the exercise
price of the related option. Limited SARs are similar to General SARs, except
that, unless the Administrator determines otherwise, they may be exercised only
during a prescribed period following the occurrence of one or more of the
following "Change of Control" transaction: (i) the approval of the Board of
Directors of consolidation or merger in which the Company is not the surviving
corporation, the sale of all of substantially all the assets of the Company, or
the liquidation or dissolution of the Company; (ii) the commencement of a tender
or exchange offer for the Company's Common Stock (or securities convertible into
Common Stock) without the prior consent of the Board; (iii) the acquisition of
beneficial ownership by any person or other entity (other than the Company or
any employee benefit plan sponsored by the Company) of securities of the Company
representing 25% or more of the voting power of the Company's outstanding
securities; or (iv) if during any period of two years or less, individuals who
at the beginning of such period constitute the entire Board cease to constitute
a majority of the Board, unless the election, or the nomination for election, of
each new Director is approved by at least a majority of the Directors then still
in office.
The exercise of any portion of either the related option or the tandem
SARs will cause a corresponding reduction in the number of shares remaining
subject to the option or the tandem SARs, thus maintaining a balance between
outstanding options and SARs.
Restricted Stock Purchase Agreements. Restricted Stock Purchase
Agreements provide for the sale by the Company of shares of Common Stock at
prices to be determined by the Board, which shares shall be subject to
restrictions on disposition for a stated period during which the purchaser must
continue employment with the Company in order to retain the shares. Payment must
be made in cash. If termination of employment occurs for any reason within six
months after the date of purchase, or for any reason other than death or by
retirement with the consent of the Company of the Company after the six-month
period but prior to the time that the restrictions on disposition lapse, the
Company shall have the option to reacquire the shares at the original purchase
price.
Restricted Stock. Restricted shares awarded under the Management Plan
will be subject to a period of time designated by the Administrator (the
"restricted period") during which the recipient must continue to render services
to the Company before the restricted shares will become vested. The
Administrator may also impose other restrictions, terms and conditions that must
be fulfilled before the restricted shares may vest.
Upon the grant of restricted shares, stock certificates registered in
the name of the recipient will be issued and such shares will constitute issued
and outstanding shares of Common Stock for all corporate purposes. The holder
will have the right to vote the restricted shares and to receive all regular
cash dividends (and such other distributions as the Administrator may
designate), if any, which are paid or distributed on the restricted shares and,
generally, to exercise all other rights as a holder of Common Stock, except
that, until the end of the restricted period; (i) the holder will not be
entitled to take possession of the stock certificates representing the
restricted shares and (ii) the holder will not be entitled to sell, transfer or
otherwise dispose of the restricted shares. A breach of any restrictions, terms,
or conditions established by the Administrator with respect to any restricted
shares will cause a forfeiture of such restricted shares.
Upon expiration of the applicable restriction period and the
satisfaction of any other applicable conditions, all or part of the restricted
shares and any dividends or other distributions not distributed to the holder
(the "retained distributions") thereon will become vested. Any restricted shares
and any retained distributions thereon which do not so vest will be forfeited to
the Company. If prior to the expiration of the restricted period a holder is
terminated without cause or because of a total disability (in each case as
defined in the Management Plan), or dies, then, unless otherwise determined by
the Administrator at the time of the grant, the restricted period applicable to
each award of restricted shares will thereupon be deemed to have expired. Unless
the Administrator determines otherwise, if a holder's employment terminates
prior to the expiration of the applicable restricted period for any reason other
than as set forth above, all restricted shares and any retained distributions
thereon will be forfeited.
Accelerating of the vesting of the restricted shares shall occur, under
the provisions of the Management Plan, on the first day following the occurrence
of any of the following: (a) the approval by the stockholders of the Company of
an "Approved Transaction"; (b) a "Control Purchase"; or (c) a "Board Change."
An "Approved Transaction" is defined as (A) any consolidation or merger
of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of Common Stock will be converted into
cash, securities, or other property other than a merger of the Company in which
the holders of the Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock of the surviving corporation immediately
after the merger; or (B) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company; or (C) the adoption of any plan or proposal for
the liquidation or dissolution of the Company.
A "Control Purchase" is defined as circumstances in which any person
(as such term is defined in ss.ss. 13(d)(3) and 14(d)(2) of the Exchange Act),
corporation, or other entity (other than the Company or any employee benefit
plan sponsored by the Company) (A) shall purchase any Common Stock of the
Company (or securities convertible into the Company's Common Stock) for cash,
securities or any other consideration pursuant to a tender offer or exchange
offer, without the prior consent of the Board of Directors, or (B) shall become
the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
Directors (calculated as provided in paragraph (d) of such Rule 13d-3 in the
case of rights to acquire the Company's securities).
A "Board Change" is defined as circumstances in which, during any
period of two consecutive years or less, individuals who at the beginning of
such period constitute the entire Board shall cease for any reason to constitute
a majority thereof unless the election, or the nomination for election by the
company's stockholders, of each new Director was approved by a vote of at least
a majority of the Directors then still in office.
1994 Employee Stock Option Plan
In December 1994, the Board of Directors adopted the 1994 Senior
Employee Incentive Plan (the "Employee Plan"). This plan was adopted by
shareholder consent also. The Employee Plan provides for the issuance of up to
2,000,000 shares of the Company's Common Stock in connection with the issuance
of stock options to key employees of the Company.
The adoption of the Employee Plan was prompted by the Company's desire
(i) to attract and retain qualified personnel, whose performance is expected to
have a substantial impact on the Company's long-term profit and growth
potential, by encouraging those persons to acquire equity in the Company; and
(ii) to provide the Board with sufficient flexibility regarding the forms of
incentive compensation which the Company will have at its disposal in rewarding
key employees, advisors, and independent consultants without unnecessarily
depleting the Company's cash reserves. The Employee Plan is designed to augment
the Company's existing compensation programs and is intended to enable the
Company to offer employees a personal interest in the Company's growth and
success through the grant of stock options. A total of 2,000,000 shares of
Common Stock are reserved for issuance under the Employee Plan.
Under the Employee Plan, options to purchase an aggregate of not more
than 2,000,000 shares of Common Stock may be granted from time to time to key
employees, advisors and independent consultants to the Company and its
subsidiaries. It is anticipated that awards made under the Employee Plan will be
subject to vesting periods, although the vesting periods are subject to the
discretion of the Board of Directors or Administrator of the plan. If approved,
awards under the Employee Plan may be made until January 1, 2004 when the
Employee Plan terminates.
The Employee Plan is to be administered by the Board of Directors.
Subject to the specific provisions of the Employee Plan, the Administrator is
generally empowered to (i) interpret the plan; (ii) prescribe rules and
regulations pertaining thereto; (iii) determine the terms of the option
agreements; (iv) amend them with the consent of the optionee; (v) determine the
employees to whom options are to be granted; and (vi) determine the number of
shares subject to each option and the exercise price thereof. The per share
exercise price for incentive stock options ("ISOs") will not be less than 100%
of the fair market value of a share of the Common Stock on the date the option
is granted (110% of fair market value on the date of grant of an ISO if the
optionee owns more than 10% of the Common Stock of the Company).
Options will be exercisable for a term determined by the Board which
will not be less than one year. Options may be exercised only while the original
grantee has a relationship with the Company or a subsidiary of the Company which
confers eligibility to be granted options or up to ninety (90) days after
termination at the sole discretion of the Board. In the event of termination due
to retirement, the Optionee, with the consent of the Board, shall have the right
to exercise his option at any time during the twelve (12) month period after
such retirement. Options may be exercised up to twelve (12) months after death
or total and permanent disability. In the event of certain basic changes in the
Company, including a change in control of the Company (as defined in the
Employee Plan) in the discretion of the Board, each option may become fully and
immediately exercisable. ISOs are not transferable other than by will or the
laws of descent and distribution. Options may be exercised during the holder's
lifetime only by the holder or his or her guardian or legal representative.
Options granted pursuant to the Employee Plan may be designated as
ISOs, with the attendant tax benefits provided under ss.ss. 421 and 422A of the
Internal Revenue Code of 1986. Accordingly, the Employee Plan provides that the
aggregate fair market value (determined at the time an ISO is granted) of the
Common Stock subject to ISOs exercisable for the first time by an employee
during any calendar year (under all plans of the Company and its subsidiaries)
may not exceed $100,000. The Board may modify, suspend, or terminate the
Employee Plan, provided, however, that certain material modifications affecting
the Plan must be approved by the shareholders, and any change in the Employee
Plan that may adversely affect an optionee's rights under an option previously
granted under the Employee Plan requires the consent of the optionee.
<PAGE>
PRINCIPAL SECURITYHOLDERS
The following table sets forth information as of March 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 (aggregating 7,844,148); (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.
<TABLE>
<CAPTION>
Number of Shares Percent of Common Stock
Name and Address Beneficially Owned (1) Beneficially Owned (2)
---------------- ---------------------- ----------------------
<S> <C> <C>
Joseph M. Polito (1)
c/o USABG Corp.
53-09 97th Place 5,204,156 66.3%
Corona, New York 11368
--------------------------------------------- ------------------------------------ ----------------------------------
--------------------------------------------- ------------------------------------ ----------------------------------
Steven J. Polito (2)
c/o USABG Corp.
53-09 97th Place 152,500 *
Corona, New York 11368
--------------------------------------------- ------------------------------------ ----------------------------------
--------------------------------------------- ------------------------------------ ----------------------------------
Ronald J. Polito(3)
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 70.5%
persons)
</TABLE>
- -------------
*Less than 2.5%
<PAGE>
(footnotes from previous page)
(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, 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 or entity has the right to acquire
within 60 days, whether by exercise of options or warrants. 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.
(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.
(6) Does not include shares issuable upon the exercise of options granted to
Ronald Murphy and Marvin Weinstein each to purchase 25,000 shares of Common
Stock pursuant to a vesting schedule.
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information at March 31, 1998
and as adjusted to reflect the resale of the shares of Common Stock by the
Selling Stockholders.
<TABLE>
<CAPTION>
Shares of
Common Stock Shares Percentage of
Name & Address of Owned Prior Shares Owned After Shares Owned
Stockholder to the Offering Offered Offering After Offering
- ----------- --------------- ------- -------- --------------
<S> <C> <C> <C> <C>
FT Trading (1) 362,500 362,500 0 0
c\o Augustine Capital
Management, Inc.
141 W. Jackson Boulevard
Suite 2182, Chicago, IL 60604
Black Sea Investments Ltd. (2) 290,000 290,000 0 0
c\o Dempsey & Co.
