UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 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)
(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 [ x ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Common stock, par value $.001 per share: 2,749,182 shares outstanding as of
January 20, 1999,
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
INDEX
Page
----
PART 1 - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
Balance Sheets at September 30, 1998 (Unaudited)
and June 30, 1998 1
Statements of Operations (Unaudited)
for the three months ended September 30, 1998 and 1997 2
Statement of Stockholder's Equity (Unaudited)
for the three months ended September 30, 1998 3
Statements of Cash Flows (Unaudited)
for the three months ended September 30,1998 and 1997 4
Notes to Financial Statements 5-13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14-22
PART 2 - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 23
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS 23
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 23
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 23
ITEM 5 - OTHER INFORMATION 23
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 23
SIGNATURES 24
<PAGE>
<TABLE>
<CAPTION>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
BALANCE SHEETS
(Unaudited)
September 30 June 30
ASSETS 1998 1998
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash $ 118,584 $ 20,822
Contracts and retainage receivable, net 2,630,632 2,144,262
Costs and estimated earnings in excess of billings
on uncompleted contracts 51,877 139,440
Due from Parent Company 459,358 405,458
Due from affiliates 205,480 126,489
Other current assets 32,050 18,454
------------ ------------
Total current assets 3,497,981 2,854,925
------------ ------------
Long term portion of contracts and retainage receivable, net 8,431,939 8,431,939
Office equipment and fixtures, net 24,516 23,767
Other assets 19,300 10,366
------------ ------------
Total assets $ 11,973,736 $ 11,320,997
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, including cash overdraft
of $61 and $36,415 $ 1,698,575 $ 1,239,097
Accrued expenses 1,875,940 1,822,670
Payroll taxes payable 2,127,690 2,154,856
Note payable 300,000 300,000
Due to officer and affiliates 274,108 386,457
Income taxes payable 206,889 148,889
Billings in excess of costs and estimated earnings
on uncompleted contracts 59,980 10,250
------------ ------------
Total current liabilities 6,543,182 6,062,219
Long term portion of note payable 1,200,000 1,275,000
------------ ------------
Total Liabilities 7,743,182 7,337,219
Commitments and contingencies (Note 5) -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
BALANCE SHEETS
(Unaudited)
September 30 June 30
1998 1998
------------ ------------
<S> <C> <C>
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 2,749,182 504,494 504,494
Additional paid in capital 5,402,209 5,402,209
Accumulated deficit (1,484,614) (1,635,140)
------------ ------------
Sub-total stockholders' equity 4,422,089 4,271,563
Less: stockholders' deductions (191,535) (287,785)
------------ ------------
Total stockholders' equity 4,230,554 3,983,778
------------ ------------
Total liabilities and stockholders' equity $ 11,973,736 $ 11,320,997
============ ============
</TABLE>
See accompanying notes to financial statements (unaudited).
-1-
<PAGE>
<TABLE>
<CAPTION>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1998 1997
----------- -----------
<S> <C> <C>
Contract revenue $ 1,768,155 $ 8,918,385
Cost of contract revenue 1,045,215 7,541,175
----------- -----------
Gross profit 722,940 1,377,210
General and administrative expenses 478,444 590,697
----------- -----------
Income from operations before other income
(expense) and provision for income taxes 244,496 786,513
----------- -----------
Other income (expense):
Interest income 30 2,948
Interest expense (36,000) --
----------- -----------
Total other (expense) income (35,970) 2,948
----------- -----------
Income before provision for income tax expense 208,526 789,461
Provision for income tax expense 58,000 226,950
----------- -----------
Net income $ 150,526 $ 562,511
=========== ===========
Income per common equivalent share:
Basic:
Net income $ .05 $ .24
=========== ===========
Diluted:
Net income $ .05 $ .24
=========== ===========
Weighted average number of shares outstanding 2,749,182 2,302,515
=========== ===========
</TABLE>
See accompanying notes to financial statements (unaudited)
-2-
<PAGE>
<TABLE>
<CAPTION>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Common
stock
------------------------- Additional Total
paid-in Accumulated Other Stockholders'
Shares Amount capital deficit deductions equity
---------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1998 2,749,182 $ 504,494 $5,402,209 $ (1,635,140) $ (287,785) $3,983,778
Net income for the three months ended
September 30, 1998 150,526 150,526
Amortization of prepaid rent and
deferred compensation -- -- -- -- 96,250 96,250
---------- ---------- ---------- -------------- ---------- ----------
