FORM 10-QSB
________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
Commission File No. 1-8129.
US 1 INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Indiana 95-3585609
(State of Incorporation) (IRS Employer Identification No.)
1000 Colfax, Gary, Indiana 46406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 944-6116
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 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 ___
As of August 12, 1996, 9,829,336 shares of common stock were outstanding.
TOTAL OF SEQUENTIALLY
NUMBERED PAGES: 13
Part I
Item 1. FINANCIAL STATEMENTS.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995
ASSETS
June 30, December 31,
1996 1995
(Unaudited)
CURRENT ASSETS:
Cash $ 58,499 $ 53,602
Restricted cash - former officer defense fund 43,843 43,315
Account receivable--trade less allowance for
doubtful accounts of $120,000 and $150,139 1,708,582 1,525,626
Other receivables less valuation allowance
of $200,000 501,018 144,561
Deposits 171,630 172,180
Prepaid expenses 161,018 133,437
------------ ------------
Total current assets 2,644,590 2,072,721
------------ ------------
FIXED ASSETS:
Equipment 15,828 15,828
Less accumulated depreciation and amortization (6,672) (5,730)
------------ ------------
Net fixed assets 9,156 10,098
------------ ------------
ASSETS HELD FOR SALE:
Land 1,215,000 1,215,000
Valuation allowance (1,011,000) (1,011,000)
------------ ------------
Net assets held for sale 204,000 204,000
------------ ------------
TOTAL ASSETS $ 2,857,746 $ 2,286,819
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
June 30, December 31,
1996 1995
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 2,997,187 $ 2,929,321
Accrued expenses 246,609 252,269
Short-term debt 2,154,322 1,822,519
Insurance and claims 262,226 209,678
Accrued interest 39,974 43,529
Accrued compensation 35,708 41,291
Estimated fuel and other taxes 182,619 163,027
----------- -----------
Total current liabilities 5,918,645 5,461,634
----------- -----------
LONG-TERM DEBT 459,733 515,767
NEGATIVE EQUITY IN PARTNERSHIP INVESTMENT 458,968 458,968
REDEEMABLE PREFERRED STOCK,
authorized 5,000,000 shares; no par value,
Series A shares outstanding: 1,094,224
Liquidation preference $0.3125 per share. 547,112 547,112
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock authorized 20,000,000 shares;
no par value; shares outstanding 9,829,336. 40,489,296 40,489,296
Accumulated deficit (45,016,008) (45,185,958)
------------ ----------
Total shareholders' equity (deficiency) (4,526,712) (4,696,662)
------------ ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,857,746 $ 2,286,819
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
1996 1995 1996 1995
OPERATING REVENUES $ 4,096,404 $ 3,530,038 $ 7,743,395 $ 7,622,070
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Purchased transportation 3,078,289 2,731,990 5,814,274 5,864,099
Insurance and claims 137,536 126,441 262,584 246,599
Salaries, wages, and other 186,472 30,875 307,933 150,409
Commissions 398,773 325,759 727,685 668,577
Operating supplies and expense 75,795 165,842 260,995 323,471
Operating taxes and licenses 33,297 124,383 68,564 180,857
Communications and utilities 15,542 21,515 32,385 39,841
Rents 4,767 16,750 17,767 28,250
Depreciation and amortization 470 361 941 721
------------ ------------ ------------ -----------
Total operating expenses 3,930,941 3,543,916 7,493,128 7,502,824
------------ ------------ ------------ -----------
OPERATING INCOME 165,463 (13,878) 250,267 119,246
------------ ------------ ------------ -----------
NON-OPERATING INCOME (EXPENSE):
Interest income 16,543 5,604 16,988 14,759
Interest expense (84,643) (53,755) (152,123) (98,868)
Other income 24,364 31,084 54,814 58,163
------------ ------------ ------------ -----------
Total non-operating (expense) (43,736) (17,067) (80,321) (25,946)
------------ ------------ ------------ -----------
INCOME FROM CONTINUING OPERATIONS 121,727 (30,945) 169,946 93,300
DISCONTINUED OPERATIONS:
Net loss from LRS Transportation (212,529) (440,840)
------------ ------------ ----------- -----------
NET INCOME (LOSS) $ 121,727 $ (243,474) $ 169,946 $ (347,540)
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) from continued
operations $ 0.02 $ .01 $ 0.02 $ .01
Discontinued operations (.02) (.02)
------------ ------------ ------------ ------------
Earnings (loss) $ 0.02 $ (.01) $ 0.02 $ (.01)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 9,829,336 9,829,336 9,829,336 9,829,336
============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
Six Months Ended June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 169,946 $(347,540)
Adjustments to reconcile net income (loss) to net
cash provided from (used for) operations:
Depreciation and amortization 942 1,896
Changes in operating assets and liabilities:
Accounts receivable - trade (182,956) (253,389)
