SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number O-26262
U.S. BRIDGE OF N.Y., INC.
(Exact name of registrant as specified in its charter)
New York 11-3032277
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
53-09 97th Place, Corona, New York 11368
(Address of Principal Executive Offices) (Zip Code)
(718) 699-0100
(Registrant's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock, $.001 par value
(Title of Class)
Common Stock Purchase Warrants
(Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if no disclosure of delinquent filers in response Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ ].
The aggregate market value of the voting stock on September 30, 1997
(consisting of Common Stock, $.001 par value per share) held by non-affiliates
was approximately $2,590,336 based upon the average closing bid and asked prices
for such Common Stock on said date ($2.56), as reported by a market maker. On
such date, there were 2,302,515 shares of Registrant's Common Stock outstanding.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
History
U.S. Bridge of N.Y., Inc. ("the Company") was incorporated in the State
of New York on September 4, 1990, as Metro Steel Structures, Ltd. The Company
amended its Certificate of Incorporation to effect a change in its name to its
current name on January 10, 1995. Additionally, the Company amended the
authorized capital of the Company (i) to increase the number of authorized
shares of Common Stock from 200 to 10,000,000; (ii) to increase the par value
from no par value to $.001 par value per share; and (iii) to authorize 500,000
shares of Preferred Stock, par value $.01 per share. Also as of such date, the
Company effected a 29,687.50 for one forward split of its Common Stock, pursuant
to which there became 950,000 shares of Common Stock outstanding.
Pursuant to an agreement and plan of merger by and between the Company
and U.S. Bridge Corp. ("Corp.") effective as of April 25, 1994, Corp. issued an
aggregate of 3,540,000 shares of its common stock to the sole stockholder of the
Company, Joseph Polito, whereby Mr. Polito received 2,820,000 shares for all the
shares of the Company and 720,000 shares for all the shares of common stock of
One Carnegie. The "Acquisitions" were accounted for as a "recapitalization" of
Corp. Accordingly, both the Company and One Carnegie became wholly owned
subsidiaries of Corp., of which company Joseph Polito became an 80% shareholder,
which decreased to 75.4% upon the completion of the Company's initial public
offering in August 1995.
Immediately prior to the acquisition of the Company by Corp., the
Company completed a private placement offering of its Common Stock, whereby the
Company sold an aggregate of 148,200 shares (post stock split) of its Common
Stock. The Company received net proceeds of $502,594 after the deduction of
offering expenses of $47,406.
Pursuant to the terms of the acquisition, each subscriber in the
private placement exchanged each share of the Company held prior to the
acquisition for 20,000 post reverse split shares of common shares purchased in
the private placement in a Registration Statement under the Securities Act of
1933, as amended (the "Act"), one time only, upon demand by any of the investors
in the private placement, after June 30, 1995.
The Company 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 New York State and
Metropolitan areas. Previously, through other entities, Mr. Polito furnished and
provided steel erection as a subcontractor for private and governmental
construction projects. Since its commencement of operations in June 1993, the
Company 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 September 30, 1997, the Company has
completed in excess of eighteen (18) projects with an aggregate project value of
$22,768,614 and is currently engaged in four (4) projects with an aggregate
value of approximately $19,998,040. The Company plans to maintain its
subcontractor presence in the steel industry; however, now that it has obtained
general contractor bonding, it intends to focus on obtaining projects as a
general contractor.
<PAGE>
Though formed to operate as a general contractor, the Company operated
initially only as a subcontractor. The Company's goals were to become a general
contractor for municipal projects; however, it needed financing to enable it to
obtain bonding, which is required for all municipal projects.
On June 15, 1993, the Company purchased, from Atlas Gem Erectors Co.,
Inc. ("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 projects. Upon its sale of these contracts to the Company and
its completion of its final project in September 1994, Atlas Gem ceased
operations. The Company 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 Mr. Polito as officer, director, and principal stockholder -
were engaging in similar, but different work.
Thereafter, the Company was notified that it was the low bidder on
several New York City projects; however, its then bonding was not accepted by
the municipality, so the Company lost the jobs. Its 1995 public offering was a
means by which the Company could raise the funds necessary to maintain cash flow
and obtain a bonding company.
Recent Developments
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. The Company
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.
In March 1995, the Company entered into a subcontracting agreement with
McKay Enterprises, Inc. (general contractor) for the reconstruction of the 4th
Avenue Bridge, located in Brooklyn, New York, owned by the New York City
Department of Transportation. Work on the project has been completed.
In April 1996, the Company entered a subcontracting agreement with
Trataros Construction, Inc. ("Trataros," general contractor) for the performance
of structural and water intrusion repairs of the Williamsburg Houses owned by
the New York City Housing Authority ("NYCHA"). This contract has been placed on
hold for a considerable period of time due to contract scope changes and/or
other issues between parties not involving the Company. The Company does not
expect to return to this project and thus deems same to be completed.
In May 1996, the Company entered a subcontracting agreement with Lehrer
McGovern Bovis, Inc. (general contractor) for the terminal restoration of the
Grand Central Terminal owned by Metro-North Commuter Railroad. The contract is
valued at $3,706,653 and as of September 30, 1997 is approximately 69% complete.
In June 1996, the Company entered a prime contracting agreement with
Ecklec Co., the owner of the Palisades Power Mall located in West Nyack, New
York, to perform structural steel
<PAGE>
erection services. The estimated aggregate value of the contract is $10,373,552.
The mall is estimated to be approximately 3,900,000 square feet upon completion.
The project is to be performed in two phases. The Company commenced work on
Phase I in June 1996. As of September 30, 1997, the project is 79% complete.
In July 1996, the Company entered into a prime contracting agreement
with Tishman Construction Corporation of New York (construction manager) to
perform steel erection services on the Louis Vuitton Office Tower owned by
Starre Realty and located on East 57th Street in New York, New York.
Commencement of the project was delayed due to conflict not involving the
Company, which conflict since has been resolved. The Company expects to
recommence work on this project by the end of calendar 1997. In or about
December 1996, the Company obtained confirmation of United Casualty and Surety
Insurance Company's willingness to issue a performance bond for the Company as
general contractor of this project; however, the construction manager
subsequently waived its bond requirement. As of September 30, 1997, the project
was 67% complete.
In October 1996, the Company entered into a subcontracting agreement
with Hannibal Construction Co., Inc. (general contractor) to provide certain
structural steel work for rehabilitation of the Hellgate Viaduct Structures,
located in Philadelphia, Pennsylvania, owned by the National Railroad Passenger
Corporation (AMTRAK). Work on the project has been completed.
In November 1996, the Company entered into a subcontracting agreement
with N.Y. Iron (general contractor) to provide structural steel work for the
Indonesian Mission owned by the United Nations. Work on the contract has been
completed.
In January 1997, the Company entered into a subcontracting agreement
with Humphreys & Harding, Inc. to perform certain structural steel erection work
for the Permanent Mission to the Republic of Korea, located in New York, New
York. The contract price is $1,500,000. As of September 30, 1997, work on the
project is 16% complete.
On June 19, 1997, the Company issued 270,000 shares of Common Stock to
Corp. which then issued 200,000 shares of its common stock to Mr. Polito and
150,000 shares of its common stock to J.L.B. Equities ("JLB"). These issuances
were made pursuant to an agreement between the Company and R.S.J.J. Realty Corp.
("RSJJ") to convert $480,000 of debt (due under the Company's lease agreement
with RSJJ) into equity. See "Item 12. Certain Relationships and Related
Transactions."
<PAGE>
The Company
The following table lists, as of June 30, 1997, (i) all companies in
which Joseph Polito is either an Officer, Director, or principal shareholder;
and (ii) the activities engaged in by such companies with the Company or any of
its subsidiaries:
<TABLE>
<CAPTION>
Year J. Polito's Activities with the Place of
Company Name(1) of Inc. Title Ownership(%) Company and NY Business
<S> <C> <C> <C> <C> <C>
U.S. Bridge Corp.(2) 1988 Pres./Director 61% Parent Company Queens, NY
One Carnegie Court 1990 Pres./Director 0% Subsidiary of Corp. Waldorf, MD
Associates, Inc. (3)(5)(6)
R.S.J.J. Realty Corp.(4) 1983 Pres./Director 100% Leases the office and Queens, NY
storage space to the
Company
Crown Crane, Inc.(4) 1988 -- 50% Supplies cranes to the Brooklyn,
Company for use in the NY
erection of steel
Atlas Gem Leasing, 1986 Pres./Director 100% Supplies welding Queens,
Inc. (4) machines and compressors NY
to the Company
Atlas Gem Erectors 1986 Pres./Director 100% Sold certain construction No office
Co., Inc. (4)(7) contracts to the Company;
ceased operations 9/94
Gem Steel Erectors 1966 Pres./Director 100% No business relationship; No office
Inc.(4)(8) ceased operations 3/91
Waldorf Steel 1990 Pres./Director 100% Provided steel to the Waldorf,
Fabricators, Inc.(3)(5) Company; ceased MD
operations in 8/95
U.S. Bridge Corp. 1994 Pres./Director 0% Subsidiary of Corp.; Queens,
(Maryland) (4)(9) ceased operations in 11/96 NY
U.S. Bridge of N.Y., 1990 Pres./Director 56.3% Provides steel erection Queens,
Inc. (4)(10) buildings, roadway, and NY
bridge repair projects
</TABLE>
(1) Except as disclosed hereunder, no company listed is beneficially owned
by another entity; nor does any company have any subsidiaries. No company listed
has conducted any business operations under any name except for its corporate
name, except for Corp.. See "-History."
(2) Incorporated in the State of Delaware.
(3) Incorporated in the State of Maryland.
(4) Incorporated in the State of New York.
(5) One Carnegie owned the property, building, and equipment which it
leased to Waldorf Steel Fabricators, Inc. ("Waldorf") prior to August 1, 1995,
as of which date it began leasing to U.S. Bridge Corp. (Maryland) ("MD").
<PAGE>
(footnotes continued from previous page)
(6) Formed in December 1990, One Carnegie is a wholly-owned subsidiary of
Corp. Mr. Polito, through his ownership of approximately 61% of the outstanding
shares of Corp. may be deemed the beneficial owner of the shares of One Carnegie
owned by Corp.
(7) Ceased operations in September 1994.
(8) Ceased operations in March 1991.
(9) MD was incorporated in the state of Delaware on September 21, 1994 and
is a wholly-owned subsidiary of Corp. It was formed to provide labor for the
fabrication of steel by Waldorf, which it provided until August 1, 1995, when
Waldorf ceased operations.