Balances at September 30, 1998 2,749,182 $ 504,494 $5,402,209 $ (1,484,614) $ (191,535) $4,230,554
========== ========== ========== ============== ========== ==========
</TABLE>
See accompanying notes to financial statements (unaudited)
-3-
<PAGE>
<TABLE>
<CAPTION>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 150,526 $ 562,511
Adjustments to reconcile net (loss) income to net
cash provided by (used for) operating activities:
Amortization of prepaid rent and deferred compensation 96,250 --
Deferred taxes -- 3,275
Decrease (increase) in:
Contracts and retainage receivable (486,370) (1,961,735)
Prepaid expenses
Costs and estimated earnings in excess of
billings on uncompleted contracts 87,563 (201,067)
Other current assets (13,596) (10,715)
Other assets (8,934) --
Increase (decrease) in:
Accounts payable 459,478 333,665
Accrued expenses 53,270 526,978
Payroll taxes payable (27,166) 693,111
Income taxes payable 58,000 223,675
Billings in excess of costs and estimated
earnings on uncompleted contracts 49,730 (12,471)
----------- -----------
Net cash provided by (used for) operating activities 418,751 157,227
----------- -----------
Cash flows from investing activities:
Acquisition of office equipment (749) --
----------- -----------
Cash flows from financing activities:
Repayments to parent company (53,900) --
Repayments to related parties and affiliates (191,340) (248,878)
Principal payments on note payable (75,000) --
----------- -----------
Net cash used for financing activities (320,240) (248,878)
----------- -----------
Net increase (decrease) in cash 97,762 (91,651)
Cash, beginning 20,822 768,026
----------- -----------
Cash, ending $ 118,584 $ 676,375
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ -- $ --
=========== ===========
Taxes paid $ -- $ --
=========== ===========
</TABLE>
See accompanying notes to financial statements (unaudited)
-4-
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
NOTE 1 - GENERAL
USA Bridge Construction 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.
The Company was incorporated on September 4, 1990 and is a
majority owned subsidiary of USABG Corp. ("USABG") via a 48.5%
direct ownership and indirect ownership of 7.5% of the
Company's President. The Company's President is also the
majority stockholder of USABG 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 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, 1998,
included in the Company's Annual Report Form 10-KSB filed with
the Securities and Exchange Commission.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
For the year ended June 30, 1998, the Company generated a net
loss amounting to $2,093,969.
As of September 30 and June 30, 1998, the Company had a
working capital deficiency amounting to $3,045,201 and
$3,207,294 respectively .
As of September 30, 1998, the Company's backlog amounted to
$670,000. Backlog represents the amount of revenue the Company
expects to realize from work to be performed on uncompleted
contracts and from contracts on which work has not yet begun.
-5-
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
Lastly, as of September 30, 1998 and June 30, 1998 the Company
owes approximately $2,127,690 and $2,154,856, respectively, of
payroll taxes and related penalties and interest. Certain
taxing authorities have filed liens against the Company as a
result of the unpaid payroll taxes. Should the taxing
authorities take further actions, the results could be
detrimental to the Company's ability to operate.
The Company is aggressively attempting to obtain additional
contracts in order to mitigate its low backlog and vigorously
attempting to settle disputes in connection with mechanic's
lien placed on certain completed projects in order to collect
its non-current receivables and pay its unpaid payroll taxes,
however, there can be no assurance that it will be able to
obtain additional contracts, settle its disputes, and pay its
payroll taxes.
These factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial
statements do not include adjustments relating to the
recoverability and realization of assets and classification of
liabilities that might be necessary should the Company be
unable to continue in operation.
NOTE 3 - LONG TERM DEBT
During December 1997, the Company entered into an agreement
with the Iron Workers Local 40, 361 and 417 Joint Security
Funds (the "Union") in order to settle $1,750,000 of 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 project as well as $1,750,000 of its related
mechanic's lien on the project. Upon any funds being released
or paid under such mechanic's lien, the Union will have
priority and receive all funds until the debt is paid in full
before the Company may receive any funds. The Company will
then receive credit for any payment received by the Union
related to the assigned portion of the mechanic's lien
received. The amount outstanding at September 30, 1998 and
June 30, 1998 is $1,500,000 and $1,575,000. In connection with
such liability, the Company has accrued interest of $113,584
and $77,584 as of September 30, 1998 and June 30, 1998,
respectively.
