SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

                     ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended June 30, 1999     Commission File Number 33-24608-LA
---------------------------------------     -----------------------------------


                        USA INTERNATIONAL CHEMICAL, INC.
             (Exact name of Registrant as specified in its charter)
            -------------------------------------------------------

            DELAWARE                                  95-4068292
--------------------------------        ---------------------------------------
(State of other jurisdiction of         (I.R.S. Employer Identification Number)
incorporation or organization)



     15915 Ventura Blvd., Suite 301
            Encino, California                                  91436
   -----------------------------------------                 ----------
   (Address of Principal Executive Offices)                  (Zip Code)


Registrant's telephone number including area code:      (818) 783-0393
                                                        ---------------

Securities  registered  under Section 12(b) of the Exchange Act: None Securities
registered under Section 12(g) of the Exchange Act: None

Indicate by check mark 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 issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

 YES    X       NO

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year: $-0-

The aggregate  market value of the issuer's voting stock held by  non-affiliates
of the issuer  based upon the average  bid and asked  prices of such stock as of
August 20, 1999, was $394,672.

The number of shares  outstanding of the issuer's  common stock as of August 20,
1999, was 1,346,809.

Documents  Incorporated  By Reference:  S-18  Registration  Statement  effective
November 10, 1988.

Transitional Small Business Disclosure Form    Yes      No X
                                                  ----    ----


<PAGE>2



                                             PART I

ITEM 1.  BUSINESS

The Company

USA International  Chemical, Inc. (the "Company") was originally incorporated in
the State of  California  on June 25,  1986.  On August 22,  1988,  the  Company
changed its corporate domicile to the State of Delaware, through a merger into a
newly formed Delaware corporation named "USA International Chemical, Inc."

In April,  1989, the Company  completed a public  offering of 22,481,000  units,
each  unit  consisting  of one share of  common  stock and one Class A  purchase
warrant,  at an  offering  price  of $.01 per  Unit.  The net  proceeds  of that
offering to the Company were approximately $155,000.

On August 27, 1994,  the  Company's  three  largest  shareholders  (the "Selling
Shareholder Group") entered into a Stock Purchase Agreement in which they agreed
to sell  88,200,000  shares of the  Company's  common stock to Shane  Investment
Company, Inc. for $69,000 in cash. These shares represented approximately 78% of
the Company's  then  outstanding  common shares.  This Stock Purchase  Agreement
closed on  September  23,  1994 at which time  Shane  Investment  Company,  Inc.
assumed  ownership  of the  88,200,000  shares  of the  Company's  common  stock
becoming the Company's largest single shareholder.

At that time Yale  Farar  became  Chairman  of the  Board,  President  and Chief
Financial  Officer of the Company while Harold S.  Fleischman  became a Director
and the Company's Secretary. On September 1, 1998, Mr. Farar resigned from those
positions, and Mr. Fleischman became President and Chief Financial Officer. Also
at this time, Mr. Arthur Lyons was appointed to the Company's Board of Directors
and appointed as Secretary.

Past Operations

In  December  1989 the  Company  sold its  customer  list for  sales of  various
chemicals  and other  product  lines for the  maintenance  of aircraft to Gerald
Fields & Co., an  unaffiliated  company,  for $6,000.  Gerald  Fields & Co. also
received  certain  equipment  and  fixtures  related to this  business  from the
Company and took over the  Company's  obligations  under its lease on facilities
located in Rancho Cucamonga, California. The purchase price for the above assets
was $6,000,  plus a five year earnout  provision  based on annual gross sales in
excess of  $200,000.  The  earnout  period  expired  in 1995 with no  additional
consideration earned or paid to the Company.

Until  September  1994 the Company sold a line of skin care  products  through a
foreign distributor. The Epicuren line of skin care products was manufactured by
Epicuren, Inc. of Mission Viejo, California,  and includes a six step program of
scrub, cleanser, conditioner,  concentrate, gel and moisturizer. The Company had
no written agreement with the manufacturer,  but understood that it had the sole
right to distribute these products in Singapore.

Between July and September,  1994 the Company expanded its product line and sold
lint free cloth to a foreign customer.

The Company was also  involved in the  purchase  and resale of various  chemical
products  to  the  Government  of  Taiwan.   This  line  of  business  was  also
discontinued in September 1994.