(10) Mr. Polito, through his ownership of approximately 61% of the
outstanding shares of Corp. may be deemed the beneficial owner of the shares of
the Company owned by Corp.
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. The Company
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.
Schedule of Completed Contracts
<TABLE>
<CAPTION>
Project Name Contract Amount Contract Date Type of Contract
- ------------ --------------- ------------- ----------------
<S> <C> <C> <C>
Van Wyck $ 195,500 April 1992 Lump-Sum
39th Street Bridge 2,538,252 June 1993 Lump-Sum
39th Street (Demolition) 679,046 February 1993 Lump-Sum
New England Thruway 2,409,058 June 1993 Lump-Sum
Honeywell 1,100,000 June 1993 Joint Venture (1)
Kosciuszko Bridge 3,034,281 June 1993 Lump-Sum
Stillwell Avenue Bridge 8,084,655 June 1993 Lump-Sum
Cross Bronx Expressway 60,176 March 1994 Lump-Sum
Robert Moses Causeway 540,118 December 1994 Lump-Sum
4th Avenue Bridge 387,965 March 1995 Lump-Sum
201 East 80th Street 1,692,797 May 1995 Lump-Sum
Centereach 186,500 June 1995 Lump-Sum
Pro-Camera 50,275 August 1995 Lump-Sum
UDC 82,400 August 1995 Lump-Sum
Williamsburg Houses (2) 708,450 April 1996 Lump-Sum
South Avenue Plaza 274,045 May 1996 Lump-Sum
Hellgate Viaduct Structures 208,750 Oct. 1996 Lump-Sum
Indonesian Mission 348,000 Nov. 1996 Lump-Sum
Others(3) 188,346 N/A N/A
Total 22,768,614
</TABLE>
(1) Joint venture with John P. Picone, Inc. ("Picone"), whereby the Company
entered into a consulting agreement with Picone, who was awarded the project.
The agreement provided that for 50% of the profits of the project, the Company
would provide Picone with its expertise in steel erection, supply qualified
workers, and oversee the rehabilitation of the bridge. Picone put the Company's
employees on its payroll and incurred all the expenses of the project.
(2) 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 the
Company. The Company believes that it will not return to this project and thus
deems the project complete.
(3) Total estimated project value of a collection of smaller projects
completed.
<PAGE>
Inasmuch as the Company purchased steel from Waldorf and now from
Maryland, or leases equipment from Crown Crane, Ltd. or Atlas Gem Leasing, Inc.,
the Company shall check prices in the industry prior to engaging in any such
transactions and will transact business with such companies only on terms which
may be considered similar. The Board of Directors intends to exercise reasonable
judgment and take such steps as it deems necessary under all of the
circumstances in resolving 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
appropriate. The fact that Joseph Polito is an officer, director, and principal
shareholder in other companies, including those that transact business with the
Company, opens the potential that there may be conflicts of interest in
decisions made by Mr. Polito, which 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 "Item 1.
Description of Business-Suppliers and Subcontractors."
Industry Overview
1997 has brought about a resurrection in the construction industry in
the 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. The Company currently
is preparing subcontracting bids for some of the roadway projects in the
Metropolitan area.
These projects positively affect the availability of work in diverse
disciplines in the construction industry: landscaping, concrete, paving, steel,
etc. New York has qualified as a bidder (and expects to place a bid in November
1997) to handle a project for the JFK Airport, international arrivals building,
Korean Air and Lufthansa terminals.
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 has resulted
in the Korean Mission subcontracting project. 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.
Marketing
The Company obtains its projects primarily through the process of
competitive bidding. Accordingly, the Company's marketing efforts include the
following: (i) subscribing to bid reporting services; (ii) monitoring trade
journals including Engineering Record News, Dodge Report, and Brown's Letter,
Inc.; (iii) monitoring daily newspapers and real estate publications; (iv)
membership and networking in affiliated organizations including Allied Building
Trades; (v) maintaining contracts with developers and other general contractors;
and (vi) requesting notification from various government agencies as to bid
solicitations being requested.
<PAGE>
The Contract Process; Bidding
In response to bid requests, the Company 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.
The Company submits its bids after management performs a detailed review of
the project specifications, an internal review of the Company'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
the Company 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
the Company, while with a unit cost bid, the Company must estimate the per unit
cost, not the number of units needed. Any increase in the Company'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 the Company 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 the Company 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 the 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, the Company is generally
entitled to receive a small cancellation fee. Many of the Company's contracts
are also subject to completion requirements with liquidated damages assessed
against it if schedules are not met.
While Mr. Polito has been in the construction business for many years,
the Company has only recently started bidding on projects as a general
contractor, and the Company may incur unanticipated expenses, problems, or
difficulties which may affect its bid prices and project profitability. Though
the Company has been the low bidder on several public sector and private sector
bids, it has not commenced any Company public or private sector projects as a
general contractor. It has, however, commenced two projects as prime contractor.
The Company anticipates acting as a general contractor on most of the
projects it will undertake in the near future and will need to hire
subcontractors to perform certain jobs such as electrical and mechanical work,
though it shall continue also to bid as a subcontractor at the request of other
general contractors. As general contractor, the Company will be responsible for
the performance of the entire contract, including work assigned to
subcontractors. Accordingly, the Company is subject to liability associated with
<PAGE>
the failure of subcontractors to perform as required under the contract; thus,
the Company may require its subcontractors to furnish Performance Bonds.
Affirmative action regulations, however, require the Company to 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. In
response to bid requests, the Company submits a proposal detailing its
qualifications, the services to be provided and the cost of the services to the
soliciting entity which then, based on its evaluation of the proposals
submitted, awards the contract to the successful bidder. Generally, the contract
for a project is awarded to the lowest bidder, although other factors may be
taken into consideration.
The Company submits its bids after management performs a detailed review of
the project specification, an internal review of the Company'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, at the option of the customer requesting the bids, a unit cost bid
and a lump-sum bid. The unit cost bid is based upon a cost per unit basis, where
a lump sum bid obligates the Company to complete the project at a fixed price.
In a lump-sum bid the risk of estimating the quantity of units required for a
particular project is on the Company while in a unit cost bid the Company must
estimate the per unit cost, not the number of units needed. Any increase in the
Company'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 the Company and may adversely affect its results of
operations.
Upon receipt by a New York City agency that a bid submitted has been
declared the low bid, the city's procurement policy requires that the New York
Finance Committee approve all funds to be allocated to such project. During this
time the Company which was the low bidder must provide the Department of
Transportation with such documents as are required, including a payment and
performance 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 Department of Transportation has cleared all the 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 the Company is generally
entitled to receive a small cancellation fee. Many of the Company's contracts
are also subject to completion requirements with liquidated damages assessed
against it if schedules are not met.
While Mr. Polito has been in the construction business for many years,
the Company has only recently started bidding on projects as a general
contractor, and the Company may incur unanticipated expenses, problems, or
difficulties which may affect its bid prices and project profitability. Though
the Company has been the low bidder on several public sector and private sector
bids, it has not commenced any public or private sector projects as a general
contractor. It has, however, commenced two projects as a prime contractor.
The Company anticipates acting as a general contractor on most of the
projects it will undertake in the near future and will need to hire
subcontractors to perform certain jobs such as electrical and mechanical work,
though it shall continue also to bid as a subcontractor at the request of other
general contractors. As a general contractor, the Company will be responsible
for the performance of the entire contract, including work
<PAGE>
assigned to subcontractors. Accordingly, the Company is subject to liability
associated with the failure of subcontractors to perform as required under the
contract; thus, the Company may require its subcontractors to furnish
Performance Bonds. Affirmative action regulations, however, require the Company
to 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
The Company 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. The
Company carries liability insurance of $1,000,000 per occurrence which
management believes is adequate for its current operations.
Although the Company 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, the Company is serving as a subcontractor on two
projects. For the Ecklec Co. prime contracting project and the Grand Central
Terminal and Korean Mission subcontracting projects, the Company has been
required to provide, and has provided, Performance Bonds and Labor and Material
Bonds.
The Company 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, the
Company is generally entitled to receive a small cancellation fee. Many of the
Company's contracts are also subject to completion requirements with liquidated
damages assessed against it if schedules are not met. The Company has not been
materially adversely affected by these provisions in the past as a
subcontractor.
The Company'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 the Company is engaged, the
greater the bonding, net worth, and liquid working capital requirements. Surety
companies consider such factors in light of the amount of the Company's surety
bonds then outstanding and the surety companies' current underwriting standards,
which standards may change periodically. Therefore, the Company 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 the Company, which might have been declared and which would limit
corporate funds available for other purposes.
<PAGE>
In determining whether to issue a bond, surety companies perform credit checks
and other due diligence disclosure requirements and investigate the Company'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 Mr.
Polito.
Bonding requirements vary depending upon the nature of the project to
be performed. the Company 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, the Company 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 the Company's billing of its client.
In December 1996, the Company 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
will allow the Company to pursue those general contracting projects in the
public and private sectors which require performance bonds. To date, it has also
allowed the Company to obtain Performance Bonds and Labor and Material Bonds for
the three subcontracting projects which have required same: the Ecklec Co.,
Grand Central Terminal, and Korean Mission projects.
Work in Progress; Backlog and Seasonality
The following is a list, as of September 30, 1997, of those projects in
which the Company is currently engaged.
<TABLE>
<CAPTION>
Backlog
Contract Party/ Contract Amount at Type of % of job
Project Name Amount Contract Date 9/30/97 Contract Completed
<S> <C> <C> <C> <C> <C> <C>
Ecklec Co./
Palisades Power Mall(1) $10,373,552(2) June 1996 2,178,446 Lump-sum 79%(2)
Lehrer McGovern, Bovis, Inc./
Grand Central Terminal .......... 3,706,653 May 1996 1,169,449 Lump-sum 69%(2)
Tishman Construction Corp./
Louis Vuitton N.A.(1) ........... 4,417,835 July 1996 1,457,886 Lump-sum 67%(2)
Humphreys & Harding, Inc./
Korean Mission .................. 1,500,000 Jan. 1997 1,260,000 Lump-sum 16%(2)
Total Signed Contracts ............ 19,998,040 6,065,781
</TABLE>
(1) The Company is prime contractor (similar to general contractor) on this
project.
(2) Completion percentage is as of September30, 1997 and is based on the
percentage of costs incurred through that date to the estimated cost of the
project.