-6-
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
As of September 30, 1998, union dues payable mature as
follows:
Year ending
June 30,
-----------
1999 $ 225,000
2000 300,000
2001 300,000
2002 300,000
2003 300,000
Thereafter 75,000
----------
$1,500,000
==========
NOTE 4 - STOCKHOLDERS' EQUITY
a) Deferred Compensation
During December 1997, the Company authorized the issuance, in
its third quarter, of 290,000 shares of Common Stock, pursuant
to its Incentive Plan. Of the 290,000 shares issued in March
1998 to management, 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. Half of these
shares vested on June 1, 1998, and half vest on January 1,
1999. The Company also authorized the filing of a
Post-Effective Amendment to the Form S-8 Registration
Statement initially filed in February 1997 to register for
resale the 290,000 common shares issued pursuant to the
Company's Incentive Plan. In addition to the foregoing, the
Company also authorized the issuance of 50,000 common shares
to certain of its employees and consultants. In connection
with these issuances, the Company recorded deferred
compensation and consulting expenses amounting to
approximately $459,000 which is based on the average closing
bid price of $1.50 per share for the month of March 1998, with
a 10% discount in order to reflect their fair value as a
result of their restrictions at time of issuance. The above
shares which do not vest immediately and were recorded as
deferred compensation, are being amortized over the vesting
period. For the three months ended September 30, 1998,
compensation and consulting expense amounted to $36,250.
-7-
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
b) Prepaid Rent
During February 1998, the Company issued 106,667 shares of its
common stock to USABG, as consideration to USABG for issuing
48,000 shares of its own common stock to RSJJ in consideration
for payment in full of the rent due by the Company to RSJJ for
the period from January 1, 1998 through December 31, 1998. The
value of the shares issued by the Company is recorded at the
value of the rent otherwise due under the lease which amounted
to $240,000. An amount of $60,000 was recorded as rent expense
for the three month period ended September 30, 1998.
NOTE 5 - COMMITMENTS 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
estimates may be subject to revision in the normal course of
business.
b) Leases
The Company leases its administrative offices pursuant to a
signed lease agreement with RSJJ, an entity wholly-owned by
the Company's President. Such lease requires monthly payments
of $20,000 and expires on December 31, 1998. As of September
30, 1998, under such lease agreement, the Company was required
to make future minimum lease payments amounting to $60,000
through December 31, 1998, however, as a result of the
transaction described in Note 4b, the Company has prepaid its
rent in full through December 31, 1998. Subsequent to December
31, 1998, the Company plans on leasing such facility on a
month to month basis from RSJJ for a reduced monthly amount to
be negotiated.
Included in general and administrative expenses is rent
expense which amounted to $60,000 for the three months ended
September 30, 1998 and 1997, respectively.
-8-
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
c) Significant customers and vendors
For the three months ended September 30, 1998 and 1997, the
Company had two unrelated customers, which accounted for
approximately 100% and 99% respectively, of contract revenue.
As of September 30, 1998, the Company had two unrelated
customers which accounted for approximately 76% of total net
contracts and retainage receivable.
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 or 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.
There can be no assurance that the Company will be able to
obtain future bonding as a result of its financial condition.
f) Mechanic's liens
Various actions to foreclose upon mechanic's liens filed
during the last two fiscal years were commenced. Such actions
amounted to approximately $15,544,324. The mechanic's liens
have been filed in relation to work completed and billed. The
liens filed also include claims, interest, and other costs not
included in revenue or contracts and retainage receivable. The
Company elected not to recognize any portion of the additional
revenue associated which any contract claims until the amounts
recovered can be accurately estimated. Based upon the
assessment of management, the Company has recorded an
allowance for doubtful accounts to adjust its receivable to
their estimated realizable amount.
g) Payroll taxes
As of September 30, 1998 and June 30, 1998, the Company owed
approximately $2,127,690 and $2,154,856 of payroll taxes and
related estimated penalties and interest. Federal and state
tax liens have been filed against the Company in connection
with unpaid payroll taxes. Although, as of September 30, 1998,
the Company has not entered into any formal repayment
agreements with the respective tax authorities, it has been
attempting to make monthly payments as funds become available.