Cockburn House, Cockburn Town
Turks & Caicos BWI
</TABLE>
- -----------------------
(1) Includes an estimated 306,944 shares upon conversion of the Debentures,
subject to adjustment, based upon the conversion price of the Debenture and
55,556 shares issuable upon the exercise of the Warrants. See "Business -
1998 Private Placement," "Description of Securities - 8% Convertible
Debentures" and "- Warrants."
(2) Includes an estimated 245,556 shares upon conversion of the Debentures,
subject to adjustment, based upon the conversion price of the Debenture and
44,444 shares issuable upon the exercise of the Warrants. See "Business -
1998 Private Placement," "Description of Securities - 8% Convertible
Debentures" and "- Warrants."
Plan of Distribution for the Securities of the Selling Securityholders
This Prospectus covers the Offering of 652,500 shares of Common Stock,
inclusive of (i) an estimated 562,500, subject to adjustment, issuable upon the
conversion of the Debentures; and (ii) 100,000 shares of Common Stock issuable
upon exercise of the Warrants owned by the Selling Stockholders. The Warrants
and Debentures, as well as the Shares underlying same, were issued in a private
transaction, exempt from the registration requirements of the Act in accordance
with ss. 4(2) thereof. See "Selling Stockholders." This Prospectus shall be
delivered by said Selling Securityholders upon the resale of any securities by
said holders. The shares of Common Stock and the shares of Common Stock issuable
upon the exercise of such Warrants may be sold, from time to time, by the
Selling Securityholders. Resales of such securities or even the potential of
such resales at any time may have an adverse effect on the market prices of the
Securities offered hereby. See "Risk Factors."
The resale of the securities by the Selling Securityholders may be
effected from time to time in negotiated transactions, at fixed prices which may
be changed, and at market prices prevailing at the time of resale, or a
combination thereof. The Selling Securityholders may effect such transactions by
selling directly to purchasers or to or through broker-dealers which may act as
agents or principals, including in a block trade transaction in which the broker
or dealer will attempt to sell the securities as agent but may position and
resell a portion of the block as principal to facilitate the transactions or
purchases by a broker or dealer as principal and resale by such broker or dealer
for its own account pursuant to this Prospectus, or in ordinary brokerage
transactions and transactions in which the broker solicits purchasers. In
effecting sales, brokers or dealers engaged by the Selling Securityholders may
arrange for other brokers or dealers to participate. Such broker-dealers may
receive compensation in the form of discounts, concessions, or commissions from
the Selling Securityholders and/or the purchasers of the securities, as
applicable, for which such broker-dealers may act as agents or to whom they sell
as principal, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). The Selling Securityholders and any
broker-dealers that act in connection with the resale of the shares of Common
Stock and/or by the Selling Securityholders might be deemed to be "underwriters"
within the meaning of ss. 2(11) of the Act. In that connection, the Company has
agreed to indemnify the Selling Securityholders and the Selling Securityholders
has agreed to indemnify the Company, against certain civil liabilities including
liabilities under the Act.
At the time a particular offer of its securities is made by or on
behalf of the Selling Securityholders, to the extent required, a prospectus
supplement will be distributed which will set forth the number of shares of
Common Stock being offered and the terms of the Offering, including the name or
names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for shares purchased from the Selling Securityholders and any
discounts, commission or concessions allowed or re-allowed or paid to dealers,
and the proposed selling price to the public.
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder, any person engaged in a
distribution of Company's Securities offered by this Prospectus may not
simultaneously engage in market-making activities with respect to such Company
securities during the applicable "cooling off" period (nine days) prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Securityholders will be subject to applicable provisions
of the Exchange Act and rules and regulations thereunder, including without
limitation, Rules 10b-6 and 10b-7, in connection with transactions in such
securities, which provisions may limit the timing of purchases and resales of
Company securities by the Selling Securityholders.
DESCRIPTION OF SECURITIES
The Company's authorized capitalization consists of 50,000,000 shares
of Common Stock, par value $.001 per share, and 10,000,000 shares of Series A
Preferred Stock, par value $.0001. The following summary descriptions of the
Common and Preferred Stock are qualified in their entirety by reference to the
Company's Certificate of Incorporation and amendments thereto.
Common Stock
Each share of Common Stock entitles its holder to one non-cumulative
vote per share and, subject to the preferential rights of the Preferred
Stockholders, the holders of more than fifty percent (50%) of the shares voting
for the election of Directors can elect all the Directors if they choose to do
so, and in such event the holders of the remaining shares will not be able to
elect a single Director. Holders of shares of Common Stock are entitled to
receive such dividends as the Board of Directors may, from time to time, declare
out of Company funds legally available for the payment of dividends. The Company
has not paid cash dividends on its common stock and intends to retain earnings,
if any, for use in its activities. Payment of cash dividends in the future will
be wholly dependent upon the Company's earnings, financial condition, capital
requirements and other factors deemed relevant by the Board of Directors. It is
not likely that cash dividends will be paid in the foreseeable future. Upon any
liquidation, dissolution, or winding up of the Company, holders of shares of
Common Stock are entitled to receive pro rata all of the assets of the Company
available for distribution to shareholders after the satisfaction of the
liquidation preference of the preferred stockholders. See "Dividend Policy."
Shareholders do not have any preemptive rights to subscribe for or purchase any
stock, warrants or other securities of the Company. The Common Stock is not
convertible or redeemable. Neither the Company's Certificate of Incorporation
nor its By-Laws provide for preemptive rights.
Series A Preferred Stock
The Company has authorized 10,000,000 shares of Convertible Series A
Preferred Stock, par value $.0001 per share ("Series A Stock"), none of which
shares is outstanding. The Series A Stock has carries no voting rights or
dividend and/or liquidation preferences.
8% Convertible Debentures
In February 1998, the Company consummated a Private Placement Offering
and generated a gross aggregate of $450,000 in funds from the sale of 8%
Convertible Debentures. The Debentures and the Shares underlying same were
issued in a private transaction, exempt from the registration requirements of
the Act, in accordance with ss. 4(2) thereof. The Debentures, plus interest
accrued thereon (at 8% per annum, payable in shares of Common Stock upon
conversion of the Debentures), are convertible into shares of Common Stock at
the lesser of (i) 100% of the 5 day average closing bid price, as reported by
Bloomberg, LP, for the 5 trading days immediately preceding the closing date
(February 3, 1998) of the Private Placement ($.80); or (ii) 75% of the 5-day
average closing bid price, as reported by Bloomberg, LP, for the 5 trading days
immediately preceding the date(s) of conversion of all or a portion of the
Debentures. With each conversion, the Company shall issue shares for the
conversion and pay accrued interest in cash or shares at the Company's option.
If paid in Common Stock, the number of shares of the Company's Common Stock to
be received shall be determined by dividing the dollar amount of the interest by
the then applicable conversion rate. The Debentures are subject to automatic
conversion at the end of two years from the date of issuance at which time all
debentures outstanding will be automatically converted.
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 Private
Placement, 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.
Warrants
The purchasers of the Debentures referenced above also received
Warrants to purchase an aggregate of 100,000 shares of Common Stock. The
Warrants and the Shares underlying same were issued in a private transaction,
exempt from the registration requirements of the Act, in accordance with ss.
4(2) thereof. The Warrants entitle the holders thereof to purchase an aggregate
of 100,000 shares of Common Stock as follows: 50,000 shares at an exercise price
of $1.125 and 50,000 shares at an exercise price of $1.41, commencing March 31,
1998 and expiring March 31, 2001
The exercise price and the number of shares of Common Stock purchasable
upon the exercise of each Warrant are subject to adjustment in certain events,
including the issuance of a stock dividend to holders of Common Stock, or a
combination, subdivision, or reclassification of Common Stock. No fractional
shares will be issued upon exercise of Warrants, but the Company will pay the
cash value of the fractional shares otherwise issuable.
Notwithstanding the foregoing, in case of any consolidation, merger,
sale, or conveyance of the property of the Company as an entirety or
substantially as an entirety, the holder of each outstanding Warrant shall
continue to have the right to exercise same for the kind and amount of shares
and other securities and property (including cash) receivable by a holder of the
number of shares of Common Stock for which such Warrants were exercisable
immediately prior thereto.
Holders of Warrants are not entitled, by virtue of being such holders,
to receive dividends or to consent or to receive notice as shareholders in
respect of any meeting of shareholders for the election of Directors of the
Company or any other mater, or to vote at any such meeting, or to exercise any
rights whatsoever as shareholders of the Company.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 13, 1996, Joseph M. Polito, the Company's President, entered
into a memorandum of understanding with an individual, Lubov Ulianova, whereby
Mr. Polito borrowed $300,000 from Mr. Ulianova. The loan was secured by 550,000
shares of the Company's Common Stock owned by Mr. Polito, which shares were put
into an escrow account with Alan Berkun as the escrow agent. The funds were then
loaned by Mr. Polito to the Company. The loan provided that upon the Company's
listing of its Common Stock on the Nasdaq SmallCap Stock market (Nasdaq),
400,000 shares of Common Stock would be issued to Mr. Ulianova as repayment of
the loan. This transaction was an exempt transaction, in accordance with
Regulation S under the Act. In addition, Mr. Polito granted Mr. Ulianova an
option to purchase 600,000 shares of Company Common Stock at an exercise price
of $1.50. The option could only be exercised if the bid price for the Company's
Common Stock was at least $3.00. The Company's Common Stock was approved for
listing on Nasdaq on July 25, 1996, at which time the loan was repaid. The
option expired unexercised. These matters were reviewed for the Company by its
special counsel Alan Berkun, Esq.
During the year ended June 30, 1996, NY purchased approximately
$180,333 of fabricated steel from Waldorf. Such amount paid to Waldorf
represented approximately 18% of the steel purchased by NY for the year ended
June 30, 1996. Waldorf is wholly-owned by Joseph M. Polito.
In December 1996, the Company issued bonuses of 100,000 shares of
Common Stock to Joseph M. Polito and 2,500 shares to each of Ronald Polito and
Steven Polito pursuant to the Management Plan. In addition 313 shares were
issued to Joseph M. Polito's wife. In connection with the 114,617 shares issued
to NY's employees and consultants, the Company recorded compensation expense
amounting to $193,415, which is based on upon 90% of the average closing bid
price for the month of December 1996.
In February 1997, pursuant to a Form S-8 Registration Statement filed
with the Securities and Exchange Commission, the Company registered for resale a
total of 686,617 shares of Common Stock, 575,000 of which underlie options
granted pursuant to the Company's Senior Management Incentive Plan. The options
are exercisable at $1.75 and $1.925 per share.
