FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1999
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 000-22095
USA Service Systems, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-1039267
(State of Incorporation) (IRS Employer Identification Number)
10770 Wiles Rd. Coral Springs, FL 33076
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (954) 752-4289
(Former name and address)
(Former year end)
Princeton Management Corporation
5650 Greenwood Plaza, Suite 216
Englewood, CO 80111
December 31, 1998
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 28, 1999
----- --------------------------------
Common Stock, $.001 par value 5,725,000 Shares
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS Page Number
-----------
Condensed Balance Sheet at February 28, 1999
and February 28,1998 (Unaudited) 3
Condensed Statements of Operations for the Three and Six Months Ended
February 28, 1999 and 1998 (Unaudited) 4
Condensed Statements of Cash Flows for the Three and Six Months Ended
February 28, 1999 and 1998(Unaudited) 5
Notes to the Unaudited Condensed Financial Statements 6-7
Item 2. Management Discussion and Analysis 8-11
Item 6. Exhibits and Reports on Form 8-K 12
2
USA Service Systems, Inc.
Condensed Balance Sheet, Unaudited
February 28, 1999 February 28, 1998
----------------- -----------------
ASSETS
Cash $ 27,587 $ 34,186
Accounts Receivable, Net of Allowance for Doubtful Accounts of
$1,385 at February 28, 1999 22,930 47,341
Prepaid Consulting Fees and Other Current Assets 208,500 0
--------- ---------
Current Assets 259,017 81,527
Property and Equipment, Net of $2,994 in Accumulated
Depreciation at February 28, 1999 15,874 0
--------- ---------
TOTAL ASSETS $ 274,891 $ 81,527
========= =========
LIABILITIES AND CAPITAL
Accounts Payable $ 17,583 $ 40,525
Accrued Expense 24,682 0
Notes Payable, Current 50,000 125,000
Other Current 3,582 0
--------- ---------
Current Liabilities 95,847 165,525
Common Stock-$.001 Par Value, 100,000,000 Shares Authorized, 5,725 1,524
5,725,000 Shares Issued and Outstanding at February 28, 1999 and
1,523,500 issued and outstanding at February 28, 1998
Additional Paid-in-Capital 807,207 81,390
Accumulated Deficit (633,888) (166,912)
--------- ---------
Total Shareholders' Equity/(Deficiency) 179,044 (83,998)
--------- ---------
Total Liabilities and Shareholders' Equity/(Deficiency) $ 274,891 $ 81,527
========= =========
3
USA Service Systems, Inc.
Condensed Statements of Operations, Unaudited
Three Months Ended Six Months Ended
February 28, February 28,
1999 1998 1999 1998
--------- --------- --------- ----------
Revenues $ 46,259 $ 85,029 $ 86,063 $ 161,353
Costs of Sales 23,361 76,517 55,456 141,108
Gross Profit 22,898 8,512 30,607 20,245
Selling Expense 21,096 0 29,006 0
General and Administrative Expense 135,212 88,060 219,908 134,836
Total Expense 156,308 88,060 248,914 134,836
Net Loss (133,410) (79,548) (218,307) (114,591)
Accumulated Deficit, Beginning (500,478) (78,430) (415,581) (43,387)
Accumulated Deficit, Ending (633,888) (157,978) (633,888) (157,978)
Net Loss Per Common Share $ 0.11 $ 0.10 $ 0.17 $ 0.10
4
USA Service Systems, Inc.