-9-
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
h) Legal proceedings
i) The Company is a defendant in a proposed settlement
regarding the State Insurance Fund for unpaid workers'
compensation insurance for the period from April 29,
1993 to December 31, 1994. Currently negotiations for a
final settlement are in their final stages. The Company
as of June 30, 1998, accrued approximately $300,000
based on the expected settlement amount, which has been
included in accrued expenses.
ii) In connection with various mechanic's liens filed as
discussed in note 5(f), certain actions were
commenced against the Company prior to June 30, 1998
as follows:
a) A customer of the Company is seeking judgement in
the amount of $500,000,000 for violation of
contract, interference of contract and punitive
damages. The Company has filed a mechanic's lien for
$13,640,747 relating to work performed at the
project. The Company is in the process of pretrial
discovery which is scheduled to be completed by June
1999. The Company intends to vigorously defend
against any claims as well as vigorously prosecute
its claims against the owner of the project.
b) A general contractor commenced an action to recover
a total of $6,326,000 which includes costs to
complete the job delay and other damages. The
Company has commenced an action for extras and
retainage due and filed a mechanic's lien in the
amount of $1,488,775. In addition, the Company is
attempting to recover $759,500 for contract
interference. The Company intends to vigorously
defend against any claims as well as vigorously
prosecute its claims against the general contractor.
iii) During August 1998, a majority of the Company's, as
well as its President's, affiliated entities and
USABGs' books and records were seized in connection
with a Grand Jury Subpoena from the United States
District Court for the Eastern District of New York.
Grand Jury investigations can result in a range of
actions from a finding of no true bill to indictments
and prosecutions for any number of federal offenses.
Criminal prosecutions can result in a wide range of
penalties, including probation, imprisonment, fines,
restitution and forfeiture of assets depending upon
the specific type and severity
-10-
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
of the offense. As Grand Jury investigations are
secret, legal counsel is not at liberty to comment
upon the investigation. Additionally, since the
investigation is in its initial stages, legal counsel
cannot comment regarding any possible liability of
the Company. Accordingly, as of September 30, 1998,
no accrual for any potential loss contingency has
been made.
iv) 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.
While the ultimate outcome of these matters cannot be
determined presently with certainty, management is of
the opinion that the outcome will not have a material
adverse effect on the Company's financial position.
i) Claims
The Company elected not to recognize any portion of the
revenue associated with any contract claims until the
amounts recoverable can be accurately estimated. Claims
are amounts in excess of the agreed contract price
which the Company seeks to collect for customer caused
delays, errors in specifications and designs, contract
terminations, and change orders in dispute or
unapproved.
j) Year 2000 Compliance
The Company has reviewed its computer software for Year 2000
compliance and does not anticipate any adverse effects on its
financial condition, liquidity or results of operations.
k) Environmental
The Company is subject to rules and regulations from federal
and state agencies in connection with safety rules and
environmental safety. The failure to comply with such rules
and regulations may have an adverse effect on the Company's
operations. The Company believes that it is in substantial
compliance with all applicable rules and regulations.
-11
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
NOTE 6 - RELATED PARTY TRANSACTIONS
a) Due from affiliates
As of September 30, 1998, the Company has advanced funds to
various affiliates. These advances are non-interest bearing
and are due on demand. As of September 30, 1998 and June 30,
1998 such advances amounted to $205,480 and $126,489,
respectively.
b) Due from parent company
As of September 30, 1998 and June 30, 1998, the Company has
advanced $459,358 and $405,458, respectively to its parent,
USABG. Such advances bear no interest and are due on demand.
c) Due to officer and affiliates
As of September 30, 1998 and June 30, 1998, the total due to
officers and affiliates, amounting to $274,108 and $386,457,
respectively, represents advances made by the President of the
Company and affiliated entities which bear no interest and are
due on demand.
d) Rent expense
Included in general and administrative expenses is rent
expense paid in cash and stock by the Company pursuant to a
signed lease agreement with RSJJ, a company owned by the
Company's President. The lease expires December 31, 1998. Rent
expense for both three months ended September 30, 1998 and
1997 amounted to $60,000.
e) Purchase of material and labor
For the three months ended September 30, 1997 the Company paid
to U.S. Bridge Corp. (Maryland) ("US Bridge MD") approximately
$35,000 for materials and labor necessary to perform steel
erection services. US Bridge MD is a wholly-owned subsidiary
of USABG. Crown Crane, Inc. is an entity which is 50% owned by
the Company's President. As of September 30, 1998 and June 30,
1998, $113,584, was owed to Crown Crane, Inc. which has been
included in due to officer and affiliates.