On March 13, 1997, the Company issued 125,000 shares of Common Stock to
Joseph M. Polito upon exercise of options granted pursuant to the above
mentioned Management Plan. In February 1997, these shares were registered for
resale pursuant to a Form S-8 Registration Statement. Mr. Polito executed a
promissory note for the exercise price.
During the years ended June 30, 1997 and 1996, NY paid $371,321 and
$802,383, respectively, to MD for certain materials and labor necessary to
perform steel erection services. MD is a wholly-owned subsidiary of the Company.
During the years ended June 30, 1997 and 1996, NY paid $214,000 and
$163,000, respectively, to Crown for leasing cranes necessary to perform steel
erection services. Joseph M. Polito owns 50% of Crown.
During the year ended June 30, 1997, NY paid $35,000 to AGLI for
certain machinery necessary to perform steel erection services. AGLI is
wholly-owned by Joseph M. Polito.
As of May 1997, the Company was in arrears in the amount of $480,000 in
payments due under its lease with RSJJ. This arrearage was converted into equity
as follows: in June 1997, NY issued 270,000 shares of common stock to the
Company, for the cancellation of the debt owed to RSJJ. The Company, in turn,
issued 200,000 shares of its Common Stock to Joseph Polito and 150,000 shares of
its Common Stock to RSJJ. RSJJ then transferred all of such shares to RSJJ's
mortgagor, which agreed to accept said shares as payment of RSJJ's outstanding
mortgage.
On February 10, 1998, NY agreed to remit its RSJJ lease payments for
the period January 1998 through December 31, 1998 by issuing the Company 106,667
shares of its common stock in exchange for which the Company agreed to issue
192,000 shares of Common Stock to RSJJ. Both the Company and NY issued the
aforesaid stock in March 1998. The value of the Company's shares was recorded at
the value of the rent otherwise due under the lease ($240,000).
In March 1998, the Company issued bonuses of 150,000 shares of Common
Stock to Joseph M. Polito and 25,000 shares to each of Ronald Polito and Steven
Polito pursuant to the Management Plan: 1/2 of these shares vested on June 1,
1998, and 1/2 vest on January 1, 1999. See "Executive Compensation-Employment
and Consulting Agreements" for information regarding management's compensation.
LEGAL OPINIONS
Legal matters relating to the shares of Common Stock and Warrants will
be passed on for the Company by its counsel, Klarman & Associates, San Ramon,
California.
EXPERTS
The financial statements of the Company as of and for the years ended
June 30, 1997 and 1996 have been audited by Scarano & Tomaro, P.C., Independent
Certified Public Accountants, to the extent and for the period set forth in
their report appearing elsewhere herein and are included in reliance upon such
report given upon the authority of that firm as experts in giving said reports.
In July 1997, Scarano & Tomaro, P.C. was formed and is considered a successor
firm of Scarano & Lipton, P.C. for auditing purposes, which firm has executed
the report referenced above and consent annexed hereto.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form SB-2 under the
Act with respect to the shares of Common Stock and Warrants to which this
Prospectus relates. As permitted by the rules and regulations of the Commission,
the Company's Prospectus does not contain all of the information set forth in
the Registration Statement. For further information with respect to the Company
and the Shares and Warrants offered hereby, reference is made to the
Registration Statement, including the exhibits thereto, which may be copied and
inspected at the Public Reference Section of the Commission at its principal
office at 450 Fifth Street, N.W., Washington, D.C., 20549.
<PAGE>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
AND FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
AMENDMENT NO. 4 TO FORM SB-2 REGISTRATION STATEMENT
<PAGE>
<TABLE>
<CAPTION>
USABG CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Number
<S> <C>
Independent auditors' report 72
Consolidated balance sheets at March 31, 1998 (unaudited)
and June 30, 1997 73
Consolidated statement of operations for the nine months ended March 31,
1998 and 1997 (unaudited) and for the years
ended June 30, 1997 and 1996 74
Consolidated statement of stockholders' equity for the nine months ended
March 31, 1998 (unaudited) and for the years
ended June 30, 1997 and 1996 75-76
Consolidated statement of cash flows for the nine months ended March 31,
1998 and 1997 (unaudited) and for the years
ended June 30, 1997 and 1996 77-78
Notes to consolidated financial statements 79-98
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
USABG Corp. and subsidiaries
We have audited the accompanying consolidated balance sheet of USABG Corp. and
subsidiaries (the "Company") as of June 30, 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended June 30, 1997 and 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of June 30, 1997, and the consolidated
results of its operations and cash flows for the years ended June 30, 1997 and
1996, in conformity with generally accepted accounting principles.
Scarano & Tomaro, P.C.
Syosset, New York
October 4, 1997
<PAGE>
<TABLE>
<CAPTION>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
March June
31, 1998 30, 1997
---------------- ------------
<S> <C> <C>
Current assets:
Cash $ 511,389 $ 555,435
Cash - restricted 222,280 214,001
Contracts and retainage receivable, net 11,209,036 8,962,297
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,168,004 2,225,723
Due from related parties 492,411 -
Deferred tax asset 336,200 304,225
Other current assets 77,377 139,393
---------------- ---------------
Total current assets 14,016,697 12,401,074
Assets of discontinued operations - 2,889,999
Deferred tax asset - non current 30,200 74,575
Other assets 100,437 30,606
---------------- ---------------
Total assets $ 14,147,334 $ 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 1,244,611 771,211
Payroll taxes payable 2,186,484 1,634,614
Due to related parties 152,376 166,540
Convertible debentures, net 393,334 -
Note payable 145,358 145,358
Current portion of long-term payables 300,000 -
Liabilities of discontinued operations 150,000 3,039,999
Income taxes payable 610,964 522,379
Billings in excess of costs and estimated earnings
on uncompleted contracts - 126,455
---------------- ---------------
Total current liabilities 6,969,658 9,902,048
---------------- ---------------
Long-term payable 1,350,000 -
---------------- --------------
Minority interest 3,431,505 2,714,300
---------------- ---------------
Commitments and contingencies (Note 13) - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Stockholders' equity:
Preferred stock, authorized 10,000,000 shares, 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 4,859,960 4,263,402
Accumulated deficit (1,492,972) (1,087,427)
---------------- ----------------
Sub-total stockholders' equity 3,374,436 3,182,981
---------------- ---------------
Less: Stock subscription receivable (240,625) (240,625)
Prepaid rent (180,000) -
Deferred compensation and consulting (557,640) (162,450)
----------------- ----------------
Total subtractions (978,265) (403,075)
----------------- ----------------
Total stockholders' equity 2,396,171 2,779,906
---------------- ---------------
Total liabilities and stockholders' equity $ 14,147,334 $ 15,396,254
================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the nine months ended For the Year ended
March 31, June 30,
---------------------------- -----------------------------
1998 1997 1997 1996
------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Contract revenue $ 14,284,651 $ 7,714,698 $ 15,494,447 $ 7,401,433
------------ ------------ ------------- -------------
Costs and expenses:
Cost of contract revenues 11,422,861 5,170,187 11,137,325 5,031,216
General and administrative expenses 2,650,482 2,438,904 3,122,029 2,493,399
Bad debt expense - - 1,287,000 1,019,127
------------ ------------ ------------- -------------
Total costs and expenses 14,073,343 7,609,091 15,546,354 8,543,742
------------ ------------ ------------- -------------
Income (loss) from operations before other
income (expense), minority interest, and
provision for income tax expense (benefit) 211,308 105,607 (51,907) (1,142,309)
------------ ------------ --------------- -----------
Other income (expenses):
Interest expense and financing costs (261,715) (15,670) (158,577) (35,141)
Amortization of financing costs (Note 8b) - - - (441,863)
Gain on sale/acquisition of subsidiary's stock - - - 832,571
Interest income 8,368 8,296 10,425 27,766
------------ ------------ ------------- -------------
Total other (expenses) income (253,347) (7,374) (148,152) 383,333
------------ ------------ -------------- -------------
Loss (income) before minority interest and
provision for income tax expense (benefit) (42,039) 98,233 (200,059) (758,976)
Minority interest in net (income) loss (258,206) (224,931) (167,772) 342,802
------------ ------------ ------------- -------------
Loss before provision for income tax expense (benefit) (300,245) (126,698) (367,831) (416,174)
Provision for income tax expense (benefit) 105,300 301,000 142,875 (860,960)
------------ ------------- ------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net (loss) income before loss from discontinued operations (405,545) (427,698) (510,706) 444,786
Loss from discontinued operations - 351,696 280,911 404,217
Loss on disposal of assets of discontinued operations - - 83,621 -
------------ ------------ ------------- -------------
Net (loss) income $ (405,545) $ (779,394) $ (875,238) $ 40,569
============= ============ ============= =============
Earnings per common share:
Basic:
Net (loss) income before loss from discontinued
operations $ (.05) $ (.07) $ (.08) $ .07
Loss from discontinued operations $ - $ (.05) $ (.05) $ (.06)
------------ ----------- -------------- -------------
Net (loss) income $ (.05) $ (.12) $ (.13) $ .01
============ ========== ============== =============
Diluted:
Net (loss) income before loss from discontinued
operations $ (.05) $ (.07) $ (.08) $ .07
Loss from discontinued operations $ - $ (.05) $ (.05) $ (.06)
------------ ----------- -------------- -------------
Net (loss) income $ (.05) $ (.12) $ (.13) $ .01
============ =========== =============== =============
Weighted average number of common shares outstanding 7,472,591 6,499,369 6,854,390 6,137,530
============ ============ ============= ============
Weighted average number of common shares
outstanding - assuming dilution 7,472,591 6,499,369 6,854,390 6,137,530
============ ============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
Common Stock
------------
Stock subscription
Additional Receivables Total
Paid-in Accumulated and Other Stockholders'
Shares Amount capital Deficit Deductions Equity
------ ------ ------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1995 6,012,531 $5,616 $ 2,591,652 $(252,758) $(489,583) $ 1,854,927
Issuance of common stock in
consideration for services pursuant
to Senior Management Incentive Plan 150,000 150 88,950 - (89,100) -
Record amortization of deferred expense - - - - 266,500 266,500
Net income for the year ended
June 30, 1996 - - - 40,569 - 40,569
------------- ---------- ----------- ----------- --------------- -------------
Balances at June 30, 1996 6,162,531 5,766 2,680,602 (212,189) (312,183) 2,161,996
Issuance of common stock in lieu of
repayment of loan 400,000 400 399,600 - - 400,000
Issuance of common stock as
consideration for services provided to
the Company 250,000 250 269,750 - (270,000) -
Issuance of common stock pursuant to
the 1995 Senior Management Incentive
Plan as consideration for services
provided to the Company 114,617 115 193,300 - - 193,415
Issuance of common stock in connection
with the exercise of options 125,000 125 240,500 - (240,625) -
Issuance of common stock in connection
with settlement of subsidiary's
related party debt 350,000 350 479,650 - - 480,000
Record amortization of deferred expense - - - - 419,733 419,733
Net loss for the year ended
June 30,1997 - - - (875,238) - (875,238)
------------ ---------- ----------- ------------ ----------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1997 7,402,148 7,006 4,263,402 (1,087,427) (403,075) 2,779,906
Issuance of common stock pursuant to
the Senior Management Incentive Plan
as consideration for services provided
to the Company 250,000 250 206,750 - (165,600) 41,400
Issuance of common stock in connection
with prepayment of subsidiary's rent 192,000 192 239,808 - (240,000) -
Additional paid-in capital resulting
from imputed interest related to
convertible debentures - - 150,000 - - 150,000