Though the Company does not believe its business is seasonal, its
operations slow during the winter months due to the decreased productivity of
the workers, thereby increasing costs as well as the inability to work in severe
weather conditions.
<PAGE>
Suppliers; Subcontractors; Unions
For the year ended June 30, 1997, the Company received approximately
43% of the fabricated steel it required from MD, a subsidiary of Corp. Queens
County Ironworks and New York Iron, Inc., neither of which companies is
affiliated with the Company or Corp., provided the remainder of the steel.
MD provided the Company with fabricated steel until November 1996, at which
time it ceased operating. The prices paid and the terms for the steel purchased
from MD were comparable to competitive prices and terms; therefore, in the event
MD is unable to continue to provide the Company with the bulk of the steel it
requires, the Company believes it will be able to acquire same through other
suppliers.
The Company 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. The Company rents cranes from Crown Crane, Ltd., a company of which
Mr. Polito is a 50% shareholder and rents generators and other equipment from
Atlas Gem Leasing, Inc., a company which is wholly owned by Mr. Polito. The
Company believes that there are a sufficient number of vendors, so that in the
event the Company individual or group of vendors can no longer service the
Company's needs, the Company will be able to find other vendors at competitive
prices.
As is standard practice in the construction industry, the Company'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.
The Company 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. The Company must comply with agreements with the unions, which agreements
regulate all employment issues - including pay, overtime, working conditions,
vacations, benefits, etc. - between the Company and the union employees. These
agreements expire on June 30, 1999.
The Company believes that it has a good relationship with the Unions
and is in compliance with all union agreements. No assurance can be given that
the Company will continue to be in compliance with the Unions or successfully
negotiate extensions to the Company'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 the Company's
operations.
The Company'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. Although the Company believes that it will be able to
attract subcontractors to bid on projects it bids as general contractor, there
can be no assurance that it will be able to do so. The Company will be
responsible for performance of the entire contract, including the work done by
subcontractors. Accordingly, the Company may be subject to substantial liability
if a subcontractor fails to perform as required. In addition, there may be
difficulties of which the Company is not aware, in hiring and overseeing
subcontractors.
Competition
All aspects of the Company's business are, and will continue to be,
highly competitive. The Company is one of many subcontractors which erect and
furnish steel for
<PAGE>
projects. Many of these subcontractors have substantially greater financial
resources and sales than those of the Company. 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.
As a general contractor, the Company 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 are bidding against
the Company, have been established. The Company is a subcontractor and a general
contractor specializing, but not exclusively, in bridge and roadway repair and
replacement as well and in furnishing and erecting steel structures for
buildings. the Company's competitors are numerous, and many have substantially
greater marketing, financial, bonding, and human resources.
Government Regulation
The Company 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. In addition, the
Company must also 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, or amendments to current
laws or regulations imposing more stringent requirements may have an adverse
effect on the Company's operations. The Company believes that it is in
substantial compliance with all applicable laws and regulations.
Employees
As of June 30, 1997, the Company had three executive officers, two
administrative assistants, one comptroller, one project estimator, and two
employees in the accounting department. The Company employs such number of union
employees, depending on the number and size of projects engaged in, ranging from
10-200 employees on a full-time and part-time basis. 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. The Company's contracts with these Unions,
which agreements regulate all employment issues between the Company and the
union employees including pay, overtime, working conditions, vacations,
benefits, etc., which agreements expire on June 30, 1999. The Company considers
relations with the unions and its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's office is located at 53-09 97th Place, Corona, New York
11368 and consists of approximately 25,000 square feet of executive office space
of which approximately 24,000 square feet is utilized for storage space. The
lease is with an affiliate company, RSJJ, which is owned by the Company's
president, Joseph Polito, pursuant to a lease agreement
<PAGE>
expiring in March 1998. The Company pays rent of $20,000 per month. The Company
also leases a yard for storage material pursuant to an oral agreement which
requires monthly payments of $3,500. The Company believes that the terms of this
lease are comparable and competitive with that which would have been negotiated
with an unaffiliated landlord.
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: the Company issued 270,000 shares of Common Stock to Corp., for the
cancellation of the debt owed, which in turn issued 200,000 shares of common
stock to Mr. Polito and 150,000 shares of common stock to RSJJ, the latter of
which then transferred all of its shares to JLB, RSJJ's mortgagor, which agreed
to accept same as payment toward RSJJ's outstanding mortgage.
ITEM 3. 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.
Three actions to foreclose upon mechanics liens were commenced by the
Company in the last fiscal year. The first action was commenced in New York
State Supreme Court, Kings County on February 25, 1997. The action names the
Company and Metro Steel Structures, Ltd. as plaintiffs and the Perini
Corporation, Metropolitan Transportation Authority, New York City Transportation
Authority, and Fidelity and Deposit Company of Maryland as defendants. The
Company's claim for relief in this action is $2,199,560. The 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 and
money due for "extra" work with regard to the rehabilitation of the Viaduct at
Stillwell Avenue Station of the Coney Island Line, in Brooklyn, New York. This
action is still in the discovery phase.
The second action was filed on February 26, 1997 in New York State
Supreme Court, Queens County. It names the Company, Metro Steel Structures,
Ltd., and McKay Enterprises, Inc. as plaintiffs and Perini Corporation,
Department of Transportation of the City of New York, and Fidelity and Deposit
Company of Maryland as defendants. The Company'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, in Queens, New York. This
action is still in the discovery phase.
On February 7,1997, Perini Corporation filed a related action against
the Company and Metro Steel Structures, Ltd. in New York State Supreme Court,
Kings County. Perini's claims against the Company total $1,140,560. The claims
are based upon alleged defective work at the Stillwell Avenue project and upon a
loss/profit agreement for both the Stillwell Avenue project and the 39th Street
Bridge project. The Company has counterclaimed for the amounts mentioned in
regards to the above two actions involving Perini Corporation and its
counterclaims are based upon the same theories.
<PAGE>
The Company filed its third action in the New York Supreme Court,
Suffolk County on or about May 13, 1997. The action names 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 as
defendants. The Company's claim for relief in this action is $279,346. 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 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 still in the discovery phase.
In August 1997, the Company entered into an agreement settling the
January 1997 trademark infringement claim made by The Ohio Bridge Corporation.
The Company has agreed to effect a name change to USA Bridge Construction of
N.Y., Inc. before the end of the 1997 calendar year.
In April 1995, the Company (then Metro Steel Structures, Ltd.)
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 the Company's workers'
compensation policy and to annul the rates, classifications, and premiums
assigned to the Company. This action claims that defendants audited the
Company's books for purposes of assigning the workers' compensation rates and
premiums to be assessed against the Company and thereafter (i) "arbitrarily and
capriciously and without any foundation in law or in fact" assigned to the
Company'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 the Company; (ii) improperly applied said premiums
retroactively; (iii) billed the Company for premiums which were improper and
excessive; and (iv) canceled the Company's workers' compensation policy upon the
Company's failure to tender payment in the improper and excessive amount
demanded by defendants.
The Company is prosecuting this action to the fullest extent possible.
On September 30, 1997, the Company and defendants were scheduled to appear
before the court for a conference in this matter. This matter was adjourned,
however, to October 28, 1997, pending settlement discussions.
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, the Company, Metro Steel Structures, Ltd. (now
known as the Company), One Carnegie Court Associates, and others 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. The claims against the Company, amounting to
approximately $3 million, are limited to a policy covering the period April 29,
1993 through December 1994. The Company, Messrs. Polito, and all other
defendants are defending against this action. The action is in the discovery
phase, and settlement negotiations are currently underway. In December 1995, the
Commissioners of the State Insurance fund filed a suit against the Company, the
Company, Joseph, Ronald and Steven Polito, individually and as Officers and
Directors, and others. The suit alleges that the defendants "fraudulently"
obtained worker's compensation insurance policies and failed to pay appropriate
premiums on the policies. The claims against the Company are limited to a policy
<PAGE>
covering the period April 29, 1993 through December 1994. The plaintiff claims
that the amount due under the policy is approximately three million dollars.
However, plaintiff admits that its claim is based upon estimates of what it
believes are the proper premiums. The Company vigorously disputes this claim and
asserts that the plaintiff's legitimate claims should not exceed three hundred
thousand dollars. A settlement conference was conducted on or about September
10, 1997. At the conference, plaintiff requested documentary evidence supporting
the Company's position. the Company has provided the documentation and is
currently waiting for a response to the allegations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of its security
holders during the quarter ending June 30, 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock and Warrants are currently quoted on the
Nasdaq National Stock Market. The following table sets forth representative high
and low sale price quotes as reported by a market maker, during the period from
August 9, 1995 through September 30, 1997. Price quotations reflect prices
between dealers, do not include resale mark-ups, mark-downs or other fees or
commissions.
<TABLE>
<CAPTION>
Common Stock Warrants
Calendar Period Low High Low High
1995
<S> <C> <C> <C> <C>
08/09/95 - 09/30/95 6 7/8 9 3/8 2 7/8 4
10/01/95 - 12/31/95 7 1/4 10 3/8 3 1/2 5 7/8
1996
01/01/96 - 03/31/96 9 3/4 10 1/2 5 1/4 6 1/2
04/01/96 - 06/30/96 9 1/2 10 7/8 5 1/4 6 5/8
07/01/96 - 09/30/96 1 10 3/4 3/16 6
10/01/96 - 12/31/96 1 1/8 2 1/16 3/32 13/32
1997
01/01/97 - 03/31/97 1 3/8 2 3/4 5/32 5/8
04/01/97 - 06/30/97 1 9/16 2 5/8 9/32 17/32
07/01/97 - 09/30/97 2 3/16 2 23/32 1/4 15/32
- -----------------------
</TABLE>
Each Warrant entitles the holders thereof to purchase one share of the
Company's Common Stock at an exercise price of $6.00 per share, respectively,
until August 8, 2000. The Warrants and the underlying shares of Common Stock are
in registered form, pursuant to the terms of a Warrant agreement between the
Company and North American Transfer Co., as warrant agent, so that the holders
of the Warrants will receive upon their exercise and payment therefor,
unrestricted shares of Common Stock.
<PAGE>
As of September 30, 1997, there were approximately 20 holders of record
of the Company's Common Stock, although the Company believes that there are
approximately 1200 additional beneficial owners of shares of Common Stock held
in street name. As of September 30, 1997, the number of shares of Common Stock
outstanding of the Company was 2,302,515.