Atlas Gem Leasing Inc. ("AGLI") is an entity which is wholly
owned by the Company's President. As of September 30, 1998, $
34,068 was owed to AGLI which has been included in due to
officer and affiliates.
-12-
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
f) Employment agreement
On April 4, 1995 the Company entered into an employment
agreement with its President for a term of approximately three
(3) years which expired on June 30, 1998. The Company's
President formally elected to extend the agreement for an
additional three years until June 30, 2001 under the same
terms. The employment agreement provides for an annual salary
of $300,000 with a 10% annual escalation subject to adjustment
by the Board of Directors. In addition, the President was
granted options to purchase 6,250 shares of the Company's
common stock, all of which options vested immediately and are
due to expire in April 2000. 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. In addition, the President receives
an annual non-accountable expense allowance of $50,000 and the
Company shall pay premiums on a $3,500,000 life insurance
policy for the benefit of individuals designated by the
President, with an estimated annual premium of $80,000.
-13-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company's operations are substantially controlled by Joseph M.
Polito, its President, since he owns approximately 66.3% of the outstanding
shares of USABG and may be considered the beneficial owner of the Company. Mr.
Polito is also a 100% shareholder of 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 has ownership interests in
Waldorf Steel Fabricators, Inc. ("Waldorf") (which ceased operations on August
1, 1995), Crown and AGLI which provide services to the Company.
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 has operated primarily as a subcontractor and as a prime contractor on
two projects. The Company has completed in excess of twenty-one (21) projects
with an aggregate project value of approximately $40,000,000 and is currently
engaged in two (2) projects with an aggregate value of approximately $11,600,000
(inclusive of change orders). The Company plans to maintain its subcontractor
presence in the steel industry; however, it intends also to focus on obtaining
projects as a general contractor.
-14-
<PAGE>
As of September 30, 1998, the backlog balance on these two remaining
contracts amounted to $670,000. Such contracts are expected to be completed
during January and February 1999.
In December 1996, the Company obtained a commitment for a Surety Bond
Line of Credit ($10,000,000 single project limit) from UAGC for its general
contracting projects. This commitment allowed the Company to pursue those
general contracting projects in the public and private sectors which require
Performance Bonds. However, since New York State and City agencies require bonds
from bonding companies licensed by the State of New York and UAGC is not a New
York licensed bonding company, the Company has been unable to bid as a general
contractor on projects for New York State and New York City agencies. The
Company has approached several New York licensed bonding companies, but as of
the date hereof, has not been approved by any company to receive bonding.
The UAGC bonding commitment ceased as a result of UAGC's filing for
bankruptcy. Accordingly, the Company currently does not have any bonding.
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. For the three months ended September 30, 1998, the
Company did not obtained new contracts, however change order to the two existing
contracts amounted to approximately 1,500,000. The Company did not obtain any
contracts for the three months ended September 30, 1998. The Company will
attempt to bid on available contracts, however, there can be no assurance that
it will be able to obtain any.
The following schedule summarizes changes in backlog on contracts
during the three ended September 30, 1998. Backlog represents the amount of
revenue the Company expects to realize from work to be performed on uncompleted
contracts in progress and from contractual agreements on which work has not yet
begun.
<TABLE>
<CAPTION>
<S> <C>
Backlog balance at July 1, 1997 $ 877,410
Change orders to contracts in progress at June 30, 1998 1,560,745
New contracts during the three months ended September 30, 1998 --
----------
2,438,155
Less: contract revenue earned during the year ended June 30, 1998 1,768,155
----------
Backlog balance at September 30, 1998 $ 670,000
----------
</TABLE>
-15-
<PAGE>
The Company's failure to obtain new contracts will have a material
impact on net revenues and income from continuing operations in the future if
this trend continues. The Company's current backlog and the expected collection
on liens over the next six to twelve months is not anticipated to be sufficient
to meet its operating needs and accordingly raises the issue about the Company's
ability to continue as a going concern.