Deferred compensation in connection
with issuance of subsidiary's common - - - - (391,500) (391,500)
stock
Amortization of deferred and prepaid
items - - - - 221,910 221,910
Net loss for the nine months ended
March 31, 1998 - - - (405,545) - (405,545)
------------ ---------- ----------- ------------ --------------- -------------
Balances at March 31, 1998 7,844,148 $ 7,448 $4,859,960 $(1,492,972) $ (978,265) $ 2,396,171
============ ========== ========== ============ ================ =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine months ended For the Year ended
March 31, June 30,
------------------------------ ----------------------------------
1998 1997 1997 1996
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Operating activities:
Net (loss) income $ (405,545) $ (779,394) $ (875,238) $ 40,569
Adjustments to reconcile net (loss) income to net
cash provided by (used for) operating activities:
Depreciation and amortization 8,787 369,740 558,233 882,549
Amortization of deferred compensation
and consulting costs 199,099 203,138 - -
Amortization of prepaid rent and interest 153,333 - - -
Minority interest in net income (loss) 326,517 224,931 281,773 (342,802)
Bad debt (recovery) expense (128,000) - 1,287,000 1,019,127
Deferred income tax benefit 12,400 - (396,300) -
Issuance of common stock for services 41,400 193,415 193,415 -
Gain on sale of subsidiary's stock - - - (832,571)
Contingent loss on disposal of property - - 92,121 -
Decrease (increase) in:
Contracts and retainage receivable (2,118,739) (3,641,588) (6,752,882) (1,711,424)
Prepaid expenses - (3,150) - -
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,057,719 1,044,828 207,801 (607,395)
Other current assets (6,716) 22,697 (7,382) (18,750)
Increase (decrease) in:
Accounts payable 41,039 1,439,023 3,519,175 489,597
Accrued expenses 473,400 188,622 778,853 (189,545)
Payroll taxes payable 551,870 283,105 1,060,660 62,570
Billings in excess of costs and estimated
earnings on uncompleted contracts (126,455) 12,892 109,888 16,567
Income taxes payable 88,585 301,000 521,675 (864,263)
------------- ----------- ------------- ------------
Net cash provided by (used for) operating activities 168,694 (140,741) 578,792 (2,055,771)
------------- ----------- ------------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (cont'd)
For the Nine months ended For the Year ended
March 31, June 30,
------------------------------ ----------------------------------
1998 1997 1997 1996
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investing activities:
Fixed asset acquisitions (87,779) - - -
Increase in restricted cash (8,279) (5,677) (10,126) (203,875)
Other assets - - (8,156) -
------------- ------------- ------------- --------------
Net cash used for investing activities (96,058) (5,677) (18,282) (203,875)
------------- ------------- ------------- --------------
Financing activities:
Principal payments on mortgage - - - (164,992)
Financing costs incurred - - (35,000) -
Principal payments of notes payable (100,000) (479) (479) (1,071,649)
Advances from officers and related parties 118,456 94,532 211,341 358,779
Repayments to officers and related parties (528,138) - (376,714) (80,767)
Proceeds from convertible debentures 450,000 - - -
Offering costs (57,000) - - -
Proceeds from issuance of subsidiary's
common stock and warrants, net of costs - - - 3,207,806
------------- ------------- ------------- --------------
Net cash (used for) provided by financing activities (116,682) 94,053 (200,852) 2,249,177
------------- ------------- ------------- --------------
Net (decrease) increase in cash (44,046) (52,365) 359,658 (10,469)
Cash, beginning 555,435 195,777 195,777 206,246
------------- ------------- ------------- --------------
Cash, ending $ 511,389 $ 143,412 $ 555,435 $ 195,777
============= ============= ============= ==============
Supplemental disclosure of cash flow information:
Cash paid during the nine months for:
Interest $ 11,564 $ 7,599 $ 36,848 $ 236,610
============= ============= ============= ==============
Taxes $ - $ - $ - $ -
============= ============= ============= ==============
Supplemental disclosure of non-cash investing and
financing activities:
Issuance of common stock in connection with
a note payable to the Company $ - $ - $ 240,625 $ -
============= ============= =============== ==============
Surrender of property, plant, and equipment in
lieu of foreclosure on mortgage $ 2,889,999 $ $ - $ -
============= ============= ============= ==============
In connection with the issuance of common stock,
114,617 shares were issued as consideration for
employee compensation $ - $ - $ 193,415 $ -
============= ============= ============= ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (cont'd)
For the Nine months ended For the Year ended
March 31, June 30,
------------------------------ ----------------------------------
1998 1997 1997 1996
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
In connection with the conversion of
subsidiary's account payable 350,000
shares of common stock were issued as
consideration for 270,000 shares
of common stock of the Subsidiary $ - $ - $ 480,000 $ -
============= ============= ============= ===========
In connection with issuance of common stock,
250,000 shares were issued as deferred
consulting $ - $ - $ 270,000 $ -
============= ============= ============= ===========
In connection with the payment of due to shareholder,
400,000 shares of common stock were issued $ - $ - $ 300,000 $ -
============= ============= ============= ============
In connection with issuance of common stock,
150,000 shares were issued as deferred compensation $ - $ - $ - $ 89,100
============= ============= ============= ============
Conversion of accounts payable to note payable $ 1,750,000 $ - $ - $ -
============ ============= ============= ============
In connection with the prepayment of subsidiary's
Rent, 192,000 shares of common stock were
Issued as consideration for 106,667 shares of
Common stock of the subsidiary $ 240,000 $ - $ - $ -
============= ============= ============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
USABG CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION FOR THE NINE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED
USABG CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION FOR THE NINE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED
NOTE 1 - ORGANIZATION
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 owns 48.5% of USA Bridge
Construction of N.Y., Inc. ("NY"), 100% of the outstanding
shares of common stock of Worldwide Construction Limited
("Worldwide"), and 100% of the outstanding shares of common
stock of Royal Steel Services, Inc. ("Royal Steel"). Joseph
Polito owns 7.5% of the common stock of NY. By virtue of his
ownership of 66.3% of the outstanding shares of Common Stock
of the Company, the Company may be deemed the beneficial owner
of those shares of NY common stock held by Joseph Polito,
resulting in the Company having a direct and indirect
controlling financial interest of 56% of NY. NY, Worldwide,
and Royal Steel are the only subsidiaries through which the
Company operates. Two additional subsidiaries of the Company
(each a wholly-owned subsidiary), One Carnegie Court
Associates, Inc. ("One Carnegie") and USA Bridge Construction
Corp. (Maryland) ("MD") ceased operations in August 1997 and
November 1996, respectively.
Royal Steel was formed in 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 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, a country located in Central North
Africa. Falcon was formed in November 1997 to operate as a
full service transportation, forwarding, and warehousing
company in N'Djamena. Portshop was formed in March 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 Falcon and Portshop intend to contract in
Chad. As of March 31, 1998, the only activity commenced in
either Royal Steel or Worldwide was the purchase of trucks by
Falcon.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of presentation - nine months ended March 31, 1998 and
1997
The unaudited interim financial statements included herein
have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange
Commission and, in the opinion of management, include all
adjustments and disclosures which are necessary in order to
make the financial statements not misleading. The results of
operations for the nine months ended are not necessarily
indicative of the results to be expected for the full year.
b) Consolidated statements
The consolidated financial statements include the accounts of
the Company, NY (by virtue of its direct and indirect
controlling financial interest as outlined above), and its
wholly-owned subsidiaries, One Carnegie, Maryland, Royal
Steel, and Worldwide after elimination of all significant
inter-company transactions and accounts.
c) Cash and cash equivalents
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents. NY, at June 30, 1997, maintains its cash deposits
in accounts which are in excess of Federal Deposit Insurance
Corporation limits by $344,625. As of March 31, 1998 and June
30, 1997, NY maintains $222,280 and $214,001, respectively, of
restricted cash securing a credit line of the Company from a
financial institution.
d) Use of estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the
reporting period. The most significant estimates with regard
to these financial statements relate to the estimating of
final construction contract profits in accordance with
accounting for long-term contracts and estimating potential
liabilities in conjunction with certain contingencies and
commitments. Actual results could differ from these estimates.
e) Balance sheet classifications
In accordance with normal practice in the construction
industry, the Company included in current assets and current
liabilities amounts related to construction contracts
receivable and payable over a period in excess of one year. In
general, contract related receivables and payables other than
retainage receivables are expected to be collected and paid
within one year.
f) Contracts and retainage receivables
Contracts and retainage receivables represent amounts billed
but uncollected on completed construction contracts and
construction contracts in progress and unbilled retainage on
construction contracts completed and in progress.
The Company utilizes the allowance method for recognizing the
collectibility of its contracts receivable. The allowance
method recognizes bad debt expense based on a review of the
individual accounts outstanding based on the surrounding facts
and estimates made by management.
g) Property and equipment
Property and equipment which have been classified as assets of
discontinued operations are recorded at cost. Depreciation was
provided using the straight-line method over the estimated
useful lives of the related assets which ranged from 10 to 40
years.
h) Deferred compensation and consulting
Deferred compensation consists of stock issued to an officer
relating to NY's initial public offering ("IPO") and stock
issued to officers of the Company and NY. Deferred
compensation has been charged to general and administrative
costs over the vesting period of the stock issued.
Deferred consulting costs consist of consulting fees in the
form of common stock issued to a broker-dealer. The deferred
consulting costs are being amortized over the two year period.
i) Income taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," which requires the use of the
"liability method" of accounting for income taxes.
Accordingly, deferred tax assets and liabilities are
determined based on the difference between the financial
statement and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which the
differences are expected to reverse. In addition, future tax
benefits, such as net operating loss carryforwards, are
recognized currently to the extent such benefits are more
likely than not to be realized as an economic benefit in the
form of a reduction of income taxes in future years. Current
income taxes are based on the respective periods' taxable
income for Federal, State, and City income tax reporting
purposes.
j) Revenue recognition
The Company 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,
revisions in costs and earnings estimated during the course of
the work are reflected during the accounting period in which
the facts become known. 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 reasonably estimated. No such
costs or revenues have been recognized during the years ended
June 30, 1997 and 1996 or the nine months ended March 31, 1998
and 1997. The Company generally determines a contract complete
pursuant to a substantial completion clause stipulated in each
contract.
