UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[xx] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-26262
USA BRIDGE CONSTRUCTION OF N.Y., INC.
(Exact Name of Registrant as Specified in its Charter)
New York 11-3032277
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation
53-09 97th Place, Corona, New York 11368
(Address of Principal Executive Offices) (Zip Code)
(718) 699-0100
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) has filed all reports required to be filed
by section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares of each of the issuer's classes of common
equity outstanding as of the latest practicable date: Common stock, par value
$.001 per share: 2,749,182 shares outstanding as of May 12, 1998.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
1
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
INDEX
PART 1. FINANCIAL INFORMATION:
Item 1. FINANCIAL STATEMENTS
Balance Sheets March 31, 1998 (Unaudited) and June 30, 1997 3
Statements of Operations (Unaudited)
for the three months ended March 31, 1998 and 1997 4
Statements of Operations (Unaudited)
for the nine months ended March 31, 1998 and 1997 5
Statement of Stockholders' Equity (Unaudited)
for the nine months ended March 31, 1998 6
Statements of Cash Flows (Unaudited)
for the nine months ended March 31, 1998 and 1997 7
Notes to Financial Statements 8-12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13-19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes In Securities And Use Of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission Of Matters To A Vote Of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits And Reports On Form 8-K 21
2
<PAGE>
<TABLE>
<CAPTION>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
BALANCE SHEETS
(Unaudited)
March 31, June 30,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 241,336 $ 554,025
Cash, restricted 222,280 214,001
Contracts and retainage receivable, net 10,812,618 8,943,147
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,545,272 2,225,723
Deferred tax assets 224,775 239,750
Other current assets 59,179 80,727
Due from related parties 183,550 --
Due from parent company and affiliates 542,810 --
------------ ------------
Total current assets 13,831,820 12,257,373
Other assets 24,435 21,445
------------ ------------
Total assets $ 13,856,255 $ 12,278,818
============ ============
<PAGE>
<CAPTION>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
BALANCE SHEETS
(Unaudited)
March 31, June 30,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, including cash overdraft
of $36,781 and $119,658 $ 1,763,807 $ 3,392,317
Accrued expenses 1,202,034 749,819
Payroll taxes payable 2,056,351 1,514,422
Income taxes payable 692,798 507,379
Current portion of long-term obligations 300,000 --
Due to related parties 152,376 321,894
Due to affiliates 52,220 --
Billings in excess of costs and estimated earnings
on uncompleted contracts -- 126,455
------------ ------------
Total current liabilities 6,219,586 6,612,286
------------ ------------
Long-term obligations 1,350,000 --
------------ ------------
Commitments and contingencies (Note 4) -- --
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 2,479,182 and 2,302,515 504,494 504,047
Additional paid in capital 4,827,526 4,459,906
Retained earnings 1,220,699 702,579
------------ ------------
Sub-total stockholders' equity 6,552,719 5,666,532
Less: Prepaid rent (84,800) --
Deferred compensation (181,250) --
------------ ------------
Total stockholders' equity 6,286,669 5,666,532
------------ ------------
Total liabilities and stockholders' equity $ 13,856,255 $ 12,278,818
============ ============
</TABLE>
See accompanying notes to financial statements (unaudited)
3
<PAGE>
<TABLE>
<CAPTION>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1997
------------- -------------
<S> <C> <C>
Contract revenue $ 1,969,865 $ 1,915,553
Cost of contract revenue 1,368,084 1,129,472
------------- -------------
Gross profit 601,781 786,081
General and administrative expenses 711,835 593,958
------------- -------------
(Loss) income from operations before other income
(expense) and provision for income taxes (110,054) 192,123
------------- -------------
Other income (expense):
Interest income 3,169 -
Interest expense (112,723) (1,011)
------------- -------------
Total other income (expense) (109,554) (1,011)
------------- -------------
(Loss) income before provision for income tax (benefit) expense (219,608) 191,112
Provision for income tax (benefit) expense (111,068) 76,445
------------- -------------
Net (loss) income $ (108,540) $ 114,667
============= =============
(Loss) income per common equivalent share:
Basic:
Net income (loss) $ .(04) $ .06
============= =============
Diluted:
Net income (loss) $ (.04) $ .06
============= =============
Weighted average number of shares outstanding 2,486,960 1,907,515
============= =============
Weighted average number of shares outstanding
- assuming dilution 2,486,960 1,982,120
============= =============
</TABLE>
See accompanying notes to financial statements (unaudited)
4
<PAGE>
<TABLE>
<CAPTION>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1997
------------- -------------
<S> <C> <C>
Contract revenue $ 14,239,151 $ 7,691,412
Cost of contract revenue 11,445,366 5,272,429
------------- -------------
Gross profit 2,793,785 2,418,983
General and administrative expenses 1,969,818 1,665,197
------------- -------------
Income from operations before other income
(expense) and provision for income taxes 823,967 753,786
------------- -------------
Other income:
Interest expense (112,723) (2,022)
Interest income 8,368 -
------------- -------------
Total other income (expense) (104,355) (2,022)
