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 March 31, 1997.
Commission File No. 1-8129.
US 1 INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Indiana 95-3585609
(State of Incorporation) (I.R.S. 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 May 4, 1997, there were 10,573,780 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 BALANCE SHEETS
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
ASSETS
March 31, December 31,
1997 1996
(Unaudited)
CURRENT ASSETS:
Cash $ 196,564 $ 225,541
Account receivable--trade less allowance for
doubtful accounts of $55,675 and $50,000 2,549,940 1,501,947
Other receivables 450,957 136,648
Deposits 154,267 153,892
Prepaid expenses 102,429 116,476
------------ ------------
Total current assets 3,454,157 2,134,504
------------ ------------
FIXED ASSETS:
Equipment 30,935 17,193
Less accumulated depreciation and amortization (4,702) (7,682)
------------ ------------
Net fixed assets 26,233 9,511
------------ ------------
ASSETS HELD FOR SALE:
Land 195,347 195,347
Valuation allowance (141,347) (141,347)
------------ ------------
Net assets held for sale 54,000 54,000
------------ ------------
TOTAL ASSETS $ 3,534,390 $ 2,198,015
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
March 31, December 31,
1997 1996
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 3,221,456 $ 2,722,897
Accrued expenses 165,461 152,098
Short-term debt 2,719,003 1,769,146
Insurance and claims 294,796 252,153
Accrued interest 70,882 46,880
Accrued compensation 22,171 32,428
Estimated fuel and other taxes 105,649 174,377
----------- -----------
Total current liabilities 6,599,418 5,149,979
----------- -----------
LONG-TERM DEBT 512,081 521,160
REDEEMABLE PREFERRED STOCK,
authorized 5,000,000 shares; no par value,
Series A shares outstanding: 1,094,224
Liquidation preference $0.3125 per share. 706,758 691,541
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock authorized 20,000,000 shares;
no par value; shares outstanding 10,573,780. 40,824,296 40,824,296
Accumulated deficit (45,108,163) (44,988,961)
------------ ----------
Total shareholders' equity (deficiency) (4,283,867) (4,164,665)
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,534,390 $ 2,198,015
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
1997 1996
OPERATING REVENUES $ 4,484,339 $ 3,646,991
----------- -----------
OPERATING EXPENSES:
Purchased transportation 3,392,279 2,735,985
Insurance and claims 178,847 125,048
Salaries, wages, and other 280,282 121,461
Commissions 426,100 328,912
Operating supplies and expense 193,010 185,200
Operating taxes and licenses 31,240 35,267
Communications and utilities 28,937 16,843
Rents 23,171 13,000
Depreciation and amortization 1,349 471
------------ ------------
Total operating expenses 4,555,215 3,562,187
------------ ------------
OPERATING INCOME (70,876) 84,804
------------ ------------
NON-OPERATING INCOME (EXPENSE):
Interest income 445
Interest expense (60,555) (67,480)
Other income 27,445 30,450
------------ ------------
Total non-operating (expense) (33,110) (36,585)
------------ ------------
NET INCOME (LOSS) $ (103,986) $ 48,219
============ ============
EARNINGS (LOSS) PER COMMON SHARE $ (0.01) $ .00
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 10,573,780 9,829,336
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
Three Months Ended March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $(103,986) $ 48,219
Adjustments to reconcile net income (loss) to net
cash provided from (used for) operations:
Depreciation and amortization 1,349 472
Changes in operating assets and liabilities:
Accounts receivable - trade (1,047,993) (79,796)
Other receivables (314,309) (93,170)
Prepaid assets 14,047 18,391
Deposits (375) 122
Accounts payable 498,559 93,093
Accrued expenses 13,363 (14,307)
Accrued interest 38,454 (8,323)
Insurance and claims 42,643 9,251
Other accrued compensation (24,709) (4,579)
Fuel and other taxes (68,728) (33,337)
Other (186)
---------- ----------
Net Cash (used for) operating activities (951,685) (64,150)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (18,071)
---------- ----------
Net cash (used for) investing activities (18,071)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 693,930 27,866
Proceeds from other related party loans 246,849 127,457
---------- ----------
Net cash provided from financing activities 940,779 155,323
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (28,977) 91,173
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 225,541 53,602
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 196,564 $ 144,775
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of March 31, 1997 and the
consolidated statements of operations and cash flows for the three month
periods ended March 31, 1997 and 1996 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. The year-end balance sheet data was derived from
audited financial statements. These statements should be read in conjunction