The current asset, "costs and estimated earnings in excess of
billings on uncompleted contracts," represents revenues
recognized in excess of amounts billed on 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 are in
excess of revenues recognized on uncompleted contracts at the
end of each period.
k) Earnings (loss) per common share
Earnings (loss) per common share for the nine months ended
March 31, 1998 and 1997 and for the year ended June 30, 1997
and 1996 are based upon the weighted average number of shares
of common stock outstanding during the respective periods.
l) Impact of recently issued accounting standards
In March 1995, the Financial Accounting Standards Board issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which
requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company adopted SFAS
No. 121 during the year ended June 30, 1996.
m) Accounting for stock-based compensation
The Company elected to continue to measure compensation costs
using Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock-Based for Stock Issued to Employees," as
is permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been
recognized for the options issued under the 1994 Senior
Management Incentive Plan as the exercise price and market
value on the dates of grant were the same. For companies that
choose to continue applying APB No. 25, SFAS No. 123 requires
certain pro forma disclosures as if the fair value method had
been utilized. Had compensation cost for the Company's
stock-based compensation plan been determined based on the
fair value on the grant dates for award under the plan
consistent with the method of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the
pro forma amounts indicated below utilizing the Black-Scholes
stock option model, a discount rate of 8.5%, and a volatility
of 100%:
Year ended June 30,
1997 1996
------------- ------------
Net income - as reported $ (875,238) $ 40,569
============= ============
pro forma $ (1,660,738) $ 40,569
============= ============
Basic EPS - as reported $ (.13) $ .01
============== ============
pro forma $ (.24) $ .01
============== ============
The Company does not believe that any other recently issued
accounting standards, not yet adopted by the Company, will
have a material impact on its financial position and results
of operations when adopted.
n) Fair value disclosure as of June 30, 1997
The carrying value of cash, accounts receivable, accounts
payable, and accrued expenses and short-term debt are a
reasonable estimate of their fair value. The carrying value of
the long-term debt approximates fair value based upon the
interest factors for the debt being based upon the prime rate
which reflects market value.
o) Reclassifications
Certain reclassifications have been made to the March 31, 1997
and June 30, 1996 consolidated financial statements in order
to conform to the March 31, 1998 and June 30, 1997
presentation.
NOTE 3 - CONTRACT AND RETAINAGE RECEIVABLE
Contract and retainage receivable consist of the following at:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
---------------- --------------
<S> <C> <C>
Contracts in progress $ 848,908 $ 5,087,169
Completed contracts 11,856,531 4,939,284
Retainage on completed and in
progress contracts 662,597 1,222,844
---------------- --------------
13,368,036 11,249,297
Less: allowance for doubtful accounts 2,159,000 2,287,000
---------------- --------------
Contracts and retainage receivable, net $ 11,209,036 $ 8,962,297
================ ==============
</TABLE>
The allowance for doubtful accounts was increased to
$2,287,000 during the year ended June 30, 1997 from $1,000,000
at June 30, 1996 to reflect the filing of mechanic's liens on
certain jobs as well as a review of the aging of the accounts
receivable. During the nine months ended March 31, 1998,
receivables amounting to $128,000 which were previously
reserved were collected. No further adjustments to the
allowance have been deemed necessary by management as of March
31, 1998.
NOTE 4 - CONTRACTS IN PROGRESS
Costs and estimated earnings in excess of billings and
billings in excess of costs and estimated earnings on
completed and uncompleted contracts consist of the following
at:
<PAGE>
March 31, June 30,
1998 1997
---------------- --------------
Costs incurred on contracts $ 9,793,798 $ 14,025,808
Profits earned to date 4,012,329 4,190,473
---------------- --------------
13,806,127 18,216,281
Less: billings to date 12,638,123 16,117,013
---------------- --------------
$ 1,168,004 $ 2,099,268
================ ==============
Included in the accompanying balance sheet under the following
captions at:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
---------------- --------------
Costs and estimated earnings in excess of billings on:
<S> <C> <C>
uncompleted contracts $ 991,004 $ 1,848,455
completed contracts $ 177,000 $ 377,268
---------------- --------------
$ 1,168,004 $ 2,225,723
---------------- --------------
Billings in excess of costs and estimated
earnings on uncompleted contracts - (126,455)
---------------- --------------
$ 1,168,004 $ 2,099,268
================ ==============
</TABLE>
NOTE 5 - BACKLOG
The following schedule summarizes changes in backlog on
contracts during the year ended June 30, 1997 and the nine
months ended March 31, 1998. Backlog represents the amount of
revenue the Company expects to realize from work to be
performed on uncompleted contracts in progress and from
contractual agreements on which work has not yet begun.
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
---------------- --------------
<S> <C> <C>
Backlog balance at beginning of period $ 6,088,048 $ 17,943,400
Change orders to contracts in progress
during the period 8,743,566 1,711,347
New contracts during the period 19,646 1,889,000
---------------- --------------
14,851,260 21,543,747
Less: Contract revenue earned during
the period (14,239,151) (15,455,699)
---------------- --------------
Backlog balance at end of the period $ 612,109 $ 6,088,048
================ ==============
</TABLE>
<PAGE>
NOTE 6 - ACCRUED EXPENSES
Accrued expenses consist of the following at:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
---------------- --------------
<S> <C> <C>
Wages and related union benefits $ 34,985 $ 307,934
Professional fees 12,000 40,000
Insurance expense 1,191,626 421,885
Other 6,000 1,392
---------------- --------------
$ 1,244,611 $ 771,211
================ ==============
</TABLE>
NOTE 7 - INCOME TAXES
The Company has adopted SFAS No. 109, "Accounting for Income
Taxes." Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist
of taxes currently due plus deferred taxes related primarily
to differences between the financial and tax basis of assets
and liabilities. The deferred tax assets and liabilities
represent the future tax return consequences of these
temporary differences, which will either be taxable or
deductible when the assets and liabilities are recovered or
settled. The Company's only such significant items relate to
its allowance for doubtful accounts and Rule 144 stock
issuances.
For income tax purposes, the Company reports using a year end
of December 31. The Company and its subsidiaries file returns
separately for federal and state purposes.
The reconciliation of income tax computed at the federal
statutory tax rate to income tax expense is as follows for the
years ended June 30:
<PAGE>
<TABLE>
<CAPTION>
1997 1996
------------ ---------------
<S> <C> <C>
Tax computed at the federal statutory income tax rate $ (11,379) $ (141,500)
Increase (reductions) resulting from state and local
taxes net of federal benefit (4,331) (18,395)
Tax expense on subsidiary income, deferred income tax
benefit, and other miscellaneous permanent differences 158,585 -
Reversal of prior year accruals - (701,065)
------------ ---------------
Income tax expense (benefit) $ 142,875 $ (860,960)
============ ===============
</TABLE>
The tax effects of significant item comprising the Company's
net deferred tax assets as of June 30, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Allowance for doubtful accounts $ 1,073,500
Rule 144 stock (IRCss.83) 441,700
Less: Valuation allowance (1,136,400)
-------------
Deferred tax asset $ 378,800
=============
Current portion of deferred tax asset $ 304,225
Non-current portion of deferred tax asset 74,575
-------------
$ 378,800
</TABLE>
The Company has recorded a deferred tax asset with an
estimated valuation allowance of 75% as of June 30, 1997 based
on the estimated deductibility of the above items in the
future.
NOTE 8 - NOTES PAYABLE
a) Line of credit
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. The security for the line of
credit is in the form of a certificate of deposit, in the
amount of $200,000, provided by the Company. Interest is
payable on the first day of each month which commenced October
1, 1994. The credit line is payable on demand. At March 31,
1998 and June 30, 1997, the balance was $145,358.
<PAGE>
b) Promissory Notes
On January 16, 1995, an Underwriter commenced and privately
offered on a best-efforts basis, sixteen (16) units of NY's
securities at a price of $55,000 per unit. Each unit consisted
of a promissory note in the principal amount of $45,000
bearing interest at 12% per annum, and 10,000 shares of common
stock at $1.00 per share. The 160,000 shares sold in this
offering were assigned a value of 100% of the IPO price of
$5.00 per share. In relation to the common stock sold in the
offering, NY recorded deferred financing costs of $640,000
(160,000 shares at $5.00 per share less original costs of
$1.00 per share). Deferred financing costs were amortized on a
monthly basis until the due date of the related promissory
notes (the earlier of March 1996 or the effective date of the
IPO). The IPO was declared effective on August 14, 1995 and as
a result, for the year ended June 30, 1996, NY recorded the
balance of the amortization expense of $441,863. NY's
effective interest rate amounted to approximately 235%
including both the financing costs and interest expense. The
private placement offering was completed on March 9, 1995,
resulting in all sixteen (16) units being sold and netting
proceeds of approximately $696,851 to NY.
c) Accounts Payable
In December 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 relating to
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. Upon any funds being released or paid under
such mechanic's lien, the Union will be repaid any balance
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 mechanic's lien. The amount
outstanding at March 31, 1998 is $1,650,000, $300,000 of which
has been classified as current and $1,350,000 of which has
been classified as non-current.
NOTE 9 - CONVERTIBLE DEBENTURES
a) Private Placement
In January 1998, the Company raised a net of $393,000, after
commission and expenses, in connection with a Private
Placement to fund the Chadian operation, from the sale of
$450,000 of convertible debentures (the "Debentures") and
Warrants. The Debentures and Warrants, as well as the Common
Stock underlying same, were issued in a private transaction,
exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Act"), in accordance with ss.
4(2) thereof. Such Debentures are due January 30, 2000 with
interest accruing at 8% per annum. The Debentures, plus
interest accrued thereon, are convertible into shares of
Common Stock at the lesser of (i) 100% of the 5 day average
closing bid price, as reported by Bloomberg, LP, for the 5
trading days immediately preceding the closing date (February
3, 1998) of the private placement (the "Private Placement" or
"Private Placement Offering") ($.80); or (ii) 75% of the 5-day
average closing bid price, as reported by Bloomberg, LP, for
the 5 trading days immediately preceding the date(s) of
conversion of all or a portion of the Debentures.
Pursuant to the terms of the Private Placement, the Company
must file a Registration Statement covering the shares of
Common Stock to be issued upon conversion of the Debentures.