Other receivables (356,457) 32,559
Prepaid assets (27,581) (144,392)
Deposits 550 66,531
Accounts payable 67,866 357,794
Accrued expenses (5,660)
Accrued interest (3,555)
Insurance and claims 52,548 (90,731)
Other accrued compensation (5,583) 21,727
Fuel and other taxes 19,592 (116,793)
Other (524) 22,505
---------- ----------
Net Cash used for operating activities (270,872) (449,833)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of L.R.S. Transportation (50,000)
Additions to property and equipment (19,729)
Distributions in excess of investment in joint venture 23,172
---------- ----------
Net cash used for investing activities (46,557)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 158,306 281,901
Proceeds from other related party loans 117,463 230,000
Proceeds from issuance of preferred stock 4,425
---------- ----------
Net cash provided from financing activities 275,769 516,326
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,897 19,936
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 53,602 124,250
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 58,499 $ 144,186
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
Cash paid during period for interest $ 155,678 $ 94,781
========== ==========
See accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1. BASIS OF PRESENTATION
The accompanying consolidated condensed balance sheet as of June 30, 1996 and
the consolidated condensed statements of operations for the three and six
months ended June 30, 1996 and 1995 and cash flows for the six month periods
ended June 30, 1996 and 1995 are unaudited, but in the opinion of management,
include all adjustments (consisting of normal, recurring accruals) necessary
for a fair presentation of the financial position and the results of operations
for such periods. These statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended December
31, 1995 and the notes thereto included in the Company's annual report on Form
10-K. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, as permitted by the requirements of the
Securities and Exchange Commission, although the Company believes that the
disclosures included in these financial statements are adequate to make the
information not misleading. The results of operations for the three and six
months ended June 30, 1996 and 1995 are not necessarily indicative of the
results for a full year.
2. GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company experienced
significant revenue declines since 1992, cumulative losses, and negative cash
flows during the three-year period ended December 31, 1995. At June 30, 1996
and 1995, the Company's current liabilities exceeded its current assets by $3.3
million and $3.4 million, respectively. At June 30, 1996, the shareholder
deficit was $4.5 million. While there have been improved results from
continuing operations and a significant decrease in operating costs, the
Company's recurring shareholders' deficiency, pending litigation, and negative
cash flows, and inability to remain in compliance with financial covenants with
its lenders, continue to raise substantial doubt about its ability to continue
as a going concern.
3. RESTATEMENT OF OLD TRADE PAYABLES
During 1995, the Company took into income certain old trade payables that the
Company believed it would never have to pay. However, these amounts were
reinstated as accounts payable during the fourth quarter of 1995. To reflect
this reinstatement for the six months ended June 30, 1995, income from
continuing operations has been reduced by approximately $329,847 ($0.03 per
share) from the amount which was previously reported.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
4. RELATED PARTY TRANSACTIONS
During 1995, the Company leased a portion of their staff and management from
K&A, Inc., an employee leasing company owned by the Company's President and a
general partner of August Investment Partnership ("AIP"). Total fees for
certain other leased employees charged by K&A, by AIP, and by the Company's
primary insurance provider during the six months ended June 30, 1995 were
$107,335. These amounts have been classified as salaries, wages, and other in
the accompanying consolidated statements of operations. These employees are
now employed by the Company. Services provided to related party companies
amounting to approximately $122,841 are included in revenue for the six months
ended June 30, 1996.
The Company's primary insurance provider ("AIFE") is managed by a General
Partner of AIP. These policies were in place before AIP provided management to
the Company. The terms and conditions of the policies have not changed. AIFE
converted outstanding accounts payable at December 31, 1994 and premium and
deductibles from LRS into a note payable during 1995. The balance of these
notes was $257,733 and $280,070 at June 30, 1996 and December 31,
1995,respectively, as disclosed in Note 6.