The Company recognizes revenue and costs for all contracts under the
percentage of completion method measured by the percentage of costs incurred to
date to estimated total costs for each contract. 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 became 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 estimate earnings on
uncompleted contracts," represents billings which exceed revenues recognized on
respective uncompleted contracts at the end of each period.
An amount equal to the costs attributable to unapproved change orders
and claims is included in the total estimated revenue when realization is
probable and the amount can be estimated. 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, or change orders which are either in dispute or
unapproved.
Three months ended September 30, 1998 compared to three months ended September
30, 1997
Contract revenues for the three months ended September 30, 1998 and
1997 amounted to $1,768,155 and $ 8,918,385 respectively. This represents a
decrease of $7,150,230 (or approximately 80%). This material decrease in revenue
is a direct result of the Company's inability to obtain any material new
contracts during the year ended June 30, 1998 and subsequent thereto.
-16-
<PAGE>
The Company increased its allowance for uncollectibles up to $4,664,932
to reserve for the potential uncollectibility of certain receivables for which
mechanic's liens were filed and for the settlement of certain mechanics liens on
a certain jobs. For the three months ended September 30, 1998 and 1997, the
Company had two unrelated customers, respectively, which accounted for
approximately 100%, and 99%, respectively, of total revenues. As of September
30, 1998 the Company had two unrelated customers which accounted for
approximately 76% of total net contract and retainage receivables.
The Company classified a portion of its contracts receivables as
non-current since the Company cannot reasonably estimate the timing such
receivables will be collected as a result of various mechanic liens filed.
Despite the Company's inability to obtain new contracts during the year
ended June 30, 1998 and the three months ended September 30, 1998, the Company's
gross profit for the three months ended September 30, 1998 amounted to 41% as
compared to 15%, for the three months ended September 30, 1997. This increase in
gross profit is primarily a result of the change orders to the remaining two
contracts the Company is about to complete. Normally change orders tend to yield
a higher gross profit.
General and administrative expenses have decreased by $112,253 (or 19%)
to $478,444 for the three months ended September 30, 1998, from $590,697 for the
three months ended September 30, 1997. The decrease in general administration
costs is mainly attributable to the Company's attempt to reduce its overhead as
a result of its lack of new contracts.
-17-
<PAGE>
USA BRIDGE CONSTRUCTION OF N.Y., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. Despite the fact that the Company
generated net income of $150,526 for the quarter ended September 30, 1998, for
the year ended June 30, 1998 the Company generated a net loss amounting to
$2,093,968 after recording a bad debt expense amounting to $2,376,187 in
connection with the settlement of certain contract receivable and by increasing
its allowance for bad debts as a result of various mechanic's liens placed on
completed contracts during the year ended June 30, 1998 and the recording of a
non-recurring charge of $300,000 for a potential settlement of unpaid insurance
resulting from an ongoing lawsuit from the State Insurance Fund.
Additionally, as of September 30, 1998, the Company has a working
capital deficiency amounting to approximately $2,970,201. The Company classifies
certain contracts and retainages receivables as non-current as a result pending
litigations in connection with claims and pending change orders. As of September
30, 1998, the Company's backlog amounted to approximately $670,000. Backlog
represents the amount of revenue the Company expects to realize from work to be
performed on uncompleted contracts and from contracts on which work has not yet
begun. Lastly, as of September 30, 1998, the Company owes approximately
$2,127,690 of payroll taxes and related penalties and interest. Certain taxing
authorities have filed certain liens against the Company as a result of the
unpaid payroll taxes.
The Company is aggressively trying to obtain additional contracts in
order to mitigate its low backlog and is vigorously attempting to settle
disputes in connection with mechanics' liens placed on certain projects in order
to collect its receivables and liquidate its payroll taxes, however, there can
be no assurance that it will be able to obtain additional contracts. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include adjustments relating to
the recoverability and realization of assets and classification of liabilities
that might be necessary should the Company be unable to continue in operation.
The timing of the collectibility of $8,400,750, which represents the
noncurrent amount of receivables (net of allowances) 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 allowance for doubtful accounts was increased to $4,396,383 through
June 30, 1998 from $2,287,000 at June 30, 1997 to reflect the filing of
mechanic's liens on certain jobs as well as a review of the aging of the
accounts receivable and the settlement of certain receivables subsequent to year
end. No further adjustments to the allowance have been deemed necessary by
management as of September 30, 1998.