Such conversion cannot occur earlier than 60 days from the
closing date. If the Registration Statement is not declared
effective within 90 days following the closing of the Private
Placement, then as liquidated damages, the discount set forth
in the Subscription Agreement and Debentures will increase by
2.5% per 30 day period or portion thereof pro rata until the
Registration Statement is declared effective, or
alternatively, if the Registration Statement has not been
declared effective within said 90-day period, then at the
purchaser's sole option, which option must be exercised by
written notice to the Company, the Debentures shall convert to
having been issued pursuant to Regulation S for qualifying
Investors, with immediate availability to convert the
Debentures.
In addition to Debentures, the investors received Warrants to
purchase an aggregate of 100,000 shares of the Company's
Common Stock: 50,000 Shares exercisable at $1.125 per share
and $50,000 Shares exercisable at $1.41 per share. The funds
are being loaned to Worldwide to fund the Chadian operation.
As a result of the beneficial conversion feature, the Company
recorded interest of approximately $150,000 based on the
difference between the value of the shares to be issued upon
conversion assuming the most beneficial conversion feature and
the value of the convertible debentures amounting to $450,000.
Such amount will be amortized over the period between the date
of issuance and the first eligible date of conversion. For the
three months ended March 31, 1998, the Company amortized
$93,333 of the beneficial conversion feature as interest
expense. As a result of the Company's inability to complete
the filing of a registration statement covering the underlying
securities prior to 90 days after the closing date, the first
possible conversion date is the date upon which the shares can
be issued under regulation S, or ninety days. The recording of
additional interest results in an effective interest rate of
141%.
NOTE 10 - MINORITY INTEREST
As of March 31, 1998 and June 30, 1997, the minority interest
balance amounting to $3,372,318 and $2,828,301, respectively,
is a result of the stock transactions of NY and the
proportionate share of income and losses attributable to the
minority stockholders.
NOTE 11 - STOCKHOLDERS' EQUITY
a) Shares issued as consideration for consulting agreement
On June 16, 1995, pursuant to Form S-8 Registration Statement
filed with the Securities and Exchange Commission, the Company
registered and issued 500,000 shares to a broker-dealer as
consideration for a two year consulting agreement. In August
1996, the Board of Directors amended the consulting agreement
to increase the additional number of shares to be issued to
such broker dealer upon Nasdaq listing from 100,000 to
250,000. Accordingly in August 1996, the Company issued an
additional 250,000 restricted shares to such consultant. The
500,000 shares issued in June 1995 were valued at $500,000,
and the 250,000 shares issued in August 1996 were valued at
$270,000. Such shares were valued based on the average closing
bid price on the date of issue. Shares which were restricted
at the time of issuance were discounted 10% as a result of
such restriction to properly reflect their fair value.
b) Senior Management Incentive Plan
i) On August 15, 1995, the Company issued 150,000 shares
of common stock to its President pursuant to the terms
of the Company's Senior Management Incentive Plan. Such
shares were issued as compensation for the President's
efforts with the Company and NY in the consummation of
NY's initial public offering on August 14, 1995. Of the
total 150,000 shares issued to the President, 50,000
shares immediately vested without restrictions and the
remaining 100,000 shares vested pursuant to the
restricted periods, whereby 50,000 shares vested on
each August 15, 1996 and 1997. Such shares were valued
based on the average closing bid price on the date of
issue. Shares which were restricted at the time of
issuance were discounted 10% as a result of such
restriction to properly reflect their fair value. The
value of these shares of $89,100 is being amortized
over the vesting period.
ii) In February 1997, pursuant to a Form S-8 Registration
Statement filed with the Securities and Exchange
Commission, the Company registered a total of 686,617
shares of common stock, 575,000 of which shares
underlie options granted in December 1996 pursuant to
the Company's Senior Management Incentive Plan. The
options are exercisable at various prices ranging from
$1.75 each to $1.925 each. The market price of the
Company's common stock on the date of grant was $1.75
per share. As of June 30, 1997, the Company's president
had exercised options to purchase 125,000 shares at
$1.925 each. The Company received a promissory note in
the amount of $240,625 as consideration for such
shares.
iii) In December 1997, the Company authorized the issuance
of 250,000 shares of its common stock during the third
quarter of its fiscal year pursuant to its Senior
Management Incentive Plan. Of the 250,000 shares, all
of which were issued in March 1998, 150,000 were issued
to the Company's President, and 25,000 shares each were
issued to each of the Company's Secretary and
Treasurer. 1/2 of these shares vested on June 1, 1998,
and 1/2 vest on January 1, 1999. The remaining 50,000
shares were issued to consultants to the Company. The
Company also authorized the filing of a Post-Effective
Amendment to the Form S-8 Registration Statement
initially filed in February 1997 to register the resale
of the aforesaid shares and to reflect the increase (to
2,000,000) in the number of shares which may be issued
under the plan. In connection with such issuance, the
Company recorded compensation and consulting expense
amounting to $207,000 which is based on the average
closing bid price of $0.92 per share for the third
quarter of the Company's fiscal year, with a 10%
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.
c) Due to officer
On May 13, 1996, an unrelated party loaned the Company's
President $300,000 pursuant to a memorandum of understanding.
The loan bears interest at 1% above prime, and it was due 90
days from receipt of funds. Simultaneously therewith, the
Company's President loaned the Company the $300,000. As
collateral for the loan, 550,000 shares of the Company's
common stock owned by the President were put in an escrow
account. Upon the Company being listed on Nasdaq (July 25,
1996), the Company liquidated such loan by issuing 400,000
shares to such unrelated party pursuant to Regulation "S"
under the Securities Act of 1933, as amended (the "Act"). Such
shares were issued in September 1996. The shares issued as
consideration for the repayment of such loan were valued at
the average closing bid price on the date the transaction was
commenced, or $400,000. Accordingly, the Company recorded
financing expense amounting to $100,000 resulting in an
effective interest rate of approximately 100%.
d) Common stock issued to employees
In December 1996, the Company issued an aggregate of 114,617
shares to employees. In connection with the 114,617 shares
issued, the Company recorded compensation expense amounting to
$193,415 which is based upon 90% of the average closing bid
price of $1.875 per share for the month of December 1996.
e) Issuance of common stock in settlement of subsidiary's
accounts payable
In June 1997, in conjunction with NY's capitalization of
accounts payable, the Company issued 350,000 shares of common
stock to RSJJ in exchange for the 270,000 shares of NY common
stock issued to RSJJ in forgiveness of NY's accounts payable
to RSJJ. The shares issued to RSJJ in exchange of NY's shares
have been valued at the balance of the accounts payable of
$480,000 which exceeds the estimated market value of
approximately $417,500.
f) Issuance of common stock in prepayment of subsidiary's rent
In February 1998, 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 through December 31,
1998. The value of the shares issued by the Company is
recorded at the value of the rent otherwise due under the
lease ($240,000). Such shares' estimated market value on the
date of issuance ($1.06 per share) was $203,520.
NOTE 12 - ISSUANCE OF SUBSIDIARY STOCK
a) Initial Public Offering
In August 1995, the Company's subsidiary, NY, completed the
initial public offering of its stock at $5.00 per share and of
warrants at $.10 per share. NY issued 791,850 shares of its
common stock and 494,500 warrants to purchase one share of its
common stock for proceeds, net of offering costs, of
$3,104,880. As a result of the IPO, the Company's ownership of
NY decreased from 85.6% to 49.95%. The Company has recorded a
gain on sale of subsidiary stock of $817,650 after applying
the Company's ownership percentage to NY's stockholders'
equity both before and after the IPO. Deferred tax liabilities
arising from this transaction will be aggregated with other
deferred tax liabilities and assets of the Company.
b) Special Warrant
In conjunction with NY's IPO, the Company was issued a
"Special Warrant" that enabled the Company to maintain its
majority ownership of NY. Such Special Warrant authorized the
Company to purchase shares of NY's common stock at an exercise
price of one-half of the initial public offering price of
$5.00 per share, or $2.50 per share, only if the Company's
ownership of NY decreased below 50%. Such exercise was limited
in quantity to sufficient shares such that the Company's
ownership of NY upon exercise would not exceed 50.1%. At the
time of issuance, the only measurable value which could have
been assigned would have been computed based upon the
underwriter's over-allotment option. Had the over-allotment
option been exercised in its entirety, the value assigned to
the warrant (computed as the difference between its exercise
price and the IPO price) would have been $47,170. Such amount
is immaterial and any such exercise of the warrant was
speculative, and as such, no amount could reasonably be
computed for its value at the time of issuance or of its
future exercise, therefore, no value has been assigned to such
Special Warrant. As result of the IPO, and the underwriter's
exercise of over-allotment provisions, the Company's ownership
was reduced to 49.95%. The Company exercised its Special
Warrant to purchase 5,665 shares of NY's common stock
increasing its ownership of NY to 50.1%. Such investment has
been eliminated in consolidation. In connection with the
exercise of such special warrant, the Company recorded a
$14,921 gain on the sale of subsidiary stock after applying
the Company's ownership percentage to NY's stockholders'
equity both before and after the exercise.
c) Senior Management Incentive Plan
In February 1997, pursuant to a Form S-8 Registration
Statement filed with the Securities and Exchange Commission,
NY, registered 125,000 common shares underlying options to
NY's President pursuant to the NY Senior Management Incentive
Plan. The options were granted December 2, 1996 and were
exercisable at $1.10 per share (110% of the bid price of $1.00
per share on November 27, 1996) and expire on November 27,
2001. These options were exercised on March 25, 1997 resulting
in NY issuing 125,000 shares of common stock.
d) Issuance of shares in settlement
In June 1997, pursuant to an agreement with R.S.J.J. Realty
Corp. ("RSJJ," a company wholly-owned by the Company's
President) to settle $480,000 in accrued rent, NY issued
270,000 shares of its common stock to the Company, for the
cancellation of the debt owed to RSJJ. The Company, in turn,
issued 200,000 shares of its common stock to Joseph Polito and
150,000 shares of common stock to RSJJ. RSJJ then transferred
all of such shares to RSJJ's mortgagor, which agreed to accept
said shares as payment of RSJJ's outstanding mortgage. These
shares were then transferred to the Company by RSJJ in
exchange for shares of the Company's common stock (see Note
10(e)). These shares have been recorded at the balance of the
accounts payable of $480,000. The estimated market value at
the date of issuance of $1.75 per share is $472,500.
e) Issuance of common stock
i) In February 1998, 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
through December 31, 1998. The value of the shares issued
by NY is recorded at the value of the rent otherwise due
under the lease ($240,000). Such shares' estimated market
value on the date of issuance ($2.12 per share) was
$226,134.
ii) In December 1997, NY authorized the issuance, in its third
fiscal quarter, of 290,000 shares of Common Stock,
pursuant to the Management Plan, to its management. Of the
290,000 shares issued in March 1998 to management, 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: 1/2
of these shares vested on June 1, 1998, and 1/2 vest on
January 1, 1999. NY also authorized the filing of a
Post-Effective Amendment to the Form S-8 Registration
Statement initially filed in February 1997 to register for
resale the 290,000 shares issued pursuant to the
Management Plan. In addition to the foregoing, NY also
authorized the issuance of 50,000 shares to certain of its
employees and consultants. In connection with these
issuances, NY recorded compensation and consulting expense
amounting to approximately $459,000 which is based on the
average closing bid price of $1.50 per share for the month
of March 1998, with a 10% discount due to the restricted
nature of the stock. The above shares which do not vest
immediately were recorded as deferred compensation and are
being amortized over the vesting period.