Condensed Statements of Cash Flows
Three Months Ended Six Months Ended
February 28, February 28,
1999 1998 1999 1998
---- ---- ---- ----
Net Loss $(133,410) $ (79,458) $(218,307) $(114,591)
Adjustments to Reconcile Net Loss and Net Cash
Used in Operating Activities
(Increase)/Decrease in Accounts Receivable (4,875) 11,059 47,093 (20,422)
(Increase)/Decrease in Prepaid Consulting Fees
and Other Current Assets (28,500) 0 (208,500) (32,313)
Increase/(Decrease) in Accounts Payable 1,702 9,212 (26,619) 27,153
Increase/(Decrease) in Accrued Expenses (10,272) (17,941) 18,860 (17,941)
Increase/(Decrease) in Other Current Liabilities (5,832) 0 (5,832) 0
Total Adjustments (47,777) 2,330 (174,998) (43,523)
Net Cash Used in Operating Activities (181,187) (77,128) (393,305) (158,114)
Cash for Equipment (Purchases)/Disposal 3,820 (14,097) 3,820 (12,176)
Net Proceeds, Private Placement 247,007 79,476 669,907 79,476
Placement/(Repayment) of Notes (43,613) 40,000 (255,910) 125,000
Cash Flows from Financing Activities 203,391 119,476 413,997 204,476
Net Increase/(Decrease) in Cash 26,027 28,251 24,512 34,186
Cash at Beginning of Period 1,560 5,935 3,075 0
Cash Balance at End of Period 27,587 34,186 27,587 34,186
Non Cash Financing Activity:
During the 3 month period ending February 28, 1999 debt
of $200,000 was converted to common stock
5
USA Service Systems, Inc.
Notes to Financial Statements
1. Quarterly Financial Statements
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of normal
recurring adjustments, which are necessary for a fair presentation of
the results for the interim period have been made.
2. Summary of Significant Accounting Policies
Bad Debts
The Company accounts for bad debts using the allowance method. Accounts
are written off when deemed uncollectable.
Equipment
Equipment is stated at cost less accumulated depreciation. Depreciation
is provided over a useful life of three to seven years using the
straight-line method. Major replacements which extend the useful life
of equipment are capitalized and depreciated over the remaining useful
life. Normal maintenance and repair items are charged to costs and
expenses as incurred.
Cash and Cash Equivalents
For cash flow purposes the Company considers all certificates of
deposit and highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Net Loss Per Share
The computation of Net Loss per share of common stock is computed by
dividing Net Loss for the period by the weighted average number of
shares outstanding during the period. In connection with a merger
accounted for as a recapitalization, Net Loss per share reflects a
recapitalization on a retroactive basis. (See Note 3)
Revenue Recognition
Revenue is recognized using the accrual method of accounting.
3. Organization and Business
USA Service Systems, Inc. (formerly known as Princeton Management
Corporation), a shell corporation (the "Company") was incorporated
under the Laws of the State of Colorado in October 1986. Effective
November 17, 1998, the "Company", acquired (the "Acquisition") all of
the issued and outstanding securities of USA Service Systems, Inc., a
Florida operating company ("USA") in consideration for which the
Company issued 3,750,000 shares of "restricted" common stock (post
forward split) to the former USA shareholders. For accounting purposes,
the Acquisition is considered to be a capital transaction accompanied
by a recapitalization. As a result of the Acquisition, the Company has
adopted the fiscal year end of USA which is August 31.
6
4. Notes Payable, Current
The Company has been dependent on borrowings for operating capital. The
Company has borrowed $355,910, with $305,910 having been repaid. The
current balance is $50,000. The Company is currently in default on the
sole remaining note of $50,000.
5. Borrowings, Related Party Transactions
Two current Company officers have loaned the Company $21,492 in October
1998. The amount has been repaid by the Company.
6. Conversion of notes
The Company has converted notes totaling $200,000 for $0.80 per
share by issuance of 250,000 shares of common stock .
7. During the three months ended February 28, 1999 and 1998, the Company
sold 306,250 and 23,500 shares of Common Stock for $245,000 and
$29,375 respectively. During the six months ended February 28, 1999 and
1998, the Company sold 631,250 and 23,500 shares of Common Stock for
$505,000 and $29,375 respectively.
8. Change of Business
The Company has redirected its business efforts from that of a "shell"
company to one engaged in servicing of national, retail chains in the
area of product assembly, display building, product demonstrations, and
inventory counts and audits. The Company performs these services
directly for the retail chain or for various suppliers that sell to
these retail chains.
9. Letters of Intent
The Company has entered into letters of intent for the acquisition of
four companies engaged in the same type of business. The companies are
located in the Northwest, Southeast, Midwest and western parts of the
United States. Management of the Company believes these acquisitions
fit well with the Company's strategy of becoming a one-stop service
solution for national retail chains and suppliers. Negotiations for
these acquisitions are continuing.