------------- -------------
Income before provision for income tax expense 719,612 751,764
Provision for income tax (benefit) expense 201,492 301,000
------------- -------------
Net income $ 518,120 $ 450,764
============= =============
Income per common equivalent share:
Basic:
Net income $ .22 $ .24
============= =============
Diluted:
Net income $ .22 $ .23
============= =============
Weighted average number of shares outstanding 2,363,997 1,907,515
============= =============
Weighted avenge number of shares outstanding
- assuming dilution 2,363,997 1,949,740
============= =============
</TABLE>
See accompanying notes to financial statements (unaudited)
5
<PAGE>
<TABLE>
<CAPTION>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
Deductions
related to
Additional stock issued Total
Common Stock paid in Retained for future Stockholders'
Shares Amount capital earnings services equity
----------- ---------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1997 2,302,515 $ 504,047 $ 4,459,906 $ 702,579 $ - $ 5,666,532
Issuance of common shares in
lieu of prepaid rent 106,667 107 112,960 - (113,067) -
Issuance of common shares
in connection with Senior
Management Incentive Plan 340,000 340 254,660 - (217,500) 37,500
Amortization of prepaid rent
and deferred compensation - - - - 64,517 64,517
Net income for the nine months
ended March 31, 1998 - - - 518,120 - 518,120
----------- ---------- -------------- -------------- -------------- ------------
Balances at March 31, 1998 2,749,182 $ 504,494 $ 4,827,526 $ 1,220,699 $ (266,050) $ 6,286,669
=========== ========== ============== ============== ============== ============
</TABLE>
See accompanying notes to financial statements (unaudited)
6
<PAGE>
<TABLE>
<CAPTION>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 518,120 $ 450,764
Adjustments to reconcile net (loss) income to net
cash provided by (used for) operating activities:
Amortization 4,797 3,490
Recovery of bad debt (128,000) --
Deferred taxes 14,975 --
Stock issued for services 73,750 --
Prepaid rent 28,267 --
Decrease (increase) in:
Accounts receivable (1,741,471) (3,699,941)
Prepaid expenses (11,365) (3,150)
Costs and estimated earnings in excess of
billings on uncompleted contracts 680,451 1,044,828
Other current assets 8,890 (27,400)
Increase (decrease) in:
Accounts payable (32,440) 1,559,273
Accrued expenses 287,018 (23,759)
Payroll taxes payable 707,126 284,920
Income taxes payable 185,419 301,000
Billings in excess of costs and estimated
earnings on uncompleted contracts (126,465) 12,892
----------- -----------
Net cash provided by (used for) operating activities 469,072 (97,083)
----------- -----------
Cash flows from investing activities:
Purchase of other assets (7,777) (5,677)
Increase in restricted cash (8,279) --
----------- -----------
Net cash provided by (used for) investing activities (16,056) (5,677)
----------- -----------
<PAGE>
<CAPTION>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Loans from repayments (to) related parties (535,293) 224,963
Repayments to shareholders (230,412) --
----------- -----------
Net cash (used for) provided by financing activities (765,705) 224,963
----------- -----------
Net (decrease) increase in cash (312,689) 122,203
Cash, beginning 554,025 223,789
----------- -----------
Cash, ending $ 241,336 $ 345,992
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ -- $ --
=========== ===========
Taxes paid $ -- $ --
=========== ===========
Supplemental disclosure of non-cash financing activities:
Issuance of common stock upon exercise of options
in exchange of stock subscription receivable $ -- $ 137,500
=========== ===========
Issuance of common stock in prepayment of rent and
deferred compensation $ 330,567 $ --
=========== ===========
</TABLE>
See accompanying notes to financial statements (unaudited)
7
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
NOTE 1 - GENERAL
The Company was incorporated on September 4, 1990 and is a 56.8% owned
subsidiary of USABG Corp. ("Corp."). The Company's President is also
the majority stockholder (66.3%) of Corp. and may be considered the
beneficial owner of the Company.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management the interim
financial statements include all adjustments necessary in order to make
the financial statements not misleading. The results of operations for
the nine and three months ended is not necessarily indicative of the
results to be expected for the full year. For further information,
refer to the Company's audited financial statements and footnotes
thereto at June 30, 1997, included in the Company's Annual Report Form
10-KSB filed with the Securities and Exchange Commission.
NOTE 2 - LONG-TERM OBLIGATION
In November 1997, the Company entered into an agreement with the Iron
Workers Local 40, 361, and 417 Joint Security Funds (the "Union") in
order to liquidate $1,750,000 owed for unpaid union dues and benefits
previously recorded as accounts payable. The Company agreed to pay
$75,000 by January 1998 and at least $25,000 monthly commencing March
1, 1998 with interest at 9.5% per annum. As collateral, the Company
assigned its retainage receivable from a certain project as well as
$1,750,000 of its related mechanic's lien (which was discharged on the
lien-debtor's posting of a bond with the court). Upon any funds being
released or paid under such bond, the Union will be repaid any balance
it is owed, in full, and the Company shall receive the remainder. The
Company will receive credit for any payments received by the Union
related to the assigned portion of the bond. The total remaining due at
March 31, 1998 is $1,650,000, with $300,000 classified as current: the
remaining $1,350,000 is classified as non-current.