<PAGE>3



The  Company's  warranty  obligations  under its former  lines of  business  are
limited to the replacement of defective products,  which in turn are replaced by
the  manufacturer.  The Company has not received any warranty  claims related to
this former business.

Present Operations

As a result of the change of control of the Company in September  1994, all past
business  operations were discontinued and the Company does not expect to pursue
any of the Company's  former lines of business.  Consequently,  since  September
1994,  the  Company  has had no  operating  revenues  and the  Company  does not
anticipate any revenues from business  operations  until the Company develops or
acquires new business lines.

Since September 1994 and for the foreseeable future, the Company's sole activity
is  expected  to be the  identification  and  evaluation  of  suitable  business
opportunities  which could result in an acquisition by or a combination with the
Company.  Pursuant to this  activity,  Management is constantly  evaluating  and
holding  discussions  with a variety of  companies  and  individuals  that could
result, in the near or distant future, in a business acquisition or combination.
Because of this  approach,  the  announcement  of a  definitive  or  consummated
transaction  involving  the Company  could  happen at any time.  There can be no
assurance as to when or if such an  acquisition  or  combination  might occur or
that other types of business  transactions  might not be considered  and entered
into by the Company.

Employees

At present,  the Company has one part-time employee.  Harold S. Fleischman,  the
President and Chief Financial Officer of the Company,  devotes  approximately 5%
of his time to the Company's business. Arthur Lyons, the Company's Secretary, is
employed by the Company on an as-needed basis.

ITEM 2.  PROPERTIES

The Company's  President  currently  provides  office space to the Company at no
cost to the Company.

ITEM 3.  LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None



<PAGE>4



                                     PART II

ITEM 5.  MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
           MATTERS

a.      Principal  Market or Markets.  The Company's  common stock is listed for
        trading  on the OTC  Market's  Electronic  Bulletin  Board  where  it is
        currently listed under the symbol "USXC." The following table sets forth
        the high and low bid quotations for the Company's  stock, as reported by
        the National  Quotation Bureau,  Inc. for the periods  indicated.  These
        prices  are  believed  to  be  representative  inter-dealer  quotations,
        without retail markup,  markdown or  commissions,  and may not represent
        actual transactions.


                                   Common Stock
                                   ------------
                                Bid             Ask
                               -----           -----
    Quarter Ended          Hi       Low      High      Low
--------------------     ------   -------   ------   -------
June 30, 1999             3/8      3/16     1 1/8     1 1/16
March 31, 1999            3/8      3/8      1 1/8     1 1/8
December 31, 1998         7/16     3/8      1 1/8     1 1/8
September 30, 1998        7/16     1/4      1 1/8     1 1/8

June 30, 1998             3/16     5/1        1/4     1 1/4
March 31, 1998            1/4      3/1        5/8     1 5/8
December 31, 1997         7/16     1/4      1 5/8     1
September 30, 1997        3/8      1/4      1 5/8     1 1/4



b.      Approximate Number of Holders of Common Stock. The approximate number of
        holders of the Company's common stock at August 20, 1999 was 250.

c.      Dividends.  Holders  of  common  stock  are  entitled  to  receive  such
        dividends as may be declared by the  Company's  Board of  Directors.  No
        dividends have been paid with respect to the Company's  common stock and
        no dividends are anticipated to be paid in the foreseeable future.

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS

Results of Operations for the Fiscal Year Ended June 30, 1999 as Compared to the
Fiscal Year Ended June 30, 1998

There were no sales or cost of sales for the year  ended  June 30,  1999 or June
30, 1998.

General and  Administrative  expenses  increased  $5,382 to $16,496 for the year
ended June 30, 1999 from $11,114 for the year ended June 30, 1998.  The increase
was principally due to additional legal expenses  incurred in the current fiscal
year and $2,000 in expense (by the issuance of common stock) related to services
provided by a Director.

Net loss was $17,296  for the year ended June 30,  1999  compared to $11,914 for
the year  ended  June 30,  1998.  The  increase  of $5,382 was the result of the
increased expenses discussed in the preceding paragraph.

<PAGE>5

Results of Operations for the Fiscal Year Ended June 30, 1998 as Compared to the
Fiscal Year Ended June 30, 1997

There were no sales nor cost of sales for the year  ended June 30,  1998 or June
30, 1997.

