FORM 10-KSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, no par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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]
On March 21, 1997, there were 10,573,780 shares of registrant's common stock
were outstanding, and the aggregate market value of the voting stock held by
non affiliates of the registrant was approximately $2,235,041. For purposes of
the forgoing statement, directors and officers of the registrant have been
assumed to be affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's proxy statement for the annual meeting of
shareholders to be held on May 29, 1997, are incorporated by reference into
Part III.
PART 1
Item 1. Business.
The registrant, US 1 Industries, Inc. (hereinafter referred to, together
with its subsidiaries, as "US 1" or the "Company"), through its subsidiaries
is an interstate trucking company operating in 48 states and in Ontario and
Quebec, Canada. The Company's business consists of a truckload operation
for which the Company obtains substantially all of its business through
independent sales agents who then contract with independent truckers to haul
the freight to the desired destination.
US 1 was incorporated in California under the name Transcon Incorporated
on March 3, 1981. In March 1994, the Company changed its name to US 1
Industries, Inc. In February 1995, the Company was merged with an Indiana
corporation for purposes of re-incorporation under the laws of Indiana. The
Company's principal subsidiaries consist of Blue and Grey Transport, Inc., an
Indiana corporation ("BGT"), Blue and Grey Brokers, Inc., an Indiana
corporation ("BGB"), Carolina National Logistics, Inc., an Indiana corporation
("CNL"), Carolina National Transportation, Inc., an Indiana corporation
("CNT"), Gulf Line Brokerage, Inc., an Indiana Corporation ("GLB"), Gulf Line
Transportation, Inc., an Indiana Corporation ("GLT"), Keystone Lines, a
California corporation ("Keystone"), and TC Services, Inc., a California
corporation ("TCS"). BGT, BGB, CNL, CNT, GLB, GLT, and Keystone operate under
authority granted by the Interstate Commerce Commission (the "ICC") and are
subject to regulation of the ICC, the United States Department of
Transportation (the "DOT"), and various state agencies.
During 1994 Trailblazer Transportation, a Texas corporation and wholly
owned subsidiary of Keystone ceased operations. Trailblazer filed for
protection under the U.S. bankruptcy code on December 30,1996. LRS
Transportation, an Indiana corporation and wholly owned subsidiary of Keystone
Lines began operations in 1995, when it purchased the less-than-truckload
("LTL") refrigerated division of Landair Services Inc. LRS ceased operations
during the third quarter of 1995 after sustaining substantial losses.
Reference is made to Note 15 of the notes to the consolidated financial
statements regarding the discontinuance of LRS during 1995.
Change in Management and Restructuring
In September 1993, an investor group including three of the Company's
current officers and directors agreed to acquire a substantial stock interest
in the Company through August Investment Partnership, a general partnership
("AIP"), and assumed day-to-day management control of the Company. In December
1993, the Company's shareholders approved AIP's investment, the change of the
Company's name, an increase in its capitalization and its re-incorporation in
Indiana. The Company completed the re-incorporation in February 1995.
Operations
The Company carries virtually all forms of freight transported by truck,
except bulk goods and hazardous materials, including specialized trucking
services such as refrigerated and flatbed transportation.
The Company pays its independent contractors and sales agents a
percentage of the revenue received from customers for the delivery of goods.
The expenses related to transporting the freight from shipper to consignee are
the responsibility of the independent contractors. Consequently, short-term
fluctuations in operating activity have less of an impact on this component of
the Company's net income than they have on the net income of truck
transportation companies that bear substantially all of the cost of maintaining
drivers and equipment. Like other truck transportation companies, however, US
1's revenues are affected by seasonal weather conditions that may make driving
difficult and by seasonal shutdowns of shippers.
Having substantially reduced its overhead and expenses through efforts
initiated by the new management team, the Company undertook plans in late 1994
to gradually expand its operations with employee drivers and leased equipment
through strategic acquisitions of truck transportation businesses, including
less-than-truckload operations, while continuing its efforts to grow its
existing truckload operations through the addition of new independent
contractors and sales agents. The entry into the less-than-truckload
refrigerated truck transportation business in 1995 was unsuccessful. The
Company's management now realizes that its main asset is an efficient system
for handling permits, safety, billing and collections of revenue billed through
agents using owner operators and will be focusing on this area for improved
profitability during 1997.