with the Company's audited consolidated financial statements for the year ended
December 31, 1996 and the notes thereto included in the Company's annual report
on Form 10-KSB. 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 months
ended March 31, 1997 and 1996 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 has experienced
operating losses and negative cash flows in recent years. At March 31, 1997
and December 31, 1996, the Company's current liabilities exceeded its current
assets by $3.1 million and $3.0 million, respectively. The Company's future
depends heavily on raising the capital to fund operations until its revenue
grows and generates sufficient cash flows to satisfy its indebtedness. Revenue
growth and the resulting improved cash flows would enable the Company to reduce
its third party debt and improve its working relationships with potential
agents and independent contractors. The Company is exploring options to raise
capital and various other potential transactions. Recent poor results, a
significant decrease in cash flows from operations, and inability to remain in
compliance with financial covenants with its lenders, continue to raise
substantial doubts about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. SHORT-TERM DEBT
Short-term debt at March 31, 1997 and December 31, 1996 comprises:
March 31, December 31,
1997 1996
---------- ----------
Line of credit $1,746,778 $1,052,734
Current portion of long-term debt 61,612 61,612
Due to August Investment Partnership 100,000 100,000
Due to Antonson/Kibler 810,613 554,800
---------- ----------
Total $2,719,003 $1,769,146
========== ==========
Under its revolving line of credit agreement the Company may borrow up to a
maximum of $3,000,000. Borrowings are limited to 80% of eligible accounts
receivable and bear interest at the prime rate (8.25% at March 31, 1997 and
December 31, 1996, respectively) plus 3.25%. Advances under the line of credit
agreement are collateralized by the Company's accounts receivable, property and
other assets. The agreement expires in May 1997. The Company and the lender
are currently in the process of extending the line of credit for multiple years
although no final agreement has been approved.
The line of credit is subject to termination upon various events of default,
including failure to remit timely payments of interest, fees and principal, any
adverse change in the business of the Company or the insecurity of the lender
concerning the ability of the Company to repay its obligations as and when due
or failure to meet certain financial covenants. Financial covenants include:
minimum net worth requirements, total debt service coverage ratio, capital
expenditure limitations, restrictions on compensation levels of key officers,
and prohibition of additional indebtedness without prior authorization. As of
December 31, 1996, the Company was in violation of the debt service coverage
ratio covenant. At March 31, 1997, it is in violation of the debt service
coverage ratio and the net worth covenants. As a result, the lender may
declare the commitment terminated and demand payment. Management does not
expect the lender to terminate the agreement before it expires.
Other-- Outstanding loans from the President of the Company and another General
Partner of August Investment Partnership (the Company's largest shareholders,
Kibler and Antonson) were $810,613 and $554,800 at March 31, 1997 and December
31, 1996, respectively. The interest rate on these loans approximates the
prime rate (8.25%) at March 31, 1997 and December 31, 1996, respectively.
August Investment Partnership loaned the Company $100,000 during the quarter
ended September 30, 1995. The interest rate on this loan is the prime rate
plus .75% (9.0%) at March 31, 1997 and December 31, 1996, respectively.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT
Long-term debt at March 31, 1997 and December 31, 1996 comprises:
March 31, December 31,
1997 1996
--------- ------------
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 232,293 239,372
TIP trailer settlement payments on principal
only of $1,000 per month, principal due
February, 2003 91,400 93,400
-------- --------
Total debt 573,693 582,772
Less current portion 61,612 61,612
-------- --------
Total long-term debt $512,081 $521,160
======== ========
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. 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 currently is pending include:
McCormick v. Trailblazer. Mr. McCormick, the owner of C.A. White Trucking
Company ("White"), filed an action on October 1, 1993, alleging that
Trailblazer failed to make required payments under an employment contract.
Trailblazer did not make the payments as a result of a dispute related to
undisclosed liens on assets purchased from White. The Company has lost this
suit, however, Trailblazer was closed in 1994 and has no funds to pay the
judgment. The suit has since been brought against US 1. The Company is
vigorously defending this action.