NOTE 3 - STOCKHOLDERS' EQUITY
a) Issuance of common stock
In February 1998, the Company agreed to issue 106,667 restricted
shares of its common stock to the Company as consideration to Corp.
for issuing 192,000 shares of its own common stock to RSJJ in
consideration for payment in full of the rent due by the Company to
R.S.J.J. Realty Corp. ("RSJJ") a company owned by the Company's
President for the period from January 1, 1998 to December 31, 1998.
The value of the shares issued by the Company was recorded at the
estimated market value at the date of issuance of $2.12 per share,
with a 50% discount due to the restricted nature of the stock.
8
<PAGE>
b) In December 1997, the Company authorized the issuance of 290,000
restricted shares of its common stock during the third quarter of
its fiscal year pursuant to its Senior Management Incentive Plan. Of
the 290,000 shares, 150,000 were issued to the Company's President,
70,000 to the Company's Secretary, and 70,000 to the Company's
Treasurer. These shares vest 50% on June 1, 1998 and 50% on January
1, 1999. The Company also authorized and issued 50,000 restricted
shares to certain of its employees and consultants: these shares
vest immediately. The Company authorized the filing of a
Post-Effective Amendment to the Form S-8 Registration Statement,
initially filed in February 1997, to register the resale of
management's shares. In connection with such issuance, the Company
recorded compensation and consulting expense amounting to
approximately $255,000 which is based on the average closing bid
price of $1.50 per share for the month of March 1998 with a 50%
discount due to the restricted nature of the stock. The above shares
which do not vest immediately have been recorded as deferred
compensation and are amortized over the vesting period.
NOTE 4 - COMMITMENT AND CONTINGENCIES
a) Disclosure of significant estimates - revenue recognition
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 an affiliate owned by the
Company's President. Such lease requires monthly payments of
$20,000. The lease originally expired on March 31, 1998 but was
extended to December 31, 1998. Under such lease agreement, the
Company is required to make future minimum lease payments as
follows:
Year Ending
June 30,
-----------
1998 240,000
1999 120,000
---------------
Total $ 360,000
===============
The Company also leases a yard for storage of material pursuant to
an oral agreement with an unrelated party which requires monthly
payments of $3,500. As a result of the issuance of stock in
prepayment of the above lease agreement, the Company's total rent
under the lease will be $113,067. Accordingly, included in general
and administrative expenses is rent expense which amounted to
$38,767 and $70,500 for the three months ended March 31, 1998 and
1997, respectively, and $179,767 and $211,500 for the nine months
ended March 31, 1998 and 1997, respectively. As of March 31, 1998
and June 30, 1997, $98,000 and $68,500, respectively, of rent
remains unpaid and is included in accounts payable.
9
<PAGE>
c) Significant customers and vendors
For the three months ended March 31, 1998 and 1997, the Company had
two and four unrelated customers, respectively, which accounted for
approximately 76% and 24% and 48%, 19%, 12%, and 10% of total
revenues. As of March 31, 1998, approximately 17% and 55% of
contracts and retainage receivables are due from two customers
For the nine months ended March 31, 1998 and 1997, the Company had
three and three unrelated customers respectively, which accounted
for approximately 60%, 12%, and 12% and 34%, 31%, and 17%,
respectively, of total revenues. As of June 30, 1997, approximately
22%, 21%, 15%, and 24% of contracts and retainage receivables net of
allowances for doubtful accounts are due from four customers.
d) Seasonality
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 of
bid solicitations by governmental authorities and the stage of
completion of major projects.
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 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. The Company has been unable to bid as a
general contractor on New York State and New York City projects as a
result of its inability to obtain bonding from a New York licensed
bonding Company.
f) Mechanic's liens
As of June 30, 1997, three actions to foreclose upon mechanics liens
filed during the fiscal year were commenced. Such actions seek
relief in the aggregate amount of $3,278,775. As of March 31, 1998,
additional mechanic's liens were filed, bringing the total relief
sought to $16,919,542.
The mechanic's liens have been filed in relation to work completed
and billed. As such, these amounts are included in contracts and
retainage receivable. Based upon the assessment of management and
legal counsel, the Company has recorded on allowance for doubtful
account to adjust the receivables to their estimated realizable
amount.
g) Payroll taxes
As of March 31, 1998 and June 30, 1997, the Company owed
approximately $2,056,351 and $1,514,422, respectively, of payroll
taxes and related estimated interest and penalties. Although, as of
March 31, 1998, the Company has not entered into any formal
repayment agreements with the respective tax authorities, it has
been making payments based on oral agreements.
10
<PAGE>
h) Legal proceedings
The Company is 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.
i) Claims
The Company elected not to recognize any portion of the revenue
associated with any contract claims until the amounts recoverable
can be accurately estimated. Claims are amounts in excess of the
agreed contract price which the Company seeks to collect for
customer caused delays, errors in specifications and designs,
contract terminations, change orders in dispute or unapproved.