The Company's principal focus during the first half of 1996 was growing
the Company through expansion of agents. Although recent results have
reflected a decline in revenue, the Company expects the hiring of various agent
recruiters in the second half of 1996 to provide growth in the core trucking
(i.e. Keystone) operation in 1997. In addition, Gulf Line Transportation was
started in December 1996 and Carolina National Transportation was begun in
January of 1997. Both are the direct result of agent recruiters hired in 1996
and are expected to have a positive future impact on the Company.
Marketing and Customers
The Company obtains substantially all of its business through
independent sales agents. The sales agents have facilities and personnel to
monitor and coordinate shipments and to dispatch independent contractors who
own and operate their own trucks for freight transportation. The Company pays
sales agents and contractors commissions immediately upon delivery of
shipments.
Approximately 83% of the Company's revenues from its trucking operations
are allocated to the payment of independent contractors and sales agents. The
Company requires sales agents to pay a minimum of 75% of revenues to
independent contractors.
During 1996, the Company utilized the services of approximately 60 sales
agents, two of which each accounted for 15% of the Company's total revenues in
1996; no other agent accounted for more than 10% of revenue. In 1995, one
agent accounted for 25% of the total companies revenue. This agent was
replaced in January 1996. There was little apparent loss in revenue until the
fourth quarter of 1996 when the revenue fell off substantially as the
replacement agent experienced difficulty obtaining drivers. The Company
shipped freight for approximately 700 customers in 1996, none of which
accounted for more than of 10% of the Company's total revenues.
The independent contractors used by the Company must enter into standard
equipment operating agreements. The agreements provide that independent
contractors must bear all costs of operations, including drivers' compensation,
maintenance costs, fuel costs, collision insurance, taxes related to the
ownership or operation of the vehicle, licenses, and permits. The Company
requires independent contractors to maintain their equipment to standards
established by the DOT, and the drivers are subject to qualification and
training procedures established by the DOT and the ICC. The Company also
monitors independent contractors' "self-policing activities," which include,
among other things, random drug testing, reporting hours of service of drivers,
maintenance of vehicles, and reporting violations of state, federal and local
laws.
Employees
At December 31, 1996, the Company had thirty-two full-time employees.
Of these employees, thirteen were salaried and the rest were paid hourly. The
Company's employees are not covered by a collective bargaining agreement. The
Company provides services to other related party companies owned by the
partners of August Investment Partnership.
Competition
The trucking industry is highly competitive. The Company competes for
customers primarily with other nationwide carriers, some of which have company-
owned equipment and company drivers, and many, if not most, of which have
greater volume and financial resources. The Company also competes with private
carriage conducted by existing and potential customers. In addition, the
Company competes with providers of rail transport.
The Company also faces competition for the services of independent
trucking contractors and sales agents. Sales agents routinely do business with
a number of carriers on an ongoing basis. The Company has attempted to develop
a strong sales agent network by maintaining a policy of prompt payment upon
delivery of goods.
Competition is based on several factors; principally cost, timely
availability of equipment and quality of service. In that regard, the
Company's business in 1996 and 1995 was impacted negatively by its financial
condition and difficulties in retaining independent contractors and agents.
Insurance
The Company insures the trucks with automobile liability insurance
coverage of up to $1 million per occurrence with a $5,000 deductible. The
Company has cargo insurance coverage of $200,000 per occurrence ($400,000 for
catastrophes) with a $10,000 deductible. The Company also maintains a
commercial general liability policy with a limit of $1,000,000 per occurrence
and no deductible.
Regulation
The Company is a common and contract motor carrier regulated by the ICC,
the DOT and various state agencies. Prior to 1980, the ICC strictly regulated
the trucking industry as to entry of new operators, rates charged, routes
driven and types of freight hauled. The Motor