-18-
<PAGE>
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 USABG issuing stock to its landlord, RSJJ. As of
September 30, 1998, the Company owes approximately $2,127,690 of payroll taxes
and related estimated penalties and interest. Federal and state tax liens have
been filed against the Company in connection with unpaid payroll taxes. Although
as of September 30, 1998, the Company has not entered into any formal repayment
agreements with the respective tax authorities, it has been attempting to make
monthly payments based on oral agreements and available funds.
In December 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 the EklecCo
project as well as $1,750,000 of the Company's related mechanic's lien (which
was discharged on the lien-debtor's payment of a bond with the court). Upon the
distribution of any funds under such bond, the Union will be repaid any balance
it is owed, in full, and the Company shall receive the remainder thereof. The
Company will receive credit for any payments received by the Union related to
the assigned portion of the bond. The amount outstanding at September 30, 1998
is $1,500,000, of which $300,000 has been classified as current and $1,200,000
as non-current.
Net cash provided by operating activities for the three months ended
September 30, 1998 and 1997 amount to $418,751 and $157,227 respectively.
The Company used $320,240 and $248,878 for the three months ended
September 30, 1998 and 1997 respectively in cash from financing activities. Such
cash was used primarily for repayments of advances to affiliates and officers.
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.
Mechanics Liens
39th St. Bridge
This 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
-19-
<PAGE>
Maryland as defendants. The Company's claim for relief in this action was
$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. On October 7,
1998, the Company entered into an agreement with Perini whereby it agreed to
release and discharge in full its claims against Perini for 20% of the net
amount to be recovered and collected by Perini in connection with Perini's
action against the City of New York.
Robert Moses Causeway
This action was commenced May 9, 1997, and involves money due to The
Company for work it performed at the Robert Moses Causeway Project. The Company
filed a mechanic's lien in the amount of $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. The action against Kiska Construction Corp. seeks foreclosure of the
mechanic's lien and a judgment for the amount of $279,346 against Kiska
Construction Corp. and the bonding company, Seaboard Surety Company. Currently,
USABG is in the process of completing pre-trial discovery. The Company intends
to prosecute the action until such time as a judgment or settlement can be
obtained.
Claims By Perini Corporation
On February 7, 1997, Perini Corporation filed an 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 and allege
defective work on the Stillwell Avenue project and upon a loss/profit agreement
for both the Stillwell Avenue project and the 39th Street Bridge project. The
Company has counterclaimed for the amounts set forth in the above discussion of
the two actions involving Perini Corporation, and its claims are based upon the
same theories as those set forth above. (See above "Mechanics Liens").
Claims by and against EklecCo
This action involves work performed by The Company at the Palisades Mall in
Nyack, New York. This action was commenced ins October, 1997 by EklecCo (f/k/a
Pyramid Company of Rockland) seeking to vacate The Company's mechanic's lien in
the amount of $13,640,747, seeking judgment in the amount of $500,000,000 for
violations of contract, interference of contract and punitive damages.
Thereafter, The Company served an answer with counterclaims seeking to foreclose
on its $13,640,747 mechanic's lien, seeking a judgment in the amount of
$13,640,747 relating to work performed at the project, seeking $1,420,000 in
bonus money promised to The Company and seeking punitive damages. The Company's
mechanic's lien was reinstated by the court and a bond was purchased by EklecCo
and issued for the amount of the lien, plus interest. The Company is currently
in the process of pre-trial discovery, which is scheduled to be completed by
June 1999. The Company intends to vigorously defend against EklecCo's claims as
well as vigorously prosecute its claims against EklecCo.
-20-
<PAGE>
Humphreys & Harding, Inc. Claim against The Company
The Company performed the steel erection work to construct the Republic
of Korea Permanent Mission to the United Nations at 335 East 45th Street,
Manhattan. Humphreys & Harding commenced an action to recover $6,326,000, which
includes $1,604,000 as cost to complete after The Company left the job,
$2,790,000 for delay and other damages, $234,000 as liquidated damages under the
"time of the essence" provision to the contract and $1,698,000 for claims by
other subcontractors for delay. The Company has commenced a separate action for
$1,878,872 representing extras and retainage due, $1,488,775 on the mechanic's
lien, and $667,000 and $92,500 for interference with contracts of Wheeling
Corrugated and Canam Steel.