NOTE 5 - RELATED PARTY TRANSACTIONS
a) Purchase of material and labor
For the three and six months ended March 31, 1998 and 1997, the
Company paid $0 and $33,500, respectively, to USA Bridge
Construction Corp. (Maryland) ("MD") for certain materials and labor
necessary to perform steel erection services. Amounts payable
related to all of such transactions and included in accounts payable
total $47,220 at March 31, 1998. Such amounts are non-interest
bearing obligations. MD is under the common control of the Company's
majority stockholder.
b) Rent expense
Included in general and administrative expenses is rent expense paid
pursuant to a signed lease agreement with a Company owned by the
Company's majority stockholder. Such rent amounted to $28,267 and
$148,267 for the three and nine months, respectively, ended March
31, 1998 and $60,000 and $180,000 for the three and nine months,
respectively, ended March 31, 1997. Included as a deduction to
stockholders' equity as of March 31, 1998 is prepaid rent of $88,400
representing rent paid through December 31, 1998 to such affiliated
entity.
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. Pursuant to the agreement, the President and Director is
also entitled to receive a $50,000 per year non-accountable expense
allowance payable in equal weekly installments. He also 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. The option shall contain such other terms and conditions as
set forth in the stock option agreement. The exercise price of the
options is equal to 110% of the stock price in the initial public
offering. The foregoing options are intended to qualify as incentive
stock options. The President and Director is also entitled to
receive an annual bonus of $50,000 if the Company nets $1,000,000
before taxes in any year and an additional $25,000 for each $500,000
of additional pre-tax profits. Advances against such bonus are equal
to $10,000 payable monthly until the end of the employment
agreement, at such time any excess advances will be re-paid to the
Company. No advances have been made as of March 31, 1998.
11
<PAGE>
Also pursuant to the employment agreement, the Company will pay
premiums on a $3,500,000 life insurance policy for the benefit of
individuals as directed by such President and Director. Any cash
surrender value is the Company's property until the employment
agreements ends. The estimated premium on such policy is $80,000 per
year.
d) Due to/from related parties
As of March 31, 1998, the Company has advanced $726,360 to related
companies. Such advances are non-interest bearing and are due on
demand.
As of March 31, 1998 the Company has advanced to its President a
total of approximately $5,044. The remaining balance amounting to
$721,316 represents advances to other related companies. Such
advances are non-interest bearing and are due on demand.
NOTE 6 - SUBSEQUENT EVENTS
a) In April 1998, the Company redeemed its certificate of deposit of
approximately $222,000, repaying a loan of approximately $147,000 on
behalf of Corp. The balance of the funds were deposited into the
Company's operating account.
b) Letter of Intent
On May 12, 1998, the Company and Corp. executed a letter of intent
whereby the Company shall acquire First Anglo-Swiss Holdings, Inc.
("FAS"). The letter provides, among other things, that the Company
shall acquire 51% of the outstanding shares of common stock from the
stockholders of FAS in exchange for 510,000 shares of the Company's
Common Stock. Simultaneously with the closing of the acquisition,
Corp. has agreed to sell all of its shares of Company Common Stock
to Amalgamated Resources Management S.A. ("ARM") for an aggregate of
$10,220,000. Also at closing, the holders of FAS preferred stock
shall exchange all of such shares for shares of a series of
preferred stock in the Company which shall carry the same rights and
preferences as the shares of FAS preferred stock.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 ("Act") provides a
safe harbor for forward-looking information made on behalf of the Company. All
statements, other than statements of historical facts, which address the
Company's expectation of sources of capital or which express the Company's
expectation for the future with respect to financial performance or operating
strategies can be identified as forward-looking statements. Forward-looking
Statements made by the Company are based on knowledge of the environment in
which it operates, but because of the factors previously listed, as well as the
factors beyond the control of the Company, actual results may differ materially
from the expectations expressed in the forward-looking statements.
General
USA Bridge Construction of N.Y., Inc. (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 the New York State and Metropolitan areas. 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. To date, 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 March 31, 1998, the Company has completed in excess of
twenty-one projects with an aggregate project value of $40,000,000 and is
currently engaged in two (2) projects with an aggregate value of approximately
$10,790,150. 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.
In December 1996, for its general contracting projects, 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"). This
commitment allows 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
EklecCo., Grand Central Terminal, and Korean Mission projects. Since New York
State and City agencies require bonds from bonding companies licensed by the
State of New York, however, and UAGC is not a New York licensed bonding company,
the Company is as yet unable to bid as a general contractor on projects for New
York State and City agencies.
New York State agencies require bonds from bonding companies they have
approved. The Company has received bonding from a company which is not approved
for state and city projects; therefore, the Company is unable to bid as a
general contractor on projects for New York State and City agencies. The Company
has approached several New York approved bonding companies; however, as of the
date hereof, it has not been approved by any such company to receive bonding.
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 other factors. The surety companies require companies receiving
bonding to maintain certain amounts of capital and liquid assets and base the
amount of bonding they will issue on a formula, which is usually based on
certain industry standards which take into account such factors. The surety
companies also require that the bonds be personally guaranteed by Mr. Polito. In
order for the Company to obtain and maintain bonding, it must adhere to the
requirements stipulated in the bonding agreements which 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 requisition and paid
by the customer. Any monies taken from the working capital for this purpose will
be replaced as the monthly requisition 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
are generally payable at the beginning of a project, the Company must maintain
sufficient working capital to satisfy the fee prior to receiving from the
project.