The Company has paid no dividends and has no present plan to pay
dividends. Payment of future dividends will be determined from time to time by
its board of directors, based upon its future earnings (if any), financial
condition, capital requirements and other factors. The Company is not presently
subject to any contractual or similar restriction on its present or future
ability to pay such dividends.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
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.
The current asset, "costs and estimated earnings in excess of billings
on uncompleted contracts," represents costs and estimated earnings 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 costs and
estimated earnings on respective uncompleted contracts at the end of each
period.
The Company was formed by Joseph Polito, its President, to serve
primarily as a general contractor for public and private sector construction
projects. The public sector projects are sponsored by federal, state, and local
government authorities in New York State and the Metropolitan areas. Previously,
Mr. Polito, through other entities, has furnished and provided steel erection as
a subcontractor for private and governmental construction projects. Since its
commencement of operations in June 1993, the Company has provided steel erection
services for building, roadway, and bridge repair projects for general
contractors who have been engaged by private and municipal/governmental
customers. In the New York Metropolitan area, there is an abundance of
subcontractors known by the Company to have significant experience and which are
competitive with respect to pricing and level of service.
The Company's operations are substantially controlled by Mr. Polito since
he owns approximately 61% of the outstanding shares of Corp., the parent company
which owns approximately 53.2% of the Common Stock of the Company; hence, Mr.
Polito may be considered the beneficial owner of the Company. Mr. Polito is also
a 100% shareholder of RSJJ, the company which leases administrative office space
to the Company, at a cost of $20,000 per month, pursuant to a signed lease
agreement which expires on March 31, 1998. Mr. Polito also has ownership
interests in Waldorf (which ceased operations on August 1, 1995), Crown Crane,
Inc., and Atlas Gem Leasing, Inc. all of which companies provided services to
the Company for the years ended June 30, 1997, and 1996. During 1997 and 1996,
the Company purchased from MD, a wholly owned subsidiary of Corp., certain
materials and labor to perform steel erection service. For the years ended June
30, 1997 and 1996, purchases by the Company from MD amounted to $371,321 and
$622,050, respectively. MD ceased operations in November 1996; accordingly,
since then, the
<PAGE>
Company has purchased its steel from unrelated parties.
The Company plans to continue to undertake projects as a subcontractor
but will focus on obtaining projects, in both the public and private sectors, as
a general contractor. As general contractor, NY will be responsible for the
performance of the entire contract, including work assigned to subcontractors.
Accordingly, the Company 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. The Company
often requires bonding from a New York licensed bonding Company in order to bid
on projects as a general contractor.
Though the Company 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, the Company 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.
In order to obtain bonding, in addition to performing credit checks and
other due diligence disclosure requirements, bonding companies require the
Company receiving bonding to maintain certain amounts of capital and liquid
assets. These companies base the amount of bonding they will issue on a formula,
devised individually, which primarily takes into account such factors. In order
for the Company to obtain and maintain bonding, it must adhere to the
requirements stipulated in the bonding agreements, which agreements vary with
each bonding Company. The bonding costs for each bond are incorporated in the
contract price of each job. These costs are carried as a line item in the
billing statement and are paid by the customer. Any monies taken from working
capital for this purpose will be replaced as the monthly billing payments are
received from the customer. Bonding requirements vary depending upon the nature
of the projects to be performed. The Company anticipates paying a fee to bonding
companies of between 11/4% to 31/2% of the amount of the contracts to be
performed. Since these fees generally are payable at the beginning of a project,
the Company must maintain sufficient working capital to satisfy the fee prior to
commencing work on the project.
In December 1996, the Company obtained a bonding commitment for a surety
line of credit ($10,000,000 single project limit) from United American Guarantee
Company, Ltd. for its general contracting projects. The commitment allows the
Company to pursue those general contracting projects in the public and private
sectors which require performance bonds.
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 $15,455,699 and $7,091,396, respectively. This net increase of $8,364,303, or
approximately 118%, is a direct result of the Company's backlog as of June 30,
1996 which amounted to $17,943,400. This backlog amounts represents the
contracts the Company entered into during the latter part of its June 30, 1996
fiscal year. During the year ended June 30, 1997, the Company obtained new
contracts and additional change orders to previous contracts amounting to
approximately $3,600,347. Included in contract revenues
<PAGE>
are revenues from joint venture profit sharing agreements on certain projects.
Joint venture revenues for the year ended June 30, 1997 amounted to $0 as
compared to the year ended June 30, 1996 wherein same amounted to $200,000.
Accordingly, revenues for the year ended June 30, 1997 from the Company's core
business, construction contracts, increased by approximately $8,564,000 as
compared to the year ended June 30, 1996. As of June 30, 1997, the Company's
backlog amounted to approximately $6,100,000. 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 for which work has not yet
commenced. The Company's gross profit for the years ended June 30, 1997 and 1996
has remained constant between 27% and 28%.
For the years ended June 30, 1997 and 1996, the Company purchased from
Waldorf approximately $0 and $180,333, respectively, of the materials and labor
necessary to perform fabrication services. Effective August 1, 1995, Waldorf
ceased operations. Waldorf is under the common control of the Company's majority
stockholder and President. Lastly, for the years ended June 30, 1997 and 1996,
the Company paid $371,321 and $622,050, respectively, to MD for materials and
labor necessary to perform steel erection services. MD is a wholly owned
subsidiary of Corp. In November 1996, MD ceased operations, and the Company
began purchasing material and labor from unrelated third party steel
fabricators. At June 30, 1997, the Company owed MD $62,606, principally for
advances in connection with above services and such amounts are non-interest
bearing and due on demand.
General and administrative expenses have increased by $221,302, or 10%,
to $2,342,309 for the year ended June 30, 1997, from $2,121,007 for the year
ended June 30, 1996. The increase in general administration costs is mainly
attributable to an overall increase in the Company's administrative salaries
associated with the material amount increase in contract revenue and general
corporate overhead.
As of June 30, 1997, the Company increased its allowance for doubtful
accounts to $2,287,000 against its contract receivables. The bad debt expense
associated with the increase in allowance amounted to $1,287,000. The Company
increased its allowance for doubtful accounts based on a review of the factors
surrounding certain mechanic's liens filed for certain projects and an estimate
of the future income of other projects wherein no mechanic's liens have been
filed. In management's opinion, the allowance for doubtful accounts at June 30,
1997 will be sufficient to absorb any losses which may be sustained from a
settlement with this and other customers. For the years ended June 30, 1997 and
1996, the Company had three unrelated customers respectively, 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.
Liquidity and Capital Resources
Year ended June 30, 1997 as compared to the year ended June 30, 1996
At June 30, 1997, the Company's working capital amounted to $5,673,712.
The working capital increase is principally attributable to the Company's
contracts receivable. As of June 30, 1997, the Company's net contract receivable
amounted to $8,943,147,
<PAGE>
approximately $2,424,219, or 27%, of which has been collected through September
9, 1997.
Net cash provided by operating activities amounted to $58,821 for the
year ended June 30, 1997. The major component of such cash provision was
directly attributed to the Company's income which amounted to $387,340 and
increases in accounts receivable net of increases in its accounts payable,
payroll taxes payable, and accrued expenses. For the year ended June 30, 1996,
the net cash used for operating activities amounted to $2,122,223, which amount
is principally attributable to increases in accounts receivable and costs and
estimated earnings in excess of billings on uncompleted contracts.
With regards to financing activities, the Company provided $485,416 in
cash for the year ended June 30, 1997. Such cash was provided primarily by
advances from affiliates and officers.
As of June 30, 1997, the Company owes approximately $1,349,225 in
payroll taxes and related penalties and interest: 1,033,226 to the IRS and
315,999 to New York State. As of June 30, 1997, the Company has been making
monthly payments to the IRS pursuant to oral agreements negotiated with same.
On August 14, 1995, the Company successfully completed its public
offering. As a result, the Company sold 791,850 shares of Common Stock which
included 91,850 shares in connection with the exercise of the underwriter's
over-allotment options and 494,500 warrants which included 64,500 warrants
pursuant to the underwriter's over-allotment option. The Company yielded total
net proceeds of $2,077,903 after deducting the underwriter's selling expenses
and expense allowance, repayment of bridge loans and promissory notes and
related accrued interest to the bridge lenders and private investors, and the
pre-payment of the first two years' financial consulting agreement with the
underwriter. Simultaneously with the offering, the Company charged all deferred
offering costs incurred to additional paid-in capital which totaled $903,820.
Accordingly, the increase in financial activities amounting to $2,242,802 for
the year end June 30, 1996 was primarily from the Company's initial public
offering.
In June 1997, the Company and Corp. completed a transaction whereby
270,000 shares of Company Common Stock were issued to Corp. in exchange for
which Corp. issued 150,000 shares of its common stock to JLB (RSJJ's mortgagor)
and 200,000 shares to Mr. Polito (RSJJ's president) for the forgiveness of
$480,000 in rent debt due by the Company to RSJJ. As a result of this
transaction, Corp. increased its ownership in the Company to approximately
53.2%. The Company recorded a gain on the forgiveness of debt in the amount of
$243,750, the difference between the debt forgiven of $480,000 and the fair
market value of the stock of $1.75 per share with a 50%, or $236,260, discount.
In December 1994, the Board of Directors adopted the 1994 Senior
Management Incentive Plan ("the Management Plan"), which was adopted by
shareholder consent. The Management Plan provided for the issuance of up to
150,000 shares of the Company's Common Stock in connection with the issuance of
stock options and other stock purchase rights to executive officers and other
key employees. In December 1996, the Board of Directors authorized an amendment
to the Management Plan to increase the amount of shares available to 1,000,000.
<PAGE>
In February 1997, pursuant to a Form S-8 Registration Statement filed
with the Securities and Exchange Commission, the Company registered 125,000
shares of Common Stock underlying an option which was issued to Mr. Polito
pursuant to the Management Plan. The option, exercisable at $1.10 per share
(110% of the bid price on November 27, 1996), was exercised on March 25, 1997
and resulted in the issuance of 125,000 shares of Common Stock, of which 60,000
shares have been resold to date.
ITEM 7. FINANCIAL STATEMENTS
See attached Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Officers and Directors.
The names, ages, and positions of the Company's executive Officers and
Directors are as follows:
<TABLE>
<CAPTION>
Position with the
Name Age Company
<S> <C> <C>
Joseph M. Polito 63 President and Director
Ronald J. Polito 38 Secretary and Director
Steven J. Polito 35 Treasurer and Director
Philip Neilson 71 Director
Marvin Weinstein 66 Director
</TABLE>
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.