General and Administrative  expenses amounted to $11,114 for the year ended June
30,  1998,  a decrease  of $26,779  from the $37,893 for the year ended June 30,
1997. The decrease was  principally the result of legal expenses and other costs
incurred in the 1997 fiscal year in connection  with the evaluation of potential
merger opportunities.

Net loss  amounted  to $11,914  for the year ended June 30,  1998,  compared  to
$38,648 for the year ended June 30,  1997.  The decrease in the net loss was the
result of reduced expenses discussed in the preceding paragraph.

Financing Activities

Net cash provided by financing  activities  was $15,000 and $10,000 for the year
ended June 30, 1999 and 1998, respectively.

Capital Resources and Liquidity

Since September, 1994 the Company has generated no revenues from operations.

At June 30, 1999, the Company had cash (and working capital) of $3,515, compared
to cash (and working capital) of $3,610 at June 30, 1998. During fiscal 1999 and
1998, capital contributions of $15,000 and $10,000,  respectively,  were made to
the  Company  by  principal  stockholders  in order to provide  working  capital
necessary to continue operations.

The Company expects to fund its ongoing capital needs through  investments in or
advances to the Company by its principal stockholders or other affiliates of the
Company.

During the fiscal  years ended June 30, 1999 and 1998,  the Company used cash of
$15,095 and $11,914, respectively, in operations.

The Company has no current operations which generate sales. Due to the Company's
current  status,  the "Year 2000  Problem" is not expected to have any affect on
the  Company's  current  financial  condition.  Until the  Company  develops  or
acquires new business  lines,  no operating  revenues are expected and operating
losses are anticipated.

For the  foreseeable  future the  Company's  sole activity is expected to be the
identification  and evaluation of suitable  business  opportunities  which could
result  in an  acquisition  or  other  business  combination.  There  can  be no
assurance,  however, that the Company will be successful in its efforts, or that
another type of business transaction might not be considered.


<PAGE>6



ITEM 7.   FINANCIAL STATEMENTS

The financial  statements  are set forth on pages F-1 through F-7 attached as an
exhibit to this document. See "Item 13. Exhibits and Reports on Form 8-K."

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURES

Not Applicable.
                                            PART III

ITEM 9.   DIRECTORS AND EXECUTIVE OFFICERS

The Directors and Officers of the Company are as follows:

         Name                            Age               Position
  ----------------------               -------         ----------------

   Harold S. Fleischman                  57             President, Chief
                                                        Financial Officer and
                                                        Director

   Arthur Lyons                          53             Director and Secretary


HAROLD S.  FLEISCHMAN  has  served as a  Director  since  September  1994 and as
Secretary from  September  1994 to September  1998 at which time Mr.  Fleischman
became  President  and  Chief  Financial  Officer.  Mr.  Fleischman  has been an
attorney for over 25 years and currently  maintains his own private  practice in
Encino, California. He earned both a Bachelor's degree and Law degree from UCLA.

ARTHUR LYONS was appointed  Director and Secretary  September 1, 1998. Mr. Lyons
has been a businessman and restauranteur in Southern  California for over twenty
years.  Mr. Lyons served on the Palm Springs,  California City Council from 1992
to 1996. He is the author of twelve mystery novels/short stories and has written
screenplays  for  television.  Mr.  Lyons is a  graduate  of the  University  of
California at Santa Barbara.

All  directors of the Company  hold office until the next annual  meeting of the
shareholders or until their successors have been elected and qualified.

The officers of the Company are  appointed  by the Board of  Directors  and hold
office until their death, resignation or removal from office.

ITEM 10.  EXECUTIVE COMPENSATION

During the last three  fiscal  years  ended June 30,  1999,  1998 and 1997,  the
Company did not pay or accrue any amounts for cash compensation to its Executive
Officers.  The Company does not anticipate any salary to its Executive  Officers
for the current fiscal year.

In  fiscal  year 1999 one  Director  of the  Company  received  6,000  shares of
restricted common stock as compensation for services rendered.


<PAGE>7



On May 10, 1996 the Board of Directors adopted the USA  International  Chemical,
Inc.  1996 Stock  Option  Plan which is a  non-qualified  option  plan under the
Internal  Revenue  Code  (i.e.  certain  advantageous  tax  provisions  are  not
available to participants). The Company allocated 500,000 shares of common stock
which may be issued  pursuant to the Stock  Option  Plan.  Officers,  directors,
employees  and other  persons  rendering  valuable  services  to the Company are
eligible to receive  options  pursuant to the Stock Option Plan.  As of June 30,
1999, no options had been granted under this Plan.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

The  following  table sets forth,  as of August 20, 1999 the stock  ownership of
each person known by the Company to be the  beneficial  owner of five percent or
more of the Company's Common Stock.