NOTE 13 - COMMITMENT AND CONTINGENCIES
a) Disclosure of significant estimates - revenue recognition
NY 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) Leases
NY leases its administrative offices pursuant to a signed
lease agreement with RSJJ, an entity wholly-owned by the
Company's President, which lease requires monthly payments of
$20,000. This lease 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 settled the rent for the period January 1 through December
31, 1998 by issuance of stock valued at $226,134 as compared
to the $240,000 in rent due pursuant to the lease agreement.
Accordingly, included in selling, general, and administrative
expenses is rent expense which amounted to $180,000 and
$180,000 for the nine months ended March 31, 1998 and 1997,
respectively, and $240,000 for each of the years ended June
30, 1997 and 1996. NY also leases a yard for storage material
pursuant to an oral agreement which requires monthly payments
of $3,500. As of March 31, 1998 and June 30, 1997, $98,000 and
$66,500, respectively, of yard rent remains unpaid and is
included in accounts payable.
c) Significant customers and vendors
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 years ended June 30, 1997 and 1996, the Company had
three and two unrelated customers respectively, which
accounted for approximately 53%, 19%, and 15%; and 22% and
28%, 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, NY 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 or
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 sufficiently obtain 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 City agency projects as a result of its inability to
obtain bonding from a New York licensed bonding company.
f) 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 March
31, 1998, additional mechanic's liens had been 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. The liens filed also
include claims, interest, and other costs not included in
revenue or contracts and retainage receivables. Based upon the
assessment of management and legal counsel, the Company has
recorded an allowance for doubtful account to adjust the
receivables to their estimated realizable amount.
g) Payroll taxes
As of March 31, 1998 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 March 31, 1998, NY and MD have not entered into
any formal repayment agreements with the respective tax
authorities, it has been making payments based on oral
agreements.
h) Legal proceedings
The Company is a party to various claims and legal proceedings
incidental to its business. While the amounts claimed may be
substantial, the ultimate liability cannot now be determined
because of the considerable uncertainties that exist with
respect thereto. Accordingly, it is possible that results of
operations or liquidity in a particular period could be
materially affected by certain contingencies. However, based
on facts currently available, management believes that the
disposition of matters that are pending or asserted will not
have a materially adverse effect on the financial position of
the Company as a whole.
i) 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, and change orders in
dispute or unapproved.
NOTE 14 - RELATED PARTY TRANSACTIONS
a) Due to related parties
As of March 31, 1998 and June 30, 1997, the total due to
officers 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 related parties. These advances are
non-interest bearing and are due on demand. As of March 31,
1998 such advances amounted to $492,411.
c) Rental expense
Included in general and administrative expenses is rent
expense paid by NY pursuant to a signed lease agreement with
RSJJ. The lease expired March 31, 1998 but was extended
through and until December 31, 1998. Rent expense for the nine
months ended March 31, 1998 and 1997 amounted to $180,000 and
$180,000, respectively, and for each of the years ended June
30, 1997 and 1996 amounted to $240,000.
d) Purchase of material and labor
For the years ended June 30, 1997 and 1996, NY purchased from
Waldorf Steel Fabricators, Inc. ("Waldorf") approximately $0
and $180,333, respectively, of the materials and labor
necessary to perform steel erection services. Effective August
1, 1995, Waldorf ceased operations. Said vendor is under the
common control of the President of the Company. Lastly, for
the years ended June 30, 1997 and 1996, NY paid $371,321 and
$622,050, respectively, to Maryland for certain materials and
labor necessary to perform steel erection services. Maryland
is a wholly-owned subsidiary of the Company. Effective
September 1996, Maryland ceased operations.
e) Employment agreement
On April 4, 1995, NY entered into an employment agreement with
its President for a term of approximately three (3) years
expiring on June 30, 1998. The employment agreement provides
for an annual salary of $300,000 with a 10% annual escalation.
In addition, the President was granted options to purchase
25,000 shares of NY's common stock, all of which options are
vested and expire in April 2000. The exercise price of the
options is $5.50 per share. The foregoing options are intended
to qualify as incentive stock options.
NOTE 15 - EARNINGS PER SHARE
Effective July 1, 1996, the Company implemented SFAS No. 128
"Earnings Per Share" ("EPS"). The following is the
reconciliation of the numerators and denominators of the basic
and diluted EPS for the years ended June 30, 1997 and 1996 and
for the nine months ended March 31, 1998 and 1997:
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
For the nine months For the year
ended March 31, ended June 30,
Numerator: 1998 1997 1997 1996
--------- --------- --------- --------- -------
<S> <C> <C> <C> <C>
Net income (loss) $(405,545) $(779,394) $(875,238) $40,569
========== ========== ========= =======
Denominator:
Computation of basic EPS:
Weighted average common shares
outstanding 7,472,591 6,499,369 6,854,390 6,137,530
========= ========= ========= =========
Basic EPS (.05) (.12) (.13) .01
========= ========= ==== =========
Computation of diluted EPS:
Weighted average common
Shares outstanding 7,472,591 6,499,369 6,854,390 6,137,530
Potentially dilutive shares: -
Weighted average shares
issuable under options (A) (B) (B) (C)
Weighted average shares
outstanding & available 7,472,591 6,499,369 6,854,390 6,137,530
========= ========= ========= =========
Diluted EPS $ (.05) $ (.12) $(.13) $ .01
========= ========== ===== ==========
</TABLE>
(A) Shares issuable under options, were not included in the
computation of diluted EPS since the options' exercise
prices were greater than the average market price of the
common shares.
(B) In accordance with the provisions of SFAS No. 128, no
potential dilutive shares have been included in the
computation of diluted EPS as the Company has a loss from
continuing operations.
(C) No options were outstanding during this period.
<PAGE>
NOTE 16 - STOCK BASED COMPENSATION
A summary of the status of the Company's stock options
outstanding as of June 30, 1996 and 1997, and changes during
the years ending on those dates is as follows:
<TABLE>
<CAPTION>
1996 1997
----------------------- -------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Stock Options Shares Price Shares Price
------------- ---------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 0 N/A 0 $ N/A
Additional options granted 0 N/A 575,000 1.87
Options exercised 0 N/A (125,000) 1.925
---------- ----------- ---------------
Outstanding at end of year 0 450,000 $ 1.86
========== =========== ==============
Options exercisable at year end 0 450,000 $ 1.86
========== =========== ==============
Weighted average fair value
of options granted during the year $ 0 $ 1.37
========= ==============
</TABLE>
A summary of the status of NY's stock options outstanding as
of June 30, 1996 and 1997, and changes during the years ending
on those dates is as follows:
<TABLE>
<CAPTION>
1996 1997
----------------------- -------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Stock Options Shares Price Shares Price
------------- ---------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 25,000 $ 5.50 25,000 $ 5.50
Additional options granted 0 N/A 125,000 1.10
Options exercised 0 N/A (125,000) 1.10
---------- -------- ---------- ----------
Outstanding at end of year 25,000 $ 5.50 25,000 $ 5.50
========== ======== ========== ==========
Options exercisable at year end 7,500 $ 5.50 15,000 $ 5.50
========== ======== ========== ==========
Weighted average fair value
of options granted during the year $ 0 $ .78
======== ==========
</TABLE>
<PAGE>
NOTE 17 - DISCONTINUED OPERATIONS
On March 10, 1997, One Carnegie executed an agreement with its
mortgage holder whereby the property secured by the mortgage
and owned by One Carnegie and rented to Maryland, would be
transferred to the mortgage holder. As additional
consideration, One Carnegie executed a promissory note in the
amount of $150,000 naming the mortgage holder as payee. The
operations of One Carnegie have not been reported previously
as a separate segment as all of One Carnegie's revenue was
derived from MD; however, its assets, liabilities, and results
of operations are clearly distinguishable from the other
assets, liabilities, and results of operations of the Company,
and as such, the property and related accumulated
depreciation, accrued interest, and mortgage payable have been
recorded as assets and liabilities of discontinued operations.
The transaction was completed in August 1997, resulting in a
loss on disposal of $83,621. Expenses of One Carnegie included
depreciation, interest, and real estate taxes. All income is
eliminated in consolidation, resulting in losses from
discontinued operations prior to disposal.
NOTE 18 - SUBSEQUENT EVENTS
a) In 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 in NY's operating account.
b) On May 12, 1998, the Company executed a letter of intent
to sell all of its stock 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 common stock. The aforesaid transactions
are contingent upon approval by the Boards of Directors
and Stockholders of these companies as well as
consummation of a ninety-day due diligence, contract
drafting, and auditing process. The transactions are 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 the ninety-day period. Many of the
aforesaid conditions have not been met and cannot
reasonably be expected to be met before the end of the
ninety day period. In addition, FAS has not demonstrated
to the Company the financial resources necessary to
complete this transaction. Based on the preceding, the
consummation of the letter of intent cannot be said to be
probable and as a result, no proforma financial
information is required to be presented. NY's operations
currently constitute substantially all of the Company's
operations, and the sale of NY will result in the Company
retaining interests in subsidiaries with only minimal
historical operations.
c) The Company is one of thirteen corporate defendants, as
are One Carnegie and NY, in a proposed settlement
regarding the State Insurance Fund. The consummation of
the proposed settlement is not probable as numerous
material provisions of the proposal cannot presently be
resolved. Additionally, the allocation of the proposed
$750,000 among the corporations involved has not been
addressed. NY has accrued approximately $85,000 in
relation to this matter which exceeds its 1/19 pro rata
share in the proposed $750,000 settlement.