Joseph M. Polito has been the President and a Director of the Company since
its inception in 1990 and prior to April 1994 was the sole shareholder of the
Company. Mr. Polito has been the president and director of Corp. since April
1994. Mr. Polito oversees the running of all of the Company's operations. Since
December 1990, Mr. Polito has been the president and sole director and
shareholder of One Carnegie, a wholly owned subsidiary of Corp. Since 1988, Mr.
Polito has been a 50% shareholder of Crown Crane, Ltd., a
<PAGE>
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 1986, Mr. Polito has been the president and 100% shareholder of
Gem Steel Erectors, Inc. ("Gem Steel"). Since 1985, Mr. Polito has been the
president and sole shareholder of Atlas Gem, a company which, when it operated,
furnished and erected steel structures. Neither Atlas Gem nor Gem Steel has
transacted any business or other operations since ceasing operations in 1994 and
1991, respectively, and neither company has any present intention to resume
operations. 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-
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 of this
organization since the early 1990's.
Ronald J. Polito has been the Secretary and a Director of the Company since
its inception in 1990. From its inception in 1990 until March 1995, he was also
the treasurer of the Company. He has been the secretary and a director of Corp.
since April 1994. 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 1985, Mr. Polito has been the secretary of
Gem Steel. 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 was elected Treasurer of the Company in March 1995. He had
previously been a Project Manager and has been a Director of the Company since
its inception in 1990. 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. Mr. Polito has been treasurer of
Corp. since March 1995 and a Director of Corp. since April 1994. Since 1988, Mr.
Polito has been the treasurer of Gem Steel. Since 1988, Mr. Polito has been the
treasurer of One Carnegie, Waldorf, and RSJJ. From 1988 until April 1994, Mr.
Polito worked as a Project Manager of Atlas Gem, a company which furnished and
erected steel structures. He is the son of Mr. Joseph Polito.
Philip Neilson was elected Director of the Company in June 1995. Mr.
Neilson was the President and a principal shareholder of Adler & Neilson Co.,
Inc., a steel fabricating company, from 1951 to 1997. Currently, Mr. Neilson is
providing private consulting services in the field of steel fabricating. The
Company did not purchase any steel from Adler & Neilson Co., Inc.
<PAGE>
Marvin Weinstein was elected Director of the Company in June 1995. 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. The Company did not engage M.
Weinstein Associates to provide any consulting services to the Company.
Significant Employees
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 its
commencement of operations in 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 the Company in 1996 to provide
estimating expertise for Corp.'s general contracting and subcontracting bids.
Prior to joining the Company, 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 the New York Business Corporations 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 which 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.
Compliance with Section 16(a) of the Exchange Act
Management has failed to file the forms required by Section 16(a) of the
Securities Exchange Act of 1934, as amended, during the period covered by this
Report; however, management intends to file such forms immediately. In general,
Section 16(a) requires a Company's Officers, Directors, and persons who
beneficially own more than ten percent of a registered class of the Company's
equity securities to file reports of securities ownership and changes in such
ownership with the Securities and Exchange Commission ("SEC"). Officers,
Directors, and greater than ten percent beneficial owners also are required by
rules promulgated by the SEC to furnish the Company with copies of all Section
16(a) forms they file.
<PAGE>
ITEM 11. 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, the Company's Executive Officers, during the years ended June 30,
1997, 1996 and 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Name Restricted
and Principal Other Annual Stock Options/
Position Year Salary ($) Bonus ($) Compensation ($) Awards ($) (1) SARS (#)
- ------------------ ---- ---------- --------- ---------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Joseph Polito 1997 $330,000 - $ 68,642 - 125,000
President and 1996 300,000 - 111,911(2) - -
Director 1995 378,000 - 68,200(2) - 25,000
Ronald Polito 1997 $118,800 - $ 17,194 (3) - -
Secretary and 1996 125,000 - 15,144 (3) - -
Director 1995 121,000 - 21,200 (3) - -
Steven Polito 1997 $86,580 - $ 8,572 (4) - -
Treasurer and 1996 94,000 - 8,275 (4) - -
Director 1995 91,575 - 9,900 (4) - -
</TABLE>
(1) At the end of the fiscal year, Joseph Polito owned 65,000 shares of Common
Stock valued at $ 158,600. Ronald Polito and Steven Polito do not own any
Common Stock of the Company. The valuation is based on the closing price of
Common Stock ($2.44) on June 27, 1997 (the last day of the fiscal year in
which the stock traded), 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(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 the payment of an automobile lease of $7,920 and $7,549
for the years ended June 30, 1997 and 1996, respectively. See " -
Employment Agreements."
(3) Includes (i) payments on the lease of an automobile of $5,416, $5,416, and
$8,000, (ii) the payment of premiums on a term life insurance policy of
$8,510, $4,684, and $5,800, and (iii) a travel allowance of $3,268, $2,971,
and $7,400, for the years ended June 30, 1997, 1996 and 1995, respectively.
(4) Includes payment on a lease automobile of $5,304, $5,304, and $6,700 and a
travel allowance of $3,268, $2,971, and $3,200 for the years ended June 30,
1997, 1996 and 1995, respectively.
Stock Options
The following table sets forth certain information concerning the grant
of stock options made during the year ended June 30, 1997 under the
Corporation's 1994 Senior Management Incentive Plan.
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
====================================================================================================================================
Individual Grants
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total
# of Securities Options/SAR's
underlying Granted to
Options/SAR's Employees in Exercise or Base
Name Granted (1) Fiscal Year Price ($/SH) Expiration Date
---- ------------ ------------ ------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph M. Polito 125,000 100% $1.10 December 1, 2001
====================================================================================================================================
</TABLE>
- ------------------------
(1) Represents incentive stock options granted under the Corporation's 1994
Senior Management Incentive Plan (the "Management Plan"). Options granted under
this Management Plan are intended to qualify as incentive stock options under
the Internal Revenue Code of 1986, as amended. Under the terms of the Management
Plan, options may be granted to officers, key employees, directors and
consultants of the Corporation for a maximum term of 10 years. Options granted
to directors, who are not officers or employees, or to consultants, do not
qualify as incentive stock options. The option price per share may not be less
than the fair market value of the Corporation's shares on the date the option is
granted. However, options granted to persons owning more than 10% of the
Corporation's Common Stock may not have a term in excess of five years and may
not have an option price of less than 110% of the fair market value per share of
the Company's shares on the date the option is granted.
The following table contains information with respect to employees of
the Corporation concerning options held as of June 30, 1997.
<TABLE>
<CAPTION>
AGGREGATE OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
================================================================================================================================
(a) (b) (c) (d) (e)
- --------------------------------------------------------------------------------------------------------------------------------
Value of
Unexercised In-
Number of The-Money
Unexercised Options/SAR's
Options/SAR's at at FY-End($)
Shares Acquired Value FY- Exercisable/
Name on Realized($) (2) End (#) Unexercisable
---- --------------- -------------
Exercise (#) (1) Exercisable/ (3)
----------------- ---
Unexercisable
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joseph M. Polito 125,000 $100,000 15,000/10,000 0/0
================================================================================================================================
- ----------------------------
</TABLE>
(1) Joseph Polito subsequently sold 65,000 of the shares acquired on
exercise.
(2) Based on the closing price of Common Stock ($1.90) on March 25, 1997,
as reported by a market maker.
(3) Based on the closing price of Common Stock ($2.44) on June 27, 1997
(the last day of the fiscal year in which the stock traded), as reported by a
market maker. Since the Options are exercisable at $5.50, there is no value to
such options as of such date.
<PAGE>
Employment Agreement
Joseph Polito entered into an employment agreement with the Company
dated April 4, 1995, whereby Mr. Polito agreed to devote 80% of his business
time to the affairs of the Company. The agreement is for a term of approximately
three years expiring 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, 1996
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 stock options under the Company'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 the Company. The Company shall pay to Mr. Polito a
monthly draw of $10,000 against the bonus. Pursuant to the agreement the Company
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 the Company 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 the Company is terminated or there is a decrease in responsibilities or
duties following a change in control of the Company. 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 the Company, 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 the payment of premiums on life insurance policies of which they choose
their beneficiaries. Neither individual has entered into an employment agreement
with the Company.
1994 Senior Management Incentive Plan
In December, 1994, the board of directors adopted the 1994 Senior
Management Incentive Plan (the "Management Plan"), which was adopted by
shareholder consent. The Management Plan provided for the issuance of up to
150,000 shares of the Company's Common Stock in connection with the issuance of
stock options and other stock purchase rights to executive officers and other
key employees. In December, 1996, the board of directors authorized an amendment
the Management Plan to increase the amount of stock provided for to 1,000,000.
The amendment was adopted by shareholder consent.
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
Corporation; 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
<PAGE>
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-Presidents of
the Company) who perform services of special importance to the Company will be
eligible to receive compensation under the Management Plan. As of the date of
this Prospectus, the Company's officers and directors are Joseph Polito, Ronald
Polito, Steven Polito and Phillip Neilson, though the Plan also includes Messrs.
Bauer and Panayi. A total of 1,000,000 shares of Common Stock will be 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 four types of awards: stocks options, incentive stock rights, stock
appreciation rights (including limited stock appreciation rights) and Restricted
Stock purchase agreements (as described below).
<PAGE>
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 he
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 form the date of grant; ISOs granted to 10%
stockholders may be exercisable for a period of up to five years from he dated
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 $100,00. 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.
On December 2, 1996, the Company granted an option to purchase 125,000
shares at an exercise price of $1.10 per share pursuant to the Management Plan.
The shares were registered pursuant to a February 1997 S-8. On March 25, 1997,
Mr. Polito exercised the option. On April 11, 1997, Mr. Polito sold 60,000 of
these shares.
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
<PAGE>
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 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
<PAGE>
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 would 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 Sections 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
<PAGE>
Common Stock) for cash, securities or any other consideration pursuant to at
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.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information at September 17,
1997, based upon information obtained by the persons named below, with respect
to the beneficial ownership of shares of Common Stock by (i) each person known
by the Company to be the owner of 5% or more of the outstanding shares of Common
Stock; (ii) by each officer and director; (iii) and by all officers and
directors as a group.
<TABLE>
<CAPTION>
Percent of
Number of Common
Name Shares Stock Owned
- ---- --------- -----------
<S> <C> <C>
U.S. Bridge Corp.(1) 1,240,665 53.5%
53-09 97th Place
Corona, New York 11368
Joseph Polito (2) 1,305,665 56.3%
c\o U.S. Bridge Corp.