5. SHORT-TERM DEBT
Short-term debt at June 30, 1996 and December 31, 1995 consists of:
June 31, December 31,
1996 1995
---------- ----------
Line of credit $1,251,522 $1,093,216
Current portion of long-term debt 48,000 14,303
Due to Landair 200,000 200,000
Due to August Investment Partnership 100,000 100,000
Due to Antonson/Kibler 554,800 415,000
---------- ----------
Total $2,154,322 $1,822,519
========== ==========
Due to Landair--Mortgage note payable to seller of L.R.S. Transportation, Inc.,
interest at 8.5% until January 10, 1996 and at the prime rate published on
January 10, 1996 thereafter, due in two installments of $100,000 each on
January 10, 1996 and 1997. The Company has not made the January 1996 payment
and intends to dispute liability based on misrepresentations by the sellers
(see Note 8).
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
6. LONG-TERM DEBT
Long-term debt at June 30, 1996 and December 31, 1995 consists of:
June 31, December 31,
1996 1995
--------- ------------
Mortgage note payable to August Investment
Partnership collateralized by land,
interest at prime + .75%, interest only
payments required, principal balance due
July 31, 1999 $250,000 $250,000
Mortgage note payable to AIFE,
collateralized by land, interest at 9%,
monthly repayments of $5,000, including
interest, remaining principal balance
due July 31, 1999 $257,733 280,070
-------- --------
Total debt 507,733 530,070
Less current portion 48,000 14,303
-------- --------
Total long-term debt $459,733 $515,767
======== ========
7. DISCONTINUED OPERATIONS
On January 11, 1995, the Company purchased certain assets of the less-than-
truckload (LTL) refrigerated operations of Landair Services, Inc. The Company
formed the wholly owned subsidiary, L.R.S. Transportation, Inc. (LRS), which
included these operations. The acquisition was made for $50,000 in cash and a
$200,000 promissory note payable in two installments of $100,000 each on
January 10, 1996 and 1997 to Landair Services, Inc. Interest on the
installment note will be 8.5% until January 10, 1996 and at the prime rate
published on January 10, 1996 thereafter. Collateral for the note consists of
unimproved land owned by the Company located in Texas.
On August 15, 1995, LRS ceased operations. As of December 31, 1995, LRS
remaining liabilities were approximately $1.5 million. Of this amount $520,000
are loans payable to related parties as discussed in footnotes 5 and 6. Also
included in this amount is approximately $530,000 due to the seller of LRS for
the financing of the purchase price, back rent, and early termination fees on
leased assets used by LRS prior to its closure. Reference is made to footnote
8 for disclosure of related litigation.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
8. COMMITMENTS AND CONTINGENCIES
Over the past few years, the Company has had a significant number of lawsuits
instituted or threatened against it as a result of its poor financial condition
and its inability to meet certain financial obligations. For the most part,
these suits have been settled through cash payments of a reduced amount or
through the institution of payment plans. The undisputed claims that have not
been settled are reflected as liabilities in the Company's financial statements
and are included in accrued expenses in the accompanying consolidated balance
sheets. The litigation that is currently pending (for which the Company
believes it has accrued adequate reserves) includes:
Farrell v. Transcon Incorporated. This matter is a wrongful termination and
misrepresentation claim brought by Mr. Farrell in Los Angeles Superior Court on
July 8, 1993 alleging damages of $1.0 million. In addition to the wrongful
termination action, Mr. Farrell has filed a workers' compensation claim, which
is pending before the California Workers' Compensation Appeals Board. The
Company's workers' compensation insurance carrier has settled with Mr. Farrell
on the workers' compensation portion of the suit. The remaining charges were
settled during the second quarter of 1996 for $132,000. This payment is due to
be paid in September 1996 when the reserve set up for the former officers is
scheduled to be returned to the Company.
Landair Transport, Inc. v. US 1 Industries, Inc. and LRS Transportation. On
March 15, 1996, Landair Transportation filed suit in U.S. District Court for
$623,414 against the Company for breach of contract arising out of an asset
purchase agreement, related promissory note, and leases. The Company disputes
this claim based on misrepresentations made by the plaintiffs.
Paltrans. On March 27, 1996, the mortgage holder on the property owned by the
Paltrans partnership filed to put the property into receivership effective
immediately. It is the Company's position that it is liable on the $3.0
million dollar mortgage only to the extent of the value of the property. The
mortgage holder feels the Company is liable for the entirety of the short fall
which could approximate $1.0 million.
The Company believes it has adequately reserved for the above claims, however,
additional liability is possible and the ultimate disposition of these claims
may have a material adverse effect to the Company's results of operations, cash
flows and financial position.