<TABLE>
   <S>          <C>                               <C>                            <C>

  TITLE OF         NAME AND ADDRESS OF              AMOUNT AND NATURE OF           PERCENT
   CLASS           BENEFICIAL OWNERS                BENEFICIAL OWNERSHIP           OF CLASS
 -----------      ---------------------------       ----------------------        -----------

   Common         Yale Farar,(1)                            419,550                  31.20%
                  23679 Calabasas Road, #412
                  Calabasas, CA 91302

   Common         Sim Farar(1)(2)                           365,950                  27.2%
                  22287 Mulholland Dr., #390           (Individually)
                  Calabasas, CA  91302

   Common         Justin B. Farar(2)                         97,412                   7.2%
                  22287 Mulholland Dr., #390           (Individually)
                  Calabasas, CA  91302

   Common         Joel D. Farar(2)                           93,500                   6.9%
                  22287 Mulholland Dr., #390           (Individually)
                  Calabasas, CA  91302

   Common        Beth Farar(3)                               83,599                   6.2%
                 15915 Ventura Blvd., Ste. 301         (Individually)
                 Encino, CA  91436
</TABLE>


(1)     Yale Farar and Sim Farar are brothers but disclaim any beneficial
        ownership of each others shares.

(2)     Justin Farar and Joel Farar are the sons of Sim Farar.  Sim Farar may be
        deemed to have  beneficial  ownership  of the shares held by his younger
        son,  Joel,  but  disclaims  beneficial  ownership of shares held by his
        older son, Justin.

(3)     Beth Farar is the  daughter  of Yale  Farar.  Mr.  Farar  disclaims  any
        beneficial ownership of shares held by Ms. Farar.


<PAGE>8



The following  table sets forth,  as of August 20, 1999, the stock  ownership of
each officer and director  individually  and all  directors  and officers of the
Company as a group.

<TABLE>

 <S>           <C>                                 <C>                                    <C>

  TITLE OF           NAME AND ADDRESS OF               AMOUNT AND NATURE OF                  PERCENT
   CLASS              BENEFICIAL OWNERS                BENEFICIAL OWNERSHIP                 OF CLASS
  --------     -------------------------------        ----------------------              -------------

   Common      Harold S. Fleischman, Director                 6,200                             0.5%
               15915 Ventura Blvd., Ste. 301
               Encino, California  91436

   Common      Arthur Lyons                                   6,000                             0.4%
               646 Morango Road
               Palm Springs, CA  92264

   Common    Ownership by Management as a                    12,200                             0.9%
                   Group (2 persons)

</TABLE>


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Yale Farar and Sim Farar  (principal  shareholders of the Company) have invested
funds in the  Company  to pay for  operating  expenses  and to  provide  working
capital to the Company.  During fiscal year 1999,  these  contributions  totaled
$15,000 which were reflected in the financial  statements as additional  paid in
capital.

The Company's principal shareholders anticipate making additional  contributions
or advances to the Company on an as-needed  basis until such time as the Company
establishes or acquires an operating business.


<PAGE>9



ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

        (a) The following documents are being filed as part of this report:

<TABLE>
                           <S>                                                            <C>
                                                                                          PAGE
            (1)             Financial Statements


                            Report of Independent Auditors - Ernst & Young LLP............F-1

                            Balance sheet as of June 30, 1999.............................F-2

                            Statements of Operations for the years ended
                            June 30, 1999 and 1998........................................F-3

                            Statements of Stockholders' Equity for the
                            years ended June 30, 1999 and 1998............................F-4

                            Statements of Cash Flows for the years ended
                            June 30, 1999 and 1998........................................F-5

                            Notes to Financial Statements..........................F-6 to F-7

            (2)             Exhibits

</TABLE>

EXHIBIT
  NO.             DESCRIPTION                          LOCATION
------- ------------------------------    -----------------------------------

 3.1     Articles of Incorporation and    Incorporated by reference to
         Bylaws                           Exhibit No. 3.1 to the
                                          Registrant's S-18 Registration
                                          Statement (No. 33-24608-LA)
------------------------------------------------------------------------------

           (b)              Reports on Form 8-K:

            None.