<PAGE>
USABG CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED
USABG CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED
<PAGE>
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY STATE TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH AN OFFER. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION STATED IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
PROSPECTUS SUMMARY
RISK FACTORS
DIVIDEND POLICY
USE OF PROCEEDS
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
MANAGEMENTS DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT
BUSINESS
PRINCIPAL SECURITYHOLDERS
SELLING SECURITYHOLDERS
DESCRIPTION OF
SECURITIES
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEGAL OPINIONS
EXPERTS
AVAILABLE INFORMATION
INDEX TO FINANCIAL STATEMENTS F-0
<PAGE>
II-5
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
As permitted under the Delaware Corporation Law, the Company's
Certificate of Incorporation and By-laws provide for indemnification of a
Director or Officer under certain circumstances against reasonable expenses,
including attorneys fees, actually and necessarily incurred in connection with
the defense of an action brought against him by reason of his being a Director
or Officer. In addition, the Company's charter documents provide for the
elimination of Directors' liability to the Company or its shareholders for
monetary damages except in certain instances of bad faith, intentional
misconduct, a knowing violation of law or illegal personal gain.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Directors, Officers and controlling persons of
the Company pursuant to any charter, provision, by-law, contract, arrangement,
statute or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a Director, officer, or controlling person of the Company in the successful
defense of any such action, suit or proceeding) is asserted by such Director,
officer or controlling person of the Company in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 25. Other Expenses of Issuance and Distribution.
Registration Fee $ 273.66
Printing and Engraving $ 5,000 (1)
Legal Fees $ 25,000 (1)
Accounting $ 7,500 (1)
Nasdaq Filing Fees $ 6,500 (1)
Miscellaneous $ 5,726.34 (1)
Total $ 50,000 (1)
(1) Estimated.
Item 26. Recent Sales of Unregistered Securities.
On May 13, 1996, Joseph M. Polito, the Company's President, entered
into a memorandum of understanding with an individual, Lubov Ulianova, whereby
Mr. Polito borrowed $300,000 from Mr. Ulianova. The loan was secured by 550,000
shares of the Company's Common Stock owned by Mr. Polito, which shares were put
into an escrow account with Alan Berkun, Esq. as the escrow agent. The funds
were then loaned by Mr. Polito to the Company. The loan provided that upon the
Company's listing of its Common Stock on the Nasdaq SmallCap Market, 400,000
shares of Common Stock would be issued to Mr. Ulianova as repayment of the loan.
This transaction was an exempt transaction, in accordance with Regulation S
under the Act. In addition, Mr. Polito granted Mr. Ulianova an option to
purchase 600,000 shares of Company Common Stock at an exercise price of $1.50.
The option could only be exercised if the bid price for the Company's Common
Stock was at least $3.00. The Company's Common Stock was approved for listing on
Nasdaq on July 25, 1996, at which time the loan was repaid. The option expired
unexercised. These matters were reviewed for the Company by its special counsel
Mr. Berkun.
In December 1996, the Company issued bonuses of 100,000 shares of
Common Stock to Joseph M. Polito and 2,500 shares to each of Ronald and Steven
Polito pursuant to the Management Plan. In addition, 313 shares were issued to
Joseph M. Polito's wife. In connection with the aggregate 114,617 shares issued
to NY's employees and consultants, the Company recorded compensation expense
amounting to $193,415, which is based on 90% of the average closing bid price
for the month of December 1996.
On March 13, 1997, the Company issued 125,000 shares of Common Stock to
Joseph M. Polito upon exercise of options granted pursuant to the above
mentioned Management Plan. In February 1997, these shares were registered for
resale pursuant to a Form S-8 Registration Statement. Mr. Polito executed a
promissory note for the exercise price.
As of May 1997, the Company was in arrears in the amount of $480,000 in
payments due under its lease with RSJJ. This arrearage was converted into equity
as follows: NY issued 270,000 shares of its common stock to the Company, for the
cancellation of the debt owed to RSJJ. The Company, in turn, issued 200,000
shares of Common Stock to Joseph M. Polito and 150,000 shares of Common Stock to
RSJJ. RSJJ then transferred all of such shares to RSJJ's mortgagor, which agreed
to accept said shares as payment of RSJJ's outstanding mortgage.
In February 1998, the Company sold $450,000 in 8% Convertible
Debentures and Warrants in a Private Placement Offering (the "Offering"). The
Debentures and Warrants, as well as the Common Stock underlying same, were
issued in a private transaction, exempt from the registration requirements of
the Act in accordance with ss. 4(2) thereof.
In February 1998, the Company agreed to issue 192,000 shares of Common
Stock to RSJJ in exchange for 106,667 shares of NY's Common Stock. These
issuances were made in accordance with an agreement between NY and RSJJ pursuant
to which NY remitted $240,000 in lease payments (in stock, via the aforesaid
issuance of the Company's stock to RSJJ) for the January 1 through December 31,
1998 extended lease term. The shares were issued in a private transactions,
exempt from the registration requirements of the Act in accordance with ss. 4(2)
of the Act. The value of the Company's shares issued will be recorded at their
estimated market value at the date of issuance ($1.06 per share), with a 50%
discount due to the restricted nature of the stock. The value of the Company's
and NY's shares issued was recorded at the value of the rent otherwise due under
the lease ($240,000). The stock was issued in March 1998.
In March 1998, the Company issued bonuses of 150,000 shares of Common
Stock to Joseph M. Polito and 25,000 shares to each of Ronald Polito and Steven
Polito pursuant to the Management Plan.
<PAGE>
Item 27. Exhibits.
All exhibits, except those designated with an asterisk (*), which shall
be filed herewith, previously have been filed with the Commission in connection
with such documents as are incorporated by reference herein. Exhibits marked
(**) shall be filed by amendment.
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2.1 Agreement and Plan of Reorganization dated effective as of April 25, 1994 (incorporated by reference
herein to Form 10-K filed with the Commission for the fiscal year ended June 30, 1994).
3.1 Certificate of Incorporation of the Company filed June 15, 1994.
3.2 By-Laws of the Company (incorporated herein by reference to Form 8- K, dated April 25, 1994).
4.1 Form of Special Warrant (incorporated herein by reference to Form 10- KSB for the fiscal year ended
June 30, 1995).
4.2 Form of Restricted Stock agreement issued to Joseph M. Polito (incorporated herein by reference to
Form 10-KSB for the fiscal year ended June 30, 1995).
4.3 Form of 8% Convertible Debenture issued in 1998 Private Placement.
4.4 Form of Common Stock Purchase Warrant issued in 1998 Private Placement.
5.0 Opinion of Counsel
10.1 Lease Agreement between One Carnegie Court Associates and Waldorf Steel Fabrications, Inc., dated
March 27, 1990 (incorporated herein by reference to Form 8-K, dated April 25, 1994).
10.2 Promissory note from the Company to Trinity Industries, Inc.
10.3 Forbearance Agreement between the Company and Trinity Industries, Inc., dated October 14, 1993
(incorporated herein by reference to Form 8-K, dated April 25, 1994).
10.4 Lease Agreement between R.S.J.J. Realty Corp. and NY, dated June 30, 1993 (incorporated herein by
reference to Form 8-K, dated April 25, 1994).
10.5 Employment Agreement of Joseph M. Polito (incorporated herein by reference to Form 10-KSB for the
fiscal year ended June 30, 1995).
10.6 The Company's Senior Management Incentive Plan (incorporated herein by reference to the Company's
proxy statement dated December 2, 1996).
10.7 The Company's Employee Stock Option Plan (incorporated herein by reference to the Company's proxy
statement dated December 2, 1996).
10.8 Agreement between Iron Workers Local Union 40 and NY (incorporated herein by reference to Form
10-KSB for the fiscal year ended June 30, 1995).
10.9 Agreement between Local Union 14, 14B, 15, 15A, 15C, 15D, International Union of Operating
Engineers, AFL-CIO and NY (incorporated herein by reference to Form 10-KSB for the fiscal year ended
June 30, 1995).
10.10 Agreement between Local 780 and NY (incorporated herein by reference to Form 10-KSB for the fiscal
year ended June 30, 1995).
10.11 Agreement to capitalize the $400,000 of debt (incorporated herein by reference to Form 10-KSB for
the fiscal year ended June 30, 1995).
10.12 Consulting Agreement with Marlowe and Company (incorporated by reference herein to Form S-8, dated
June 4, 1995).
10.13 Lease surrender agreement between One Carnegie and Waldorf dated August 1, 1995 (incorporated herein
by reference to Form 10-KSB/A for the fiscal year ended June 30, 1995).
10.14 Lease Agreement between One Carnegie and U.S. Bridge Corp. (Maryland), dated August 1, 1995
(incorporated herein by reference to Form 10-KSB/A for the fiscal year ended June 30, 1995).
10.15 Form of Subscription Agreement for 1998 Private Placement
10.16 Form of Registration Rights Agreement for 1998 Private Placement
21.1 List of Subsidiaries
23.1* Consent of Scarano & Tomaro, P.C.
23.2 Consent of Klarman & Associates is included in Exhibit 5.0.
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Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a Post-Effective Amendment to this Registration Statement:
(i) To include any prospectus required by ss. 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
Post-Effective Amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement, including
but not limited to any addition or deletion of a managing Underwriter.
(2) That, for the purpose of determining any liability under the Act,
each such Post-Effective Amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the Offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of Post-Effective Amendment
any of the securities being registered which remain unsold at the termination of
the Offering.
(4) That, for the purpose of determining any liability under the Act,
each such Post-Effective Amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement, certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, Officers and controlling persons of the Company,
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a Director, Officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
Director, Officer or controlling person in connection with the Securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue by such court. See Item 24.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
the Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Corona, New York on the 5th day of August 1998.
USABG CORP.
By: /s/ Joseph M. Polito
--------------------
Joseph M. Polito,
President
Pursuant to the requirements of the Securities Act of 1933 as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
/s/ Joseph M. Polito President and Director 08/0598
- --------------------
Joseph M. Polito (Chief Executive Officer) Date
/s/ Ronald J. Polito Secretary and Director 08/05/98
- --------------------
Ronald J. Polito Date
/s/ Steven J. Polito Treasurer and Director 08/05/98
- --------------------
Steven J. Polito Date
/s/ Marvin Weinstein Director 08/05/98
- --------------------
Marvin Weinstein Date
/s/ Ronald Murphy Director 08/05/98
- -----------------
Ronald Murphy Date
Exhibit 23.1
Consent of Scarano & Tomaro, P.C.
USABG Corp.
53-09 97th Place
Corona, NY 11368
As independent certified public accountants, we hereby consent to the use of our
name "as experts," in the "Summary Financial Data" section and the use of our
opinion dated October 4, 1997 for USABG Corp. to be included in the Amendment
No. 4 to Form SB-2 Registration Statement being filed for USABG Corp.
/s/ Scarano & Tomaro, P.C.
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Scarano & Tomaro, P.C.
Syosset, New York
August 4, 1998