The Company carries insurance for public liability and property damage, and
cargo loss and damage through various programs. The Company's insurance
liabilities are based upon the best information currently available and are
subject to revision in future periods as additional information becomes
available. Management believes it has adequately provided for insurance
claims.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
Results of Operations
The financial statements and related notes contained elsewhere in this Form
10-Q and in the Company's Form 10-K for its fiscal year ended December 31, 1995
are essential to an understanding of the comparisons and are incorporated by
reference into the discussion that follows.
Period 1996 Compared to 1995
The Company's operating revenues increased from $7.6 million for the period
ended June 30, 1995 to $7.7 million for the same period in 1996. The Company's
operating revenues are generated principally from its truckload carrier,
Keystone, which generates sales through independent agents who originate
shipments that then are transported by independent contractors who own their
own equipment. The increase in operating revenues resulted from the increase
in agents working for the company replacing the loss of an agent in the Detroit
area.
Total operating expenses remained virtually the same from 1995 to 1996
remaining at $7.5 million dollars. The largest component of operating expenses
is purchased transportation, which generally varies in proportion to operating
revenues at approximately 77%. Commissions generally vary in proportion to
operating revenues. Insurance and claims also generally vary in proportion to
operating revenues, although they also depend on claims experience.
Non-operating expenses remained the same from 1995 and 1996 except interest
expense with increased from .09 million for the six months ended June 30, 1995
to $.15 million for the same period in 1996. Interest expense varies in
proportion to the Company's outstanding interest-bearing indebtedness which
increased during 1995 as the result of the LRS losses.
The LRS discontinued operations resulted in a loss of $.44 million which
affected the overall operating results for the first quarter of 1995. Overall
operating results for the period ended June 30, 1996 increased to $.17 million
from a loss of $.35 million. The remaining difference in overall operating
results of approximately $80 thousand was do to the overall decrease in
expenses during 1996 over 1995 and the slight increase in revenue.
Future Prospects
The Company's management is pleased with recent results - second quarter
results were better than either the prior quarter or the comparable quarter
during the prior year - and is continuing to implement various plans to
increase revenue and improve operating results. However, its financial
condition remains tenuous and AIP and its partners have expressed their desire
not to further finance the operations of the Company. As a result, the Company
is looking for new sources of financing and exploring alternative options in
order to address its cash needs and to boost its operating performance.
Liquidity and Capital Resources
As of June 30, 1996, the Company's financial position remains precarious. The
Company had a deficit in shareholders' equity of $4.5 million and its current
liabilities of $5.9 million exceeded its current assets by $3.3 million. As
described above, the Company has currently begun increasing sales but previous
significant revenue declines, operating losses in prior years and losses from
discontinued operations leaving the Company in its current position. The
Company's borrowing from the partners of AIP and the Company's president to
alleviate the current cash shortages has enabled the Company to continue in
operation. While the Company's current situation is not good, current growth
plans are designed to grow the Company while remaining profitable which should
enable it to improve its liquidity position.
The Company continues to suffer from a poor cash flow from operations although
the cash flow improved from a negative of $.05 million during the six months
ended June 30, 1995 to a positive of $.005 million during the same period of
1996. A positive cash flow for the period ended June 30, 1996 was provided by
operating profits and loans from related parties.
The Company's principal source of outside liquidity is its $3 million line of
credit with FINOVA. The availability of the line of credit is based on 80% of
Keystone's eligible accounts receivable. At June 30, 1996, the outstanding
borrowings were $2.15 million, which essentially was the entire amount that the
Company was eligible to borrow. The line of credit expires on May 31, 1997.
The Company is currently in violation of several covenants of the lender. The
lender is expected to continue to lend to the Company and is currently
preparing to lend to other subsidiaries of the Company in the third quarter of
1996. Additional liquidity has been provided by loans from AIP and the
Company's president.
Shareholders and potential investors in the Company are cautioned that the
Company's financial condition remains precarious and that the favorable
compromise of the Company's various lawsuits and an increase in operating
performance remain essential to its long-term survival. Unfortunately, there
can be no assurance that these goals will be achieved.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See footnote 8 to the unaudited financial statements included herein.
Item 6(b). Reports on Form 8-K
No Reports on Form 8-K have been filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
US 1 Industries, Inc.
Michael E. Kibler
President
James C. Day
Chief Financial Officer
August 12, 1996
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