53-09 97th Place
Corona, New York 11368
Steven Polito - -
c\o U.S. Bridge Corp.
53-09 97th Place
Corona, New York 11368
Ronald Polito - -
c\o U.S. Bridge Corp.
53-09 97th Place
Corona, New York 11368
Philip Neilson - -
c\o U.S. Bridge Corp.
53-09 97th Place
Corona, New York 11368
Marvin Weinstein - -
c\o U.S. Bridge Corp.
53-09 97th Place
Corona, New York 11368
All officers and directors
as a group (5 persons) (2) 1,305,665 56.3%
</TABLE>
(1) Does not include the shares issuable upon the exercise of the Special
Warrant or the voting rights included in the shares of Series A Preferred Stock
issuable upon the happening of certain events. (2) Mr. Polito owns approximately
61% of the outstanding shares of Corp. and may be considered the beneficial
owner of the shares of the Company owned by Corp. Includes 15,000 shares
issuable upon the exercise of stock options granted to Mr. Polito which are
vested. Does not include (i) 10,000 shares issuable upon the exercise of options
not presently vested or (ii) 60,000 shares which were resold upon the exercise
of an option.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its administrative office space and certain storage
space from RSJJ, an affiliate owned by the Company's majority stockholder,
Joseph Polito. In accordance with a signed lease agreement which expires on
March 31, 1998 the Company pays rent in the amount of $20,000 per month. Mr.
Polito is the majority shareholder of the Company, he owns approximately 61% of
the outstanding shares of Corp. and therefore, may be deemed to control the
shares of the Company owned by Corp. which 1,225,665 or 52.89% of the
outstanding shares.
On October 11, 1995, the Company paid One Carnegie $50,000 on behalf of
MD for fabrication services performed by MD. Such payment was treated as an on
account payment by the Company to MD. From July 1995 to October 1995 the Company
paid MD approximately $183,000 for the labor associated with the fabrication of
steel.
On September 1, 1995, in conjunction with the underwriter of the
Company's public offering exercising its over-allotment option to purchase
91,850 additional shares of the Company's Common Stock, the Company exercised
its Special Warrant and purchased 5,665 shares of the Company's Common Stock at
$2.50 per share.
During the year ended June 30, 1996, the Company purchased from Waldorf
approximately $180,333 of fabricated steel. Such amount paid to Waldorf
represented approximately 18% of the steel purchased by the Company for the year
ended June 30, 1996. Waldorf is wholly owned by Joseph Polito.
During the years ended June 30, 1997 and 1996, the Company 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
Corp.
During the years ended June 30, 1997 and 1996, the Company paid $214,000
and $163,000, respectively, to Crowne Crane, Inc. for leasing of cranes
necessary to perform steel erection services. Mr. Polito owns 50% of Crowne
Crane, Inc.
During the year ended June 30, 1997, the Company paid $35,000 to Atlas Gem
Leasing, Inc. for certain machinery necessary to perform steel erection
services. Atlas Gem Leasing, Inc. is wholly owned by Mr. Polito.
On March 25, 1997, the Company issued 125,000 shares of Common Stock to
Mr. Polito upon exercise by Mr. Polito of an option to purchase 125,000 shares
at an exercise price of $1.10 per share, which option was granted under the
Company's Management Plan in December 1996. In February 1997, a Form S-8
Registration Statement was filed with the Securities and Exchange Commission,
registering the sale of these shares underlying the option. On April 11, 1997,
Mr. Polito sold 60,000 of these shares.
On June 19, 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: the Company
<PAGE>
issued 270,000 shares of Common Stock to Corp., for the cancellation of the debt
owed, which in turn issued 200,000 shares of Corp. common stock to Mr. Polito
and 150,000 shares of Corp. common stock to RSJJ, the latter of which then
transferred all of its shares to JLB, RSJJ's mortgagor, which agreed to accept
said shares as payment toward RSJJ's outstanding mortgage.
See "Item 10. Executive Compensation-Employment and Consulting
Agreements" for information regarding management's compensation.
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements of the Company are included as Part
II, Item 8:
Page
Independent Auditors Report ..... F-1
Balance Sheet ................... F-2
Statements of Operations ........ F-3
Statement of Stockholders' Equity F-4
Statements of cash flows ........ F-5
Notes of financial statements ... F-6 - F-15
(b) During the last quarter, the Company filed no reports on Form 8-K.
All exhibits, except those designated with an asterisk (*), which are to be
filed by amendment to this form, previously have been filed with the Commission
in connection with the Company's Registration Statement on Form SB-2, dated
August 9, 1995 under file No. 33- 89230-NY and pursuant to 17 C.F.R. ss.230.411,
are incorporated by reference herein.
<TABLE>
<CAPTION>
<S> <C>
3.1 - Certificate of Incorporation of the Company filed September 4, 1990.
3.2 - Certificate of Amendment to the Certificate of Incorporation of the
Company filed January 31, 1995.
3.3 - By-Laws of the Company.
3.3 - Specimen Common Stock Certificate.
4.1 - Specimen Redeemable Common Stock Warrant Certificate.
4.3 - Form of Redeemable Common Stock Warrant Agreement between the
Company and Continental Stock Transfer & Trust Company.
4.4 - Form of Special Warrant.
4.6 - U.S. Bridge Corp. note issued in January 1995.
4.7 - Form of Promissory Note sold in Private Placement in March 1995.
4.8 - Stock option and Agreement issued to Joseph Polito
10.2 - Stock Purchase Agreement between Corp. and the Company.
10.3 - Employment Agreement of Joseph Polito
10.4 - Lease Agreement between the Company and R.S.J.J. Realty Corp.
10.5 - The Company Incentive Stock Option Plan
10.6 - Agreement between Iron Workers Local Union 40 and the Company.
10.7 - Agreement between Local Union 14, 14B, 15, 15A, 15C, 15D,
International Union of Operating Engineers, AFL-CIO and the
<PAGE>
Company.
10.8 - Agreement between Local 780 and the Company.
10.9 - Subcontractor agreement between the Company and McKay
Enterprises, Inc., with respect to the reconstruction
of 4th Avenue Bridge.
10.10 - Subcontractor agreement between the Company and Perini Corporation,
with respect to the rehabilitation of Stillwell Avenue Station on Coney
Island.
10.11 - Subcontractor agreement between the Company and
Perini Corporation, with respect to the
rehabilitation of 39th Street Bridge over L.I.R.R.
10.12 - Subcontractor agreement between the Company and KISKA
Construction Corporation-USA, with respect to the rehabilitation of
Robert Mosses Causeway.
10.13 - Agreement between Atlas and the Company pursuant to the sale of
contracts.
10.14 - Promissory Note issued to First Bank of the Americas.
10.15 - Subcontractor agreement between the Company and McKay
Enterprises, Inc., with respect to the rehabilitation
of the Kosciuszko Bridge.
10.17 - Agreement to capitalize the $400,000 debt into 320,000 shares of U.S.
Bridge Corp.
10.18* - Subcontractor agreement between the Company and Trataros
Construction Inc. (the Williamsburg Houses project), dated April 11,
1996.
10.19* - Subcontractor agreement between the Company and Hannibal
Construction Co., Inc. ("the Hellgate Viaduct Structures project),
dated October 30, 1996.
10.20* - Subcontractor agreement between the Company and N.Y. Iron (the
Indonesian Mission project), dated November 6, 1996.
10.21* - Prime contractor agreement between the Company and Eklec Co. (the
Palisades Power Mall project), dated June 17, 1996.
10.22* - Subcontractor agreement between the Company and Lehrer
McGovern, Bovis, Inc. (the Louis Vuitton project), dated May 15,
1996.
10.23* - Prime contractor agreement between the Company and
Tishman Construction Corporation of New York, dated
July 24, 1996.
10.24* - Subcontractor agreement between the Company and Humphreys &
Harding, Inc. (the Korean Mission project), dated January 15 1997.
27.1* - Financial Data Schedule.
</TABLE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, this 10th day of October, 1997.
U.S. BRIDGE OF N.Y., INC.
\s\ Joseph M. Polito
Joseph M. Polito, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
\s\ Joseph M. Polito President and Director 10\10\97
Joseph M. Polito (Chief Executive Date
Officer)
\s\ Ronald J. Polito Secretary and Director 10\10\97
Ronald J. Polito Date
\s\ Steven J. Polito___ Treasurer 10\10\97
Steven J. Polito Date
\s\ Phillip Neilson___ Director 10\10\97
Phillip Neilson Date
\s\ Marvin Weinstein Director 10\10\97
Marvin Weinstein Date
</TABLE>
<PAGE>
U.S. BRIDGE OF N.Y., INC.
INDEX TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Independent auditors' report ........................ F-1
Balance sheet as of June 30, 1997 ................... F-2
Statements of operations for the years ended
June 30, 1997 and 1996 ............................. F-3
Statement of stockholders' equity for the years ended
June 30, 1997 and 1996 ............................. F-4
Statements of cash flows for the years ended
June 30, 1997 and 1996 ............................. F-5
Notes to financial statements ....................... F-6 - F-14
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of U.S. Bridge of N.Y., Inc.
We have audited the accompanying balance sheet of U.S. Bridge of N.Y., Inc.
("the Company") as of June 30, 1997 and the related statements of operations,
stockholders' equity and cash flows for the years ended June 30, 1997
F-1
<PAGE>
U.S. BRIDGE OF N.Y., INC.
BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash ...................................................... $ 554,025
Cash, restricted .......................................... 214,001
Contracts and retainage receivable, net ................... 8,943,147
Costs and estimated earnings in excess of billings
on uncompleted contracts ................................. 2,225,723
Deferred tax asset ........................................ 239,750
Other current assets ...................................... 80,727
-----------
Total current assets ................................. 12,257,373
Other assets .................................................. 21,445
-----------
Total assets .................................................. $12,278,818
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, including cash overdraft
of $119,658 .............................................. $ 3,392,317
Accrued expenses .......................................... 915,016
Payroll taxes payable ..................................... 1,349,225
Due to related parties .................................... 321,894
Income taxes payable ...................................... 507,379
Billings in excess of costs and estimated earnings
on uncompleted contracts ................................. 126,455
Total current liabilities ............................ 6,612,286
Commitments and contingencies (Note 9) ........................ --
Stockholders' equity:
Preferred stock $.01 par value, authorized 500,000 shares,
issued and outstanding -0- ............................... --
Common stock $.001 par value, authorized 10,000,000 shares,
issued and outstanding 2,302,515 ......................... 504,047
Additional paid in capital ................................ 4,459,906
Retained earnings ......................................... 702,579
-----------
Total stockholders' equity ........................... 5,666,532
-----------
Total liabilities and stockholders' equity .................... $12,278,818
===========
</TABLE>
See accompanying notes to the financial statements.