<PAGE>10



SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                             USA INTERNATIONAL CHEMICAL, INC.




Dated: September  17, 1999            By: /s/ HAROLD S. FLEISCHMAN
                                             ---------------------------------
                                              Harold S. Fleischman, President


In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  Registrant and in the capacities and on the
dates indicated.

     Signature                   Capacity                            Date

/s/ HAROLD S> FLEISCHMAN
------------------------
Harold S. Fleischman        President, Chief Executive        September 17, 1999
                            Officer, Treasurer, (Principal
                            Financial and Accounting Officer)
                            and Director

/s/ ARTHUR LYONS
--------------------
Arthur Lyons               Secretary and Director             September 17, 1999


<PAGE>11


Supplemental  Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Act by Non- reporting Issuers.

No annual report or proxy material has been sent to security  holders during the
last fiscal year.

<PAGE>F-1


                         Report of Independent Auditors

Board of Directors
USA International Chemical, Inc.

We have audited the accompanying  balance sheet of USA  International  Chemical,
Inc.  as  of  June  30,  1999,   and  the  related   statements  of  operations,
stockholders'  equity,  and cash  flows for each of the two years in the  period
then ended.  These financial  statements are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of USA International  Chemical,
Inc. as of June 30, 1999,  and the results of its  operations and its cash flows
for each of the two years in the period then ended in conformity  with generally
accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that USA
International  Chemical,  Inc. will continue as a going concern. As discussed in
Note 1 to the  financial  statements,  under  existing  circumstances,  there is
substantial  doubt  about the  ability of USA  International  Chemical,  Inc. to
continue as a going  concern at June 30, 1999.  Management's  plans in regard to
that  matter  also are  described  in Note 1. The  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.

                                                      /s/ ERNST & YOUNG LLP


Los Angeles, California
August 19, 1999


<PAGE>F-2



                        USA International Chemical, Inc.

                                  Balance Sheet

                                  June 30, 1999

<TABLE>
<S>                                                                                  <C>
Assets
Current assets:
   Cash                                                                                    $       3,515
                                                                                           ===============
Total assets                                                                               $       3,515
                                                                                           ===============

Liabilities and stockholders' equity
Current liabilities - Accounts payable                                                     $         201

Stockholders' equity:
   Common Stock, $.00001 par value, authorized 50,000,000 shares,
     issued and outstanding 1,347,809 shares                                                          13
   Additional paid-in capital                                                                    338,167
   Retained deficit                                                                             (334,866)
                                                                                          ----------------

Total stockholders' equity                                                                         3,314
                                                                                          ----------------

Total liabilities and stockholders' equity                                                 $       3,515
                                                                                          ================
</TABLE>

See accompanying notes.


<PAGE>F-3



                        USA International Chemical, Inc.

                            Statements of Operations


<TABLE>
<S>                                                                      <C>                   <C>
                                                                               Year ended June 30
                                                                             1999             1998
                                                                       -----------------------------------

Sales                                                                     $           -    $           -

General and administrative expenses                                              16,496           11,114
                                                                       -----------------------------------
                                                                                 16,496           11,114
                                                                       -----------------------------------

Loss before income tax provision                                                (16,496)         (11,114)
Income tax provision                                                                800              800
                                                                       -----------------------------------
Net loss                                                                  $     (17,296)   $     (11,914)
                                                                       ===================================

Net loss per share (basic and diluted)                                    $        (.01)   $        (.01)
                                                                       ===================================

Weighted average shares outstanding                                           1,345,976        1,341,809
                                                                       ===================================
</TABLE>

See accompanying notes.


<PAGE>



                        USA International Chemical, Inc.

                       Statements of Stockholders' Equity


<TABLE>
<S>                                 <C>           <C>            <C>             <C>           <C>

                                           Common Stock           Additional
                                    ------------------------      Paid-in        Retained
                                        Shares        Amount      Capital        Deficit         Total
                                    ------------------------------------------------------------------------

Balance at June 30, 1997               1,341,809    $      13   $    311,167   $   (305,656)   $     5,524
   Capital contributions                       -            -         10,000              -         10,000
   Net loss for year ended June 30,
     1998                                      -            -              -        (11,914)       (11,914)
                                    ------------------------------------------------------------------------
Balance at June 30, 1998               1,341,809           13        321,167       (317,570)         3,610
   Capital contributions                       -            -         15,000              -         15,000
   Common stock issued to director
     for services                          6,000            -          2,000              -          2,000
   Net loss for year ended June 30,
     1999                                      -            -              -        (17,296)       (17,296)
                                    ========================================================================
Balance at June 30, 1999               1,347,809    $      13   $    338,167   $   (334,866)   $     3,314
                                    ========================================================================

</TABLE>

See accompanying notes.