Simpson V. Keystone Lines--Mr. Simpson, an independent owner-operator leased to
Keystone Lines, is claiming an amount in excess of $25,000 for injuries he
sustained to his back while working for the Company. The Company is vigorously
defending against this claim on the basis that Mr. Simpson was not an employee
and is not entitled to a workers compensation claim.
Cam Regional Transport, Inc., Miller, Pry v. Trailblazer, Transcon
Incorporated. Mr. Miller and Mr. Pry owners of Cam Regional Transport, Inc.,
filed an action in 1994, alleging that Trailblazer failed to make required
payments under an employment contract and purchase agreement alleging damages
of $293,000. Trailblazer ceased to make the payments as a result of a dispute
related to their employment and inability to obtain title to the assets
purchased. The Company is vigorously defending the action.
In December 1996, Trailblazer Transportation, a subsidiary of Keystone Lines,
filed for protection from its creditors under the bankruptcy laws. At March
31, 1997, Trailblazer's liabilities exceeded its assets.
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.
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-
QSB and in the Company's Form 10-KSB for its fiscal year ended December 31,
1996 are essential to an understanding of the comparisons and are incorporated
by reference into the discussion that follows.
Period 1997 Compared to 1996
The Company's operating revenues increased from $3.6 million for the first
quarter of 1996 to $4.5 million for the same period in 1997. The Company's
operating revenues are generated principally from its truckload carrier,
Keystone, who 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 addition
of Carolina National Transportation in January 1997 and Gulf Line
Transportation in December 1997. These additions also resulted in the increase
in accounts receivable from December 31, 1996 to March 31, 1997.
Total operating expenses increased from $3.6 million for the period ended March
31, 1996 to $4.6 million for the same period in 1997. The largest component of
operating expenses is purchased transportation, which generally varies in
proportion to operating revenues at approximately 77%. Purchased
transportation increased from $2.7 million in 1996 to $3.4 million in 1997.
Commissions increased from $0.3 million in 1996 to $0.4 million in 1997.
Commissions vary in proportion to operating revenues. Insurance and claims,
which increased from $0.1 million in 1996 to $0.2 million for 1997, similarly
vary in proportion to operating revenues, although they also depend on claims
experience. The remaining operating expenses increased from $0.2 in 1996 to
$0.4 million for 1997.
Other expense decreased from $36,000 for the first quarter of 1996 to $33,000
for the first quarter of 1997 and consists primarily of interest expense.
Interest expense varies in proportion to the Company's outstanding interest-
bearing indebtedness which decreased during 1997 as the result of lower FINOVA
borrowing on Keystone receivables and the repayment of the Landair note of
$200,000 at December 31, 1996.
The Company started two new operations, Carolina National Transportation in
January 1997 and Gulf Line Transportation in December 1996. The costs of these
startups resulted in a first quarter loss of approximately $0.1 million, which
affected the overall operating results for the first quarter of 1997. Overall
operating results for the first quarter of 1997 decreased to $0.1 million loss
from a gain $0.05 million in 1996.
Future Prospects
The Company's management remains optimistic about its future prospects.
Revenue for each month in the first quarter of 1997 has increased over revenue
in the prior month. In addition, the Company started two new operations at the
beginning of 1997, Carolina National Transportation and Gulf Line
Transportation. The Company has also retained Bob Brettin, a former president
of Keystone Lines, to assist it. However, the Company's future depends on
increasing its revenues, its ability to resolve its cash flow problems, and
bringing its new operations to profitability.
Liquidity and Capital Resources
As of March 31, 1997, the Company's financial position remains precarious. The
Company had a deficit in shareholders' equity of $4.3 million and its current
liabilities of $6.6 million exceeded its current assets by $3.1 million. As
described above, the Company has experienced 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 negative cash flows from operations
although the negative cash flow increased from a negative of $.06 million
during the first quarter of 1996 to a negative $.95 million during the same
period of 1997. Cash flow was provided by borrowing $0.25 million from the
Company's president and a partner of AIP and by borrowing $0.7 million from
FINOVA. This borrowing reduced the net negative cash flow to $0.03 million for
the quarter ended March 31, 1997
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 and 75% of the Carolina National
eligible accounts receivable. At March 31, 1997, the outstanding borrowings
were $1.7 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
and the lender are currently in the process of extending the line of credit for
multiple years although no final agreement has been approved. The Company is
currently in violation of several covenants of the lender, although as part of
the extension these covenants are expected to be modified.
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 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
May 15, 1997
12
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