F-2
<PAGE>
U.S. BRIDGE OF N.Y., INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1997 1996
-------------- ----------
<S> <C> <C>
Contract revenue .................................. 15,455,699 $ 7,091,396
Cost of contract revenue .......................... 11,167,130 5,197,215
Gross profit ...................................... 4,288,569 1,894,181
Expenses:
General and administrative ..................... 2,342,309 2,121,007
Bad debt expense ............................... 1,287,000 1,019,127
Total expenses ............................. 3,629,309 3,140,134
Income (loss) from operations before other income
(expense) and provision (benefit) for income taxes 659,260 (1,245,953)
Other income (expenses):
Interest expense ............................... (43,341) (19,285)
Unusual item (Note 6) .......................... -- (441,863)
Gain on forgiveness of accounts payable ........ 243,750 --
Interest income ................................ 10,425 27,478
Total other (expenses) ..................... 210,834 (433,670)
Income (loss) before provision (benefit)
for income taxes ................................. 870,094 (1,679,623)
Provision (benefit) for income taxes .............. 267,629 (855,250)
Net income (loss) ................................. $ 602,465 $ (824,373)
Income (loss) per common equivalent share:
Income (loss) before provision (benefit)
for income taxes .............................. $ .44 $ (.93)
Provision (benefit) for income taxes ........... $ .14 $ (.47)
Net income (loss) .............................. $ .30 $ (.46)
Weighted average number of shares outstanding ..... 1,961,265 1,807,354
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
U.S. BRIDGE OF N.Y., INC.
STATEMENT OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Common
stock
Additional Total
paid in Retained stockholders
Shares Amount capital earnings equity
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1995 ......... 1,110,000 $ 502,854 $ 968,306 $ 924,487 $ 2,395,647
Issuance of common stock and
warrants from initial public
offering ........................ 791,850 792 4,007,908 -- 4,008,700
Cost associated with initial
public offering ................. -- -- (903,820) -- (903,820)
Issuance of shares in connection
with exercise of special warrants 5,665 6 14,157 -- 14,163
Net loss for the year
ended June 30, 1996 ............. -- -- -- (824,373) (824,373)
----------- ----------- ----------- ----------- -----------
Balances at June 30, 1996 ........ 1,907,515 503,652 4,086,551 100,114 4,690,317
Issuance of common shares
in connection with the exercise
of options ...................... 125,000 125 137,375 -- 137,500
Issuance of common stock
in connection with settlement
of related party debt ........... 270,000 270 235,980 -- 236,250
Net income for the year
ended June 30, 1997 ............. -- -- -- 602,465 602,465
----------- ----------- ----------- ----------- -----------
Balances at June 30, 1997 ........ 2,302,515 $ 504,047 $ 4,459,906 $ 702,579 $ 5,666,532
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
U.S. BRIDGE OF N.Y., INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) ................................... $ 602,465 $ (824,373)
Adjustments to reconcile net income (loss) to net
cash used for operating activities:
Amortization of financing costs ................. -- 441,863
Bad debt expense ................................ 1,287,000 1,019,127
Deferred income tax benefit ..................... (239,750) --
Gain on issuance of stock ....................... (243,750) --
Decrease (increase) in:
Contracts and retainage receivable ........... (6,789,756) (1,539,045)
Costs and estimated earnings in excess of
billings on uncompleted contracts .......... 207,801 (607,395)
Other current assets ......................... (20,415) (11,256)
Increase (decrease) in:
Accounts payable ............................. 2,946,778 381,199
Accrued expenses ............................. 629,622 (220,934)
Payroll taxes payable ........................ 1,061,559 77,274
Income taxes payable ......................... 507,379 (855,250)
Billings in excess of costs and estimated
earnings on uncompleted contracts ........... 109,888 16,567
----------- -----------
Net cash provided by (used for) operating activities ... 58,821 (2,122,223)
----------- -----------
Cash flows from financing activities:
Financing costs incurred ............................ (35,000) --
Proceeds from (repayments to) officers .............. 273,181 (5,963)
Proceeds from (repayments to) affiliates ............ 128,410 (19,784)
Proceeds from related parties ....................... 118,825 16,752
Proceeds from initial public offering and
exercise of special warrants net of costs .......... -- 3,222,597
Repayment of notes payable .......................... -- (972,000)
----------- -----------
Net cash provided by financing activities .............. 485,416 2,241,602
----------- -----------
Net increase in cash ................................... 544,237 119,379
Cash, beginning ........................................ 223,789 104,410
----------- -----------
Cash, ending ........................................... $ 768,026 $ 223,789
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid ....................................... $ 21,612 $ 11,342
=========== ===========
Taxes paid .......................................... $ 678 $ 704
=========== ===========
Issuance of 270,000 shares of common stock in connection
with settlement of related party debt ................. $ 236,250 $ --
=========== ===========
Issuance of 125,000 shares of common stock in connection
with exercise of options .............................. $ 137,500 $ --
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
U.S. BRIDGE OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
NOTE 1 - ORGANIZATION
U.S. Bridge of N.Y., Inc. ("the Company") is a New York
corporation which provides steel erection for building, roadway
and bridge repair projects for contractors who have been engaged
by private and municipal/governmental clients. During June 1996,
the Company began providing prime contracting (similar to general
contracting services). The Company was incorporated on September
4, 1990 and is a 53.23% owned subsidiary of U.S. Bridge Corp.
("Bridge Corp."). The Company's President is also the majority
stockholder 61% of Bridge Corp. and may be considered the
beneficial owner of the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) 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 the amounts
reported as 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.
b) Contracts and retainage receivable
Contracts receivable include receivables which represent
amounts billed but uncollected on completed construction
contracts and construction contracts in progress and unbilled
retainage on completed and in progress construction contacts.
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.
c) 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,
revision 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.
F-6
<PAGE>
U.S. BRIDGE OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
c) Revenue recognition
The current asset, "costs and estimated earnings in excess of
billings on uncompleted contracts", represents costs and
estimated earnings in excess of amounts billed on respective
uncompleted contracts at the end of each period.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
c) Revenue recognition (cont'd)
The current liability, "billings in excess of costs and
estimated earnings on uncompleted contracts," represents
billings which exceed costs and estimated earnings on
respective uncompleted contracts at the end of each period.
d) 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 six months or less to be cash
equivalents. The Company at June 30, 1997 maintains its cash
deposits in accounts which are in excess of federal deposit
insurance corporation limits by $244,625.
As of June 30, 1997, the Company maintains $214,001
of restricted cash securing a credit line from a financial
institution on behalf of US Bridge.
e) Earnings (loss) per common share
Earnings (loss) per common share for the year ended June 30,
1997 and 1996 are based upon the weighted average number of
common stock outstanding during the respective periods.
f) Income taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards 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.
g) Fair value disclosure as of June 30, 1997
The carrying value of cash, contract and retainage receivable,
accounts payable, and accrued expenses, and payroll taxes
payable are a reasonable estimate of their fair value.
F-7
<PAGE>
U.S. BRIDGE OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
h) Reclassifications
Certain reclassifications have been made to the June 30, 1996
financial statements in order to conform to the June 30, 1997
presentation.
i) Balance sheet classifications
The Company includes in current assets and liabilities
amounts receivable and payable under construction contracts
which may extend beyond one year. A one-year time period is
used as the basis for classifying all other current assets and
liabilities.
j) Impact of recently issued accounting standards
During 1995, SFAS No. 123, "Accounting for Stock-based
Compensation" was issued. The statement requires the fair value
of stock options and other stock-based compensation issued to
employees to be either included as compensation expense in the
income statement, or the pro-forma effect on net income and
earnings per share to be disclosed in the footnotes to the
financial statements commencing in 1996. The Company has elected
to adopt SFAS No. 123 effective July 1, 1995.
NOTE 3 - CONTRACTS AND RETAINAGE RECEIVABLE
At June 30, 1997, contract and retainage receivable consist of
the following:
Contracts in progress ................ $ 5,087,169
Completed contracts .................. 4,920,134
Unbilled retainage on completed and in
progress contracts .................. 1,222,844
11,230,147
Less: allowance for doubtful accounts (2,287,000)
$ 8,943,147
NOTE 4 - CONTRACTS IN PROGRESS
At June 30, 1997, costs and estimated earnings in excess of
billings and billings in excess of costs and estimated
earnings on uncompleted contracts consist of the following:
Costs incurred on uncompleted contracts $ 14,025,808
Profits earned to date ................ 4,190,473
------------
18,216,281
Less: billings to date ................ (16,117,013)
$ 2,099,268
Included in the accompanying balance sheet under the
following captions at June 30, 1997:
Costs and estimated earnings in excess of
billings on uncompleted contracts ...... $ 2,225,723
Billings in excess of costs and estimated
earnings on uncompleted contracts ...... (126,455)
F-8
<PAGE>
U.S. BRIDGE OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
NOTE 5 - BACKLOG
The following schedule summarizes changes in backlog on
contracts during the year ended June 30, 1997. Backlog
represents the amount of revenue the Company expects to
realize from work to be performed on uncompleted contracts in
progress at year end and from contractual agreements on which
work has not yet begun.
<TABLE>
<CAPTION>
<S> <C>
Backlog balance at July 1, 1996 ................................. $ 17,943,400
Change orders to contracts in progress at July 1, 1996 .......... 2,486,885
New contracts during the year ended June 30, 1997 ............... 1,113,462
------------
21,543,747
Less: contract revenue earned during the year ended June 30, 1997 (15,455,699)
------------
Backlog balance at June 30, 1997 ................................ $ 6,088,048
============
</TABLE>
NOTE 6 - PROMISSORY NOTES
On January 16, 1995, an Underwriter commenced and
privately offered on a best-efforts basis, sixteen (16) units
of the Company'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 initial public offering price of $5.00 per share. In
relation to the common stock sold in the offering, the Company
recorded deferred financing costs of $640,000 (160,000 shares
at $5.00 per share less original cost of $1.00 per share).