13
<PAGE>
In the New York City metropolitan area, there is an abundance of
subcontractors who have significant experience and are competitive with respect
to pricing and level of service. As a general contractor, the Company will be
responsible for performance of the entire contract, including the work to be
performed by 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.
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 three months. Interim results may also be affected
by the timing of bid solicitation, the stage of completion of major projects and
revenue recognition policies. For the nine months ended March 31, 1998 and 1997,
the Company only obtained $20,000 and $1,780,000, respectively of new contracts.
The primary reason for not obtaining any material new contracts for the nine
months ended March 31, 1998 and 1997 is because the Company did not provide the
lowest bids for the projects on which it was bidding.
The Company's operations are substantially controlled by Mr. Polito
since he owns approximately 66% of the outstanding shares of USABG Corp.,
("Corp.") the parent company who owns 48% of the common stock of the Company and
may be considered the beneficial owner of the Company. Mr. Polito is also a 100%
shareholder of RSJJ Realty Corp. ("RSJJ"). RSJJ leases the administrative office
space to the Company at a cost of $20,000 per month pursuant to a signed lease
agreement expiring on December 31, 1998. Mr. Polito also has ownership interest
in Crown Crane, Inc. and Atlas Gem Leasing, Inc. which provided services to the
Company during the nine months ended March 31, 1998 and 1997. Lastly, the
Company purchased from USA Bridge Construction Corp. (Maryland) ("MD"), a
wholly-owned subsidiary of Corp, certain materials and labor to perform steel
erection service. MD ceased substantially all of its operations during September
1996 and, accordingly, the Company purchased its steel from unrelated parties.
The Company recognizes revenue and costs for all contracts under the
percentage of completion method. Cost of contract revenues include 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.
The current asset, "costs and estimated earnings in excess of billings
on uncompleted contracts", represents revenues recognized in excess of amounts
billed on respective uncompleted contracts at the end of each period. The
current liability, "billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings which exceed revenues recognized on
respective uncompleted contracts at the end of each period.
14
<PAGE>
An amount equal to the costs attributable to unapproved change orders
and claims is included in the total estimated revenue when realization is
probable and the amount can be estimated. The Company has elected not to
recognize any portion of the revenue associated with such unapproved change
orders and claims until the amounts have been received or awarded. Claims are
amounts in excess of the agreed contract price which the Company seeks to
collect for customer caused delays, errors in specifications and designs,
contract terminations, change orders in dispute or which are unapproved.
Three months ended March 31, 1998 as compared to the
three months ended March 31, 1997
Contract revenues for the three months ended March 31, 1998 and 1997
amounted to $1,969,865 and $1,915,553, respectively. This net increase amounting
to $54,312 (or approximately 3%) is partially a result of the Company's backlog
as of June 30, 1997 which amounted to approximately $7,900,000, change orders,
and the termination of the EklecCo and Korean Mission projects. The change
orders for the three months ended March 31, 1998 amounted to approximately
$175,000 for the remaining projects: Grand Central and Louis Vuitton. The
backlog at March 31, 1998 amounted to approximately $600,000. The backlog amount
represents the contracts and change orders the Company entered into during the
latter part of its June 30, 1997 fiscal year during the nine months ended March
31, 1998.
During the three months ended March 31, 1998, approximately $290,000
(or 17%) of the revenue recognized during the period was collected. The
remaining amounts uncollected represent retainage expected to be collected
within the next one to two years or amounts which the Company is attempting to
collect under mechanic's liens. Approximately $213,000 (or 11%) of the revenue
recognized was not billed at March 31, 1998.
On October 14, 1997, the Company filed a mechanic's lien in the amount
of $13,640,767 against EklecCo (f/k/a Pyramid Company of Rockland). On October
16, 1997, in New York State Supreme Court, Rockland County, EklecCo commenced
suit against the Company seeking to vacate the mechanic's lien filed against it
and seeking specific enforcement of the contract, declaratory relief, damages
for slander of title, and approximately $500,000,000 in damages from the Company
for breach of contract and intentional interference with contractual relations.
The lien was not vacated, however, and on February 9, 1998, EklecCo posted a
bond in the amount of $14,254,730 to secure payment of the Company's $13,640,747
mechanic's lien, interest, and court costs; accordingly, the court granted
EklecCo motion to discharge said lien.
The Company's gross profit for the three months ended March 31, 1998
and 1997 amounted to 31% and 41%, respectively. The decrease in gross profit for
the three months ended March 31, 1998 as compared to three months ended March
31, 1997 is primarily a result of an overall different mix of contracts with
lower gross profit percentages. The overall estimated gross profit for the three
months ended March 31, 1998 was approximately 21% as compared to the three
months ended March 31, 1997 whereby the overall estimated average gross profit
was 28%. Additionally, the effect of change orders and certain adjustments to
estimated costs, as well as the interruption and termination of certain jobs,
has resulted in reductions of overall gross profit.