Management of the Company believes the aggregate sales of these four
entities are approximately $16 million and have approximately 700
employees. As discussed in the Capital and Liquidity Resources section,
these acquisitions are dependent on the ability of the Company to
acquire additional financing, which is estimated to be $4.0 million.
7
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
The Private Litigation Reform Act of 1995 provides a "safe harbor" for
certain forward-looking statements. The forward-looking statements contained in
this Form 10-QSB are subject to certain risks and uncertainties. Actual results
could differ materially from current expectations. Among the factors that could
affect the Company's actual results and cause them to differ from
forward-looking statements contained herein is implementing the Company's
business strategy successfully. The implementation will depend on business,
financial and other factors beyond the Company's control. These could include
prevailing changes in consumer preferences and availability of a competent work
force. There can be no assurance that the Company will continue to be successful
in the implementation of its business strategy. Words used in this Form 10-QSB
such as "expects", "believes", "estimates" and "anticipates" and variations of
such words and similar expressions are intended to identify such forward-looking
statements.
The following should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and the Notes thereto included
elsewhere in this Form 10-QSB.
Overview
USA Service Systems, Inc. (formerly known as Princeton Management
Corporation), a shell corporation (the "Company") was incorporated under the
Laws of the State of Colorado in October 1986. Effective November 17, 1998, the
"Company", acquired (the "Acquisition") all of the issued and outstanding
securities of USA Service Systems, Inc., a Florida operating company ("USA") in
consideration for which the Company issued 3,750,000 shares of "restricted"
common stock (post forward split) to the former USA shareholders. For accounting
purposes, the Acquisition is considered to be a capital transaction accompanied
by a recapitalization. As a result of the Acquisition, the Company has adopted
the fiscal year end of USA which is August 31.
USA performs various merchandising and marketing services in the United
States. Services provided include product assembly, display building and
maintenance, product demonstrations and merchandise replenishment functions.
This service is provided mainly to national retail store chains and to major
suppliers to these chains.
As of the date of this report USA has reached agreement with four other
companies engaged in the same genre of business. USA intends to acquire these
companies with a combination of stock, cash and notes. Upon closing of these
acquisitions, USA will employ approximately 700 people and the combined entity
is expected to have approximately $16 million in annual revenues, on a pro forma
basis.
8
Change in Control
As per the terms of the Acquisition, Gregory Simonds and Gilberta Gara
resigned their positions as officers and directors of the Company. The following
persons were appointed as new officers and directors.
NAME POSITION
---- --------
George D. Pursglove Chairman, President and Chief Executive Officer,
Director
Chester E. Howard Executive Vice President, Chief Financial
Officer, Director
Douglas C. MacLellan Director
Liquidity and Capital Resources
The Company requires substantial continuing capital investment to
complete the acquisition of the four companies engaged in the same genre of
business. It is necessary for the Company to acquire these companies to gain
critical mass and the necessary infrastructure to perform as a national solution
for major retailers and vendors. Although the Company has been able to arrange
debt facilities to date, there can be no assurance that sufficient debt
financing will continue to be available in the future, nor that it will be
available on terms acceptable to the Company. The Company is relying on the net
proceeds from a private placement of its common stock (See "Subsequent Events",
below) to pay fees associated with the Acquisition, to repay certain
indebtedness, continue development of the Company's infrastructure, develop
computer systems and provide working capital. The Company believes that it will
require additional debt or equity financing to consummate the acquisition of the
four competitors and for working capital. The Company expects that the
additional financing will be in the form of additional equity placements in the
future, however, no assurance can be given that the Company will be able to
obtain additional financing on reasonable terms, if at all.
Bridge Loans
The Company has borrowed $355,910 from various entities, as evidenced
by promissory notes dated from December 2, 1997 to August 23, 1998. The notes
bear interest at the rate of 10% per annum and are due and payable one year from
their issuance. The Company has converted $200,000 at $0.80 per share by
issuance of 250,000 shares of common stock of the Company. Additionally, other
notes totaling $105,910 were repaid, leaving a currently outstanding note in the
Amount of $50,000. The Company is in default of the repayment terms of this
note. The proceeds of the notes described above (collectively, the "Bridge
Loans") were used to establish the Company's corporate office in Coral Springs,
FL, hire Regional Managers, pursue additional financing and pursue acquisitions.