<PAGE>F-5



                        USA International Chemical, Inc.

                            Statements of Cash Flows

<TABLE>
<S>                                                                      <C>                  <C>
                                                                                Year ended June 30
                                                                               1999            1998
                                                                         ----------------------------------

Operating activities
Net loss                                                                   $     (17,296)  $     (11,914)
Adjustments to reconcile net loss to net cash used in operating
   activities:
     Common  stock  issued for services  2,000  Changes in operating
     assets and liabilities:
       Accounts payable                                                              201               -
                                                                         ----------------------------------
Net cash used in operating activities                                            (15,095)        (11,914)

Financing activities
Capital contributions                                                             15,000          10,000
                                                                         ----------------------------------
Net cash provided by financing activities                                         15,000          10,000
                                                                         ----------------------------------
Net decrease in cash                                                                 (95)         (1,914)
Cash at beginning of year                                                          3,610           5,524
                                                                         ----------------------------------
 Cash at end of year                                                        $      3,515   $       3,610
                                                                         ==================================

Supplemental disclosure of cash flow information
   Cash paid during the year for:
   Income taxes                                                            $         800   $         800
                                                                         ==================================

See accompanying notes.
</TABLE>


<PAGE>F-6



                        USA International Chemical, Inc.

                          Notes to Financial Statements

                                  June 30, 1999


1. Basis of Presentation

USA International  Chemical, Inc. (the Company) was incorporated in the state of
Delaware and since September 1994 the Company has no operating  revenue and does
not anticipate any revenues from business  operations until the Company develops
or acquires new business  lines.  Management  recognizes  that the Company has a
history of losses and is evaluating  various  alternatives to  recapitalize  the
Company which may provide the opportunity for the Company to continue as a going
concern.

It is not possible to predict the success of management's efforts. If management
is unable to achieve any of its goals,  the Company  will find it  necessary  to
undertake  actions as may be appropriate to continue  operations.  The financial
statements do not reflect any adjustments  that might result from the outcome of
this uncertainty.

2. Summary of Significant Accounting Policies

Income Taxes

At June 30, 1999, the Company has federal and state operating loss carryforwards
of  approximately  $276,000 and $117,000,  respectively,  expiring in years 2004
through 2015. As a result of a change in ownership in 1994, the Company does not
believe it will be able to utilize approximately  $177,000 (federal) and $67,000
(state) of these operating loss  carryforwards  to reduce future taxable income.
With respect to the remaining  operating loss carryforwards of $99,000 (federal)
and  $50,000  (state),  future  ownership  changes  would  result  in an  annual
limitation on their  utilization.  No benefit has been recorded in the financial
statements related to such operating losses as their realization is not assured.

Net Loss Per Share

Net loss per share has been computed based on the weighted average common shares
outstanding during each year.

Use of Estimates and Assumptions

The preparation of financial  statements in accordance  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.


<PAGE>F-7



                        USA International Chemical, Inc.

                    Notes to Financial Statements (continued)




3. Related Party Transactions

The Company  maintains its executive  offices in space provided by the Company's
President at no charge.

During  1999 and  1998,  the  Company  did not pay or  accrue  any  amounts  for
compensation to officers.

4. Stockholders' Equity

The  Company  has a USA  International  Chemical,  Inc.  1996 Stock  Option Plan
(Plan).  The Plan is a  nonqualified  plan under which options to purchase up to
500,000  shares of Common  Stock may be  issued.  The  exercise  price  shall be
determined by the Plan  administrator;  however,  in the case of Incentive Stock
Option grants, the exercise price shall be 100% of the fair market value at date
of grant (110% in the case of options  granted to an optionee who owns more than
10% of the Company's Common Stock). Option terms shall be determined by the Plan
administrator,  but no later than 10 years after date of grant or five years for
Incentive  Stock  Options to  optionees  who own more than 10% of the  Company's
Common Stock.

No options have been granted under the Plan.