For the three months ended March 31, 1998 and 1997, the Company paid $0
and $33,500, respectively, to MD for material and labor necessary to perform
steel erection services. During September 1996, MD ceased substantially all of
its operations and the Company began purchasing material and labor from
unrelated third party steel fabricators. At March 31, 1998, the Company owed MD
$47,220 principally for advances in connection with the above services: such
amounts are non-interest bearing and are due on demand.
15
<PAGE>
Below is a summary of the Company's billings and collections for the
three months ended March 31, 1998:
<TABLE>
<CAPTION>
Gross contract
and retainage Allowances for Net contracts
receivables uncollectible receivables
----------- ------------- -----------
<S> <C> <C> <C>
Balances at December 31, 1997 $12,285,003 $(2,159,000) $10,126,003
Billings 1,481,683 - 1,481,683
Collections 795,068 - 795,068
----------- ----------- -----------
Balances at March 31, 1998 $12,471,618 $(2,159,000) $10,812,618
=========== =========== ===========
</TABLE>
Through May 15, 1998, the Company has collected approximately $815,000
or 8% of its net contract receivables. As of March 31, 1998, $5,917,455 (or
approximately 55%) of its net receivables is due from the EklecCo. project. The
project was to be performed in two phases. The Company commenced work on Phase I
in June 1996. The project was terminated in October 1997 when it was
approximately 98% complete. On October 14, 1997, the Company filed a mechanic's
lien in the amount of $13,640,767 against EklecCo (f/k/a Pyramid Company of
Rockland), for the EklecCo project. See Part II., Item 2. "Legal Proceedings"
for additional information.
In addition to the above lien, the Company has filed various other
liens on certain other projects with net receivables amounting to approximately
$1,877,214. With regards to the remaining receivables amounting to approximately
$3,018,000 (approximately $795,000 of which represents retainage that is not
expected to be collected within one year), the Company expects to collect
approximately the remaining $2,223,000 by the end of the first quarter of fiscal
1998 and 1999.
As of March 31, 1998, the Company is engaged in two major projects with
a total contract value amounting to $10,732,750 whereby the backlog associated
therewith amounted to approximately $600,000. The contract receivable associated
with ongoing projects is approximately $1,244,000.
General and administrative expenses have increased by $117,877 (or 20%)
to $711,835 for the three months ended March 31, 1998 from $593,958 for the
three months ended March 31, 1997. The increase in general administration costs
is mainly attributable to an overall increase of the Company's administrative
salaries associated with the material increase in contract revenue and certain
general corporate overhead.
For the three months ended March 31, 1998, the Company recorded an
estimated income tax benefit of $111,068 whereby for the three months ended
March 31, 1997, the Company recorded an estimated income tax expense of $76,445.
Nine months ended March 31, 1998 as compared to the nine
months ended March 31, 1997
Contract revenues for the nine months ended March 31, 1998 and 1997
amounted to $14,239,151 and $7,691,412, respectively. This net increase
amounting to $6,547,739 (or approximately 85%) is partially a result of the
Company's backlog as of June 30, 1997 which amounted to approximately
$7,900,000, and change orders and the termination of the Palisades and Korean
projects. The change orders for the nine months ended March 31, 1998 amounted to
approximately $2,608,000 for the remaining projects, Grand Central and Louis
Vuitton.
16
<PAGE>
The Company's gross profit for the nine months ended March 31, 1998 and
1997 amounted to 20% and 32%, respectively. The decrease in gross profit for the
nine months ended March 31, 1998 as compared to nine months ended March 31, 1997
is primarily a result of an overall different mix of contracts with lower gross
profit percentages. The overall estimated gross profit for the nine months ended
March 31, 1998 was approximately 21% as compared to nine months ended March 31,
1997 whereby the overall estimated average gross profit was 28%. Additionally,
the effect of change orders and certain adjustments to estimated costs, as well
as the interruption and termination of certain jobs, has resulted in reductions
of overall gross profit.
For the nine months ended March 31, 1998 and 1997, the Company paid $0
and $33,500, respectively, to MD for material and labor necessary to perform
steel erection services. During September 1996, MD ceased substantially all of
its operations and the Company began purchasing material and labor from
unrelated third party steel fabricators. At March 31, 1998, the Company owed MD
$47,220 principally for advances in connection with above services and such
amounts are non-interest bearing and due on demand.
Below is a summary of the Company's billings and collections for the
nine months ended March 31, 1998:
<TABLE>
<CAPTION>
Gross contract
and retainage Allowances for Net contracts
receivables uncollectible receivables
----------- ------------- -----------
<S> <C> <C> <C>
Balances at June 30, 1997 $11,230,147 $(2,287,000) $ 8,943,147
Billings 14,489,359 - 14,489,359
Collections 12,747,888 128,000 128,000
----------- ----------- -----------
Balances at December 31, 1997 $12,971,618 $(2,159,000) $10,812,618
=========== =========== ===========
</TABLE>
General and administrative expenses have increased by $304,621 or 18%
to $1,969,818 for the nine months ended March 31, 1998 from $1,665,197 for the
nine months ended March 31, 1997. The increase in general administration costs
are mainly attributable to an overall increase of the Company's administrative
salaries associated with the material increase in contract revenue and certain
general corporate overhead.