Claim Against and By State Insurance Fund
In December 1995, the Commissioners of the State Insurance Fund of New
York 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, and others in the US District Court
for the Southern District of New York, 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 and believe that State Insurance Fund's legitimate
claims should not exceed $300,000.
A settlement conference was requested by plaintiff's counsel and the
parties have met on several occasions to discuss settlement. Plaintiff's counsel
requested that the defendant submit documentary evidence to support its position
and the same has now been furnished to plaintiff's counsel. This submission
supports defendant's contention that its liability for premiums should not
exceed three hundred thousand dollars. Active negotiations are in their final
stages and plaintiff's counsel is in the process of drafting final settlement
documents. The Company believes this matter will likely be settled with a modest
cash payment to be made to the plaintiff (less than $60,000.00) on the signing
of settlement documents. Any additional payments would involve assignments of
portions of current accounts receivable, to be due and payable only when
received and any balances then remaining would be payable at the end of five
years. It is expected that based upon current negotiations a final settlement of
all the terms and conditions will be in place by the end of this year but until
all settlement documents are formally and finally executed, no assurances may be
made.
Subpoena by the Securities and Exchange Commission and Grand Jury Subpoena
The Company effected an underwritten initial public offering of its
securities in August 1996 (the "IPO"). In January 1998, as part of an inquiry
into the activities of a principal underwriter of the IPO, an Order of Private
Investigation was issued by the SEC relating to such underwriter and three
-21-
<PAGE>
companies, including the Company, in which the underwriter had acted as
principal underwriter, in which The Company was subpoenaed by the SEC to produce
certain records. The Company and its officers and directors have fully
cooperated with the SEC and there has been no additional inquiry from the SEC.
At this juncture, the inquiry is too preliminary to form any judgments or
assessments regarding any possible liability of the Company.
In September 1998, the Company received a Grand Jury Subpoena Duces
Tecum from the United States District Court for the Eastern District of New York
and a search warrant, for the records of the Company and USABG and any
affiliated companies as well as those of Joseph Polito. the Company believes
that the Grand Jury investigation is in connection with an investigation of the
underwriter pending in the United States District Court for the Southern
District of New York. Grand Jury investigations can result in a range of actions
from a finding of no true bill to indictments and prosecutions for any number of
federal offenses. Criminal prosecutions can result in a wide range of penalties,
including probation, imprisonment, fines, restitution and forfeiture of assets
depending upon the specific type and severity of the offense. In view of the
fact that this investigation appears to be in its initial stage, at this
juncture the investigation is too preliminary to assert any judgment or
assessments regarding any possible liability of USABG and The Company.
-22-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS None.
ITEM 2 - CHANGES IN SECURITIES None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None.
ITEM 5 - OTHER INFORMATION None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K; The Company filed a report on Form
8-K on November 24, 1998, disclosing the Company's change in certifying
accountant from Scarano and Tomaro, P.C. to Massella, Tomaro & Co., LLP. On
November 30, 1998, the Company filed an amendment to the November 24, 1998, Form
8-K to include exhibit 16.1, a letter on change in certifying public accountant.
-23-
<PAGE>
EXHIBIT INDEX
27.1 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, therunto daily authorized.
Dated: January 28, 1999 USA Bridge Construction of N.Y., Inc.
By: /s/Joseph M. Polito
-------------------
Joseph M. Polito, President
By: /s/Steven Polito
----------------
Steven Polito, Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 118,584
<SECURITIES> 0
<RECEIVABLES> 15,727,503
<ALLOWANCES> 4,664,932
<INVENTORY> 0
<CURRENT-ASSETS> 3,497,981
<PP&E> 24,516
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,973,736
<CURRENT-LIABILITIES> 6,543,182
<BONDS> 0
0
0
<COMMON> 504,494
<OTHER-SE> 3,726,060
<TOTAL-LIABILITY-AND-EQUITY> 11,973,736
<SALES> 1,768,155
<TOTAL-REVENUES> 1,768,155
<CGS> 1,045,215
<TOTAL-COSTS> 1,045,215
<OTHER-EXPENSES> 478,414
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,000
<INCOME-PRETAX> 208,526
<INCOME-TAX> 58,000
<INCOME-CONTINUING> 150,526
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,526
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