Deferred financing costs were amortized on a monthly basis
until the earlier of March 1996, the due of the related
promissory notes, or the initial public offering of the
Company. As a result, as at June 30, 1997 and 1996, the
Company recorded amortization expense of $0 and $441,863,
respectively. The holders of such shares included their shares
in the Company's initial public offering. The offering was
completed on March 9, 1995 resulting in all sixteen (16) units
being sold netting proceeds to the Company of approximately
$696,851.
NOTE 7 - ACCRUED EXPENSES
Accrued expenses consisted of the following at June 30, 1997:
Wages and related union benefits $307,934
Professional fees .............. 20,000
Accrued insurance expense ...... 421,885
Accrued interest and penalties . 165,197
--------
$915,016
NOTE 8 - INCOME TAXES
The Company has adopted Statement of Financial Accounting
Standards (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
F-9
<PAGE>
U.S. BRIDGE OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
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 Section 144 stock
issued for services.
For income tax purposes, the Company reports using a
year end of December 31.
The reconciliation of income tax computed at the federal
statutory tax rate to income tax expense is as follows:
Federal statutory income tax rate 34% Increases (reductions)
resulting from:
State and local income taxes net of federal benefit ...... 13%
Deferred income tax benefit and other miscellaneous
permanent differences ................................... (16%)
Effective income tax rate .................................... 31%
The tax effects of significant items comprising the Company's
net deferred tax assets as of June 30, 1997 is as follows:
NOTE 8 - INCOME TAXES
Allowance for doubtful accounts $ 1,073,500
Section 144 restricted stock .. (114,500)
Less: Valuation allowance ..... (719,250
-----------
Current portion of deferred
tax asset $ 239,750
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 9 - STOCKHOLDERS EQUITY
============
a) Recapitalization
On April 24, 1994, the Company's parent, Bridge Corp., issued
2,820,000 shares of its own common stock to the previous
stockholders of the Company in exchange for all of the
Company's outstanding shares.
The acquisition of the Company by Bridge Corp, was treated
as a recapitalization for accounting purposes. Accordingly,
after such transaction, the Company was a wholly-owned
subsidiary of Bridge Corp. As discussed in Note 9, the Company
became a majority-owned subsidiary of Bridge Corp as a result
of the Company's initial public offering, the exercise of a
special warrant by Bridge Corp and the exchange of Bridge
Corp, stock for Company stock held by related parties.
b) Initial Public Offering
On August 14, 1995 the Company successfully completed its
public offering. As a result, the Company sold 791,850 shares
which included 91,850 shares in connection
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<PAGE>
U.S. BRIDGE OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
with the exercise of the underwriter's over-allotment options
and 494,500 warrants which included 64,500 warrants pursuant
to the underwriter's over-allotment option. The Company
yielded a total net proceeds of $2,077,903 after deducting
underwriter selling expenses and expense allowance, repayment
of bridge loans and promissory notes and related accrued
interest to the bridge lenders and private investors, and the
pre-payment of the first two year's financial consulting
agreement with the underwriter.
Simultaneously with the offering, the Company charged all
deferred offering costs incurred to additional paid-in capital
which totalled $903,820.
Upon the closing of the sale of the Shares and Warrants
offered, the Company sold to the underwriter individually and
not as a representative of the Underwriters, warrants to
purchase 70,000 common shares and 43,000 Warrants exercisable
for a period of four years commencing one year after the IPO
effective date (August 9, 1995) at 120% of the initial
offering price.
c) Special Warrant
On September 9, 1995, the Company's majority stockholder.,
Bridge Corp. purchased at $2.50 per share 5,665 common shares
of the Company by exercising its right pursuant to the terms
of a special warrant issued only to such stockholder in order
to maintain an ownership interest above 50%.
NOTE 9 - STOCKHOLDERS EQUITY
d) Issuance of common stock
i) In December 1994, the board of directors adopted
the 1994 Senior Management Incentive Plan (the "Management
Plan"), which was adopted by shareholder consent. The
Management Plan provided for the issuance of up to 150,000
shares of the Company's Common Stock in connection with
the issuance of stock options and other stock purchase
rights to executive officers and other key employees.
During December 1996, the board of directors authorized an
amendment to the Management Plan to increase the amount of
stock options available to 1,000,000.
ii) In December 1996, the Company granted its
President an option under its Management Plan to purchase
125,000 shares of Common Stock. In February 1997, pursuant
to a Form S-8 Registration Statement filed with the
Securities and Exchange Commission, the Company registered
the sale of the 125,000 shares of Common Stock underlying
the option. The option was exercisable at $1.10 per share
(110% of the bid price on November 27, 1996) and was
exercised March 25, 1997, resulting in the issuance of
125,000 shares of common stock.
iii) During June 1997, pursuant to an agreement with
RSJJ Realty Corp, ("RSJJ"), (a Company wholly-owned by the
Company's President) the Company issued 270,000 shares of
its common stock to RSJJ for settlement of $480,000 of
accrued rent. These shares were then transferred to Bridge
Corp by RSJJ in exchange for shares in Bridge Corp. These
shares have been recorded at the estimated market value at
the date of issuance of $1.75 per share with a 50% haircut
due to the restricted nature of the stock, or $236,750. As
a result, the Company has recorded a gain on the
forgiveness of accounts payable of $243,250.
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<PAGE>
U.S. BRIDGE OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
NOTE 10 - COMMITMENT AND CONTINGENCIES
a) Disclosure of significant estimates - revenue recognition
As outlined in the Summary of Significant Accounting
Policies, the Company's construction revenue is recognized on
the percentage of completion basis. Consequently, construction
revenue and gross margin for each reporting period is
determined on a contract by contract basis by reference to
estimates by the Company'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
estimated may be subject to revision in the normal course of
business.
b) Lease agreement
The Company leases its administrative offices and storage
space pursuant to a signed lease agreement with RSJJ. Such
lease requires monthly payments of $20,000 and expires on
March 31, 1998. Under such lease agreement, the Company is
required to make future minimum lease payments as follows:
Year Ending
June 30,
1998 $ 180,000
===============
Included in general and administrative expenses is rent
expense which amounted to $240,000 for the years ended June
30, 1997 and 1996. In addition, pursuant to an oral agreement
the Company leases a yard for storage material with an
unrelated party which requires monthly payments of
approximately $3,500. Accordingly, total rent expense for the
years ended June 30, 1997 and 1996 amounted to $282,000. As of
June 30, 1997, $66,500 of rent remains unpaid and is included
in accounts payable. During June 1997, the Company issued
270,000 shares of its common stock to settle $480,000 of
accrued rent. (See Note 9(d)(iii) above).
c) Significant customers and vendors
For the years ended June 30, 1997 and 1996, the Company had
three unrelated customers respectively, which accounted for
approximately 86% and 62%, respectively, of total revenues. As
of June 30, 1997 and 1996 approximately 83% and 89% of
contracts and retainage receivables are due from four and
three customers, respectively.
d) Seasonality
The Company operates in an industry which may be seasonal,
generally due to inclement weather occurring during the winter
months. Accordingly, the Company may experience a seasonal
pattern in its operating results with lower revenue in the
third quarter of each fiscal year. Quarterly results may also
be affected by the timing
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<PAGE>
U.S. BRIDGE OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
of bid solicitations by governmental authorities, the stage of
completion of major projects and revenue recognition policies.
e) Bonding requirements
The Company is required to provide bid and/or performance
bonds in connection with governmental construction projects.
To date, the Company has been able to sufficiently obtain
bonding for its private projects. The Company 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.
f) Mechanics liens
As of June 30, 1997, three actions to foreclose upon
mechanics liens filed during the fiscal year were commenced.
Such actions amounted to $3,278,775.
g) Legal Proceedings
i) During January 1997, an action was
commenced by the Ohio Bridge Corporation ("Ohio")
against the Company. Ohio claims that the Company has
infringed its trademark "U.S. Bridge". During August
1997, the Company agreed to effect a name change to "USA
Bridge Construction of NY" before the end of the 1997
calendar year.
ii) The Company is a party to various
claims and legal proceedings incidental to its business.
In management's opinion, the outcome of these claims and
proceedings will not have a material adverse effect on
the financial statements of the Company taken as a
whole.
h) Payroll taxes
As of June 30, 1997, the Company owes approximately
$1,349,225 of payroll taxes and related penalties and
interest. Although as of June 30, 1997, the Company has not
entered into any formal repayment agreements with the
respective tax authorities, it has been making monthly payments based on oral
agreements.
NOTE 11 - RELATED PARTY TRANSACTIONS
a) Purchase of material and labor
For the years ended June 30, 1997 and 1996 the Company
purchased from Waldorf approximately $0 and $180,333,
respectively, of the materials and labor necessary to perform
fabrication services. Effective August 1, 1995 Waldorf ceased
operations. Said vendor is under the common control of the
Company's majority stockholder and President. Lastly, for the
years ended June 30, 1997 and 1996, the Company paid $371,321
and $622,050, respectively, to US Bridge MD for materials and
labor necessary to perform steel erection services. US Bridge
MD is a wholly-owned subsidiary of Bridge Corp. During
September 1996, US Bridge MD ceased operations and the Company
began purchasing material and labor from unrelated third party
steel fabricators. At June 30, 1997 the Company owed US Bridge
MD $62,606, principally
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<PAGE>
U.S. BRIDGE OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
for advances in connection with above services and such
amounts are non-interest bearing and due on demand.
b) Rent expense
Included in general and administrative expenses is rent
expense paid pursuant to a signed lease agreement with a
company wholly-owned by the Company's President. Such rent
amounted to $240,000 for the years ended June 30, 1997 and
1996.
c) Employment agreement
On April 4, 1995, the Company entered into an employment
agreement with its President and Director 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 and
Director has been granted options to purchase 25,000 shares of
the Company's common stock, all of which options shall vest
through April 1998. The exercise price of the options shall be
equal to the 110% of the stock price in the initial public
offering. The foregoing options are intended to qualify as
incentive stock options.
d) Due from related parties
During the years ended June 30, 1997 and 1996 the
Company paid certain expenses on behalf of Bridge Corp. These
advances are non-interest bearing and are due on demand. As of
June 30, 1997 such advances to Bridge Corp. amounted to
$18,566 and are included in other current assets.
e) Due to related parties
(i) Since June 1995 the President of the Company has
advanced the Company certain funds. The advances are non-interest
bearing and are due on demand. At June 30, 1997 amounts due to
the President amounted to $225,368.
(ii) As of June 30, 1997, the Company owes approximately
$96,526 for advances made by affiliates and related parties on
its behalf. Such advances are non-interest bearing and are due on
demand.
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