For the nine months ended March 31, 1998, the Company recorded an
estimated income tax expense of $201,492 whereby for the nine months ended March
31, 1997, the Company recorded an estimated income tax expense of $301,000.
Liquidity and Capital Resources
Of the $10,812,618 of net contract and retainage receivables as of
March 31, 1998, the Company has only collected approximately $815,000 or 8%
through May 15, 1998. The timing of the collectibility of approximately
$7,800,000 which represents the amount of net receivables associated with
mechanic's liens placed by the Company on certain jobs cannot be determined by
the Company due to the surrounding circumstances and the legal process
associated in collecting funds whereby a lien has been placed on a project. The
remainder of the receivables amounting to approximately $2,200,000 are expected
to be collected during the first quarter of fiscal 1998.
As a result of the slow collection process associated with the above
circumstances, the Company was unable to pay its payroll tax obligations and
rent on a timely basis. Upon the collection or settlement of a major portion of
contracts receivable, the Company's first priority is to pay down its payroll
tax obligations as much as possible. The accrued and unpaid rent has been
settled by the Company with the Company issuing stock to its landlord RSJJ, via
its parent USABG Corp. ("Corp."), as well as the rent through December 1998.
17
<PAGE>
Although the lack of no new contracts has an effect on revenue and net
income, the Company is confident that, based on its bidding process, it will
obtain new contracts. Based on the Company's backlog at March 31, 1998,
amounting to approximately $600,000, and its vigorous attempts to collect on its
mechanic's liens and a portion of its contract receivables, the Company expects
to generate sufficient cash flow to satisfy its cash requirements during the
next twelve months.
Net cash provided by operating activities amounted to $469,072 for the
nine months ended March 31, 1998. The major components of such use of cash was
directly attributed to the Company's income amounting to $518,120 and increases
in accounts receivable net of decreases of its payroll taxes payable and accrued
expenses. For the nine months ended March 31, 1997, the net cash used by
operating activities amounted to $97,083 which were principally attributable to
increases in account receivables, decreases in costs and estimated earnings in
excess of billings on uncompleted contracts and increases in accounts payable.
With regards to investing activities, the Company used $16,056 of cash
for the nine months ended March 31, 1998. Such cash was used (advanced)
primarily for purchase of fixed assets and deposits towards restricted funds.
As of March 31, 1998, the Company owes approximately $2,056,351 of
payroll taxes and related estimated penalties and interest. Although, as of
March 31, 1998, the Company has not entered into any formal repayment agreements
with the respective tax authorities, it has been making payments based on oral
arrangements.
In November 1997, the Company entered into an agreement with the Iron
Workers Local 40, 361 and 417 Joint Security Funds (the "Union") in order to
liquidate $1,750,000 owed for unpaid union dues previously recorded as accounts
payable. The Company agreed to pay $75,000 by January 1998 and at least $25,000
monthly commencing March 1, 1998 with interest at 9.5% per annum. As collateral,
the Company assigned its retainage receivable from a certain project as well as
$1,750,000 of its related mechanic's lien (which was discharged upon the
lien-debtor's posting of a bond with the court). Upon any funds being released
or paid under such bond, the Union will be repaid any balance it is owed, in
full, and the Company shall receive the remainder. The Company will receive
credit for any payments received by the Union related to the assigned portion of
the bond. The total remaining due at March 31, 1998 is $1,650,000 with $300,000
classified as current and the remainder of $1,350,000 classified as non-current.
In February 1998, the Company agreed to issue 106,667 shares of its
common stock to Corp. as consideration to Corp. for issuing shares of its own
stock to RSJJ in payment in full of the rent due by the Company to RSJJ for the
period from January 1, 1998 to December 31, 1998. The value of the shares is
recorded at their estimated market value at the date of issuance of $2.12 per
share, with a 50% discount due to the restricted nature of the stock.
In December 1997, the Company authorized the issuance of 290,000 shares
of its common stock during the third quarter of its fiscal year pursuant to its
Senior Management Incentive Plan. Of the 290,000 shares, 150,000 were issued to
the Company's President, 70,000 were issued to the Company's Secretary, and
70,000 were issued to the Company's Treasurer. These shares vest 50% on June 1,
1998 and 50% on January 1, 1999. The Company also authorized and issued 50,000
shares to certain of its employees and consultants: these shares vest
immediately. The Company authorized the filing of a Post-Effective Amendment to
the Form S-8 Registration Statement initially filed in February 1997 to register
the resale of management's shares. In connection with such issuance, the Company
recorded compensation and consulting expense amounting to approximately $255,000
which is based on 50% of the average closing bid price of $1.50 per share for
the month of March 1998. Management's shares, which do not vest immediately,
have been recorded as deferred compensation and are being amortized over the
vesting period.
18
<PAGE>
On May 12, 1998, the Company and Corp. executed a letter of intent
whereby the Company shall acquire First Anglo-Swiss Holdings, Inc. ("FAS"). The
letter provides, among other things, that the Company shall acquire 51% of the
outstanding shares of common stock from the stockholders of FAS in exchange for
510,000 shares of the Company's Common Stock. Simultaneously with the closing of
the acquisition, Corp. has agreed to sell all of its shares of Company Common
Stock to Amalgamated Resources Management S.A. ("ARM") for an aggregate of
$10,220,000. Also at closing, the holders of FAS preferred stock shall exchange
all of such shares for shares of a series of preferred stock in the Company
which shall carry the same rights and preferences as the shares of FAS preferred
stock.