9
Results of Operations
Revenues for the three months ended February 28, 1999 and February 28,
1998 respectively were $46,259 and $85,029. Revenues for the six months ended on
the same dates in 1999 and 1998 were $86,063 and $161,353 respectively. The
decrease from the prior periods is attributable to the change in focus to growth
by acquisition and the devotion of a major share of Management's efforts on that
behalf.
Costs of Sales for the same three month periods were $23,361 and
$76,517 respectively. The cost of sales for the comparative six months was
$55,456 and $141,108 respectively. The change in Cost of Sales is attributable
mainly to the change in revenues.
Selling expenses that include Regional offices and travel, advertising
and wages were $21,096 for the three month period ended February 28, 1999 and $0
for the same period ended February 28, 1998. Selling expenses for the six months
ended February 28, 1999 were $29,006. (Regional Managers and offices had not
been established for the comparative period last year).
General and administrative expense for the period ended on February 28,
1999 was $135,212 and $88,060 for the same period last year. The increase stems
from the acquisition related legal and accounting costs. The general and
administrative expense for the six months ended February 28, 1999 and 1998 were
$219,908 and $134,836 respectively.
Interest expense for the quarter ended February 28, 1999 was $1,250 and
$2,931 for the corresponding period last year.
All of the above resulted in a net loss of $133,410 for the three month
period ended February 28, 1999 and a net loss of $79,458 for the three month
period ended February 28, 1998. The main reason for the increase in losses is
the expenditures to complete the acquisition of the aforementioned four
companies and the attendant professional services expenses and travel expense.
The loss for the six month period ended February 28, 1999 is $218,307 and
$114,591 for the comparable six month period last year.
Financial Condition
The Company ended the quarter February 28, 1999, with liquid resources
(cash and accounts receivable) of $ 50,517, compared to $ 81,527 at February 28,
1998. The decrease is due to the increased general and administrative costs
associated with developing the potential acquisitions and decrease in sales due
focus on acquisitions.
Current liabilities were $ 95,487 on February 28, 1999, compared to $
165,525 on February 28, 1998. This change was due principally to the conversion
of $200,000 in notes payable to common stock at $0.80 per share.
10
Year 2000 Compliance
The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The year 2000 issue
relates to whether computer systems will function correctly and will properly
recognize dates after 1999. If they cannot adequately process beyond the year
1999 and are not corrected significant uncertainties exist. The Company uses
computer systems internally in their business and has made efforts to make sure
they are year 2000 compliant. The Company intends to have all of its software
year 2000 compliant before the end of 1999. The Company does not consider the
cost of this compliance significant.
The Company however, cannot predict the effect of the Year 2000 issue
on entities with which it does business and there can be no assurance that the
effect on these entities from the year 2000 issue will not have a material
adverse effect on the Company's business, financial condition or result of
operations. The Company will be formulating a contingency plan with respect to
such entities with which it does business.
Any new software, hardware or support systems implemented in the future
will be year 2000 compliant or will have upgrades or updates or replacement
before the year 2000. Management is currently assessing the year 2000 compliance
expense and related potential effect on the Company's earnings.
Subsequent Events
Subsequent to February 28, 1999, the Company received gross proceeds of
$50,000 through a private sale of Common Stock. The funds were used, and are
being used, as stated in the first paragraph of the Liquidity and Capital
Resources section of this report.
11
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports filed on Form 8-K
8-K filed December 2, 1998 Item 10, Other Events, Changes in Control of Registrant
Item 11, Changes in Registrant's Certifying Accountant
8-K filed October 20, 1998 Item 12, Letter of Intent, Acquisition of USA Service Systems, Inc.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
USA Service Systems, Inc.,
a Colorado corporation
Date: April 19, 1999 By: /s/ George Pursglove
-------------------------------------
George Pursglove, Chief Executive
Officer and President
Date: April 19, 1999 By: /s/ Chet Howard
-------------------------------------
Chet Howard, Chief Accounting Officer
13