PART II
Item 1. Legal Proceedings
In April 1995, the Company commenced an Article 78 proceeding in the
Supreme Court of the State of New York, County of New York, against the
Commissioners of the State Insurance Fund and the State Insurance Fund. In
December 1995, in the United States District Court, Southern District of New
York, the Commissioners of the State Insurance Fund for and on behalf of the
State Insurance Fund commenced suit against Joseph Polito, Ronald Polito, Steven
Polito, the Company (f/k/a Metro Steel Structures, Ltd.), One Carnegie, and
others. See the Company's Forms 10-QSB for the quarters ended December 31, 1997
and September 30, 1997 for more information concerning this matter. These
actions settled in April 1998 for $750,000.
On February 25, 1997, in New York State Supreme Court, Kings County,
the Company and Metro Steel Structures, Ltd. commenced suit against Perini
Corporation, Metropolitan Transportation Authority, New York City Transportation
Authority, and Fidelity and Deposit Company of Maryland. This action is in the
discovery phase. See the Company's Forms 10-QSB for the quarters ended December
31, 1997 and September 30, 1997 for more information concerning this matter.
On February 26, 1997, in New York State Supreme Court, Queens County,
the Company, Metro Steel Structures, Ltd., and McKay Enterprises, Inc. commenced
suit against Perini Corporation, Department of Transportation of the City of New
York, and Fidelity and Deposit Company of Maryland. This action is in the
discovery phase. See the Company's Forms 10-QSB for the quarters ended December
31, 1997 and September 30, 1997 for more information concerning this matter.
On February 7, 1997, in New York State Supreme Court, Kings County,
Perini Corporation commenced an action against the Company and Metro Steel
Structures, Ltd. This action is in the discovery phase. See the Company's Forms
10-QSB for the quarters ended December 31, 1997 and September 30, 1997 for more
information concerning this matter.
On or about May 13, 1997, in the New York Supreme Court, Suffolk
County, the Company commenced suit against Kiska Construction, the State of New
York, acting through the New York State Comptroller, the New York State
Department of Transportation, and the Seaboard Surety Company. This action is in
the discovery phase. See the Company's Forms 10-QSB for the quarters ended
December 31, 1997 and September 30, 1997 for more information concerning this
matter.
On October 14, 1997, the Company filed a mechanic's lien in the amount
of $13,640,767 against EklecCo (f/k/a Pyramid Company of Rockland). On October
16, 1997, in New York State Supreme Court, Rockland County, EklecCo commenced
suit against the Company. On February 9, 1998, the plaintiff posted a bond in
the amount of $14,254,730 to secure payment of the Company's $13,640,747
mechanic's lien, interest, and court costs; accordingly, the court granted the
plaintiff's motion to discharge said lien. The court further ordered that
discovery be expedited in this matter. This action is in the discovery phase.
See the Company's Forms 10-QSB for the quarters ended December 31, 1997 and
September 30, 1997 for more information concerning this matter.
19
<PAGE>
ITEM 2. Changes In Securities And Use Of Proceeds:
By Board of Directors Resolution dated April 30, 1998, the Company
decreased the exercise price of its warrants from $3.00 per share to $2.50 per
share.
ITEM 3. Defaults Upon Senior Securities: None
ITEM 4. Submission Of Matters To A Vote Of Security Holders: None, except as
reported in the Company's Form 10-QSB for the quarter ended December
31, 1997.
ITEM 5. Other Information: None
ITEM 6. Exhibits And Reports On Form 8-K:
In January 1998, the Company filed a Form 8-K, dated January 22, 1998,
wherein it reported the results of its annual meeting held on January 7, 1998.
In February 1998, the Company filed a Form 8-K, dated February 12, 1998, wherein
it reported the resignation of Philip Nielson as a Director and the election of
Ronald Murphy as a Director.
20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, this 21st day of May 1998.
USA BRIDGE CONSTRUCTION OF N.Y., INC.
By: /s/ Joseph M. Polito
--------------------------------
Joseph M. Polito, President
/s/ Steven J. Polito
--------------------------------
Steven J. Polito, Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statement of Cash Flows and Notes thereto
incorporated in Part I, Item 1 of this Form 10-QSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 463,616
<SECURITIES> 0
<RECEIVABLES> 10,812,618
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,831,820
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,856,255
<CURRENT-LIABILITIES> 6,219,586
<BONDS> 0
0
0
<COMMON> 504,494
<OTHER-SE> 5,782,175
<TOTAL-LIABILITY-AND-EQUITY> 13,856,255
<SALES> 1,969,865
<TOTAL-REVENUES> 1,969,865
<CGS> 1,368,084
<TOTAL-COSTS> 1,368,084
<OTHER-EXPENSES> 711,835
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,723
<INCOME-PRETAX> (219,608)
<INCOME-TAX> (111,068)
<INCOME-CONTINUING> (108,540)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (108,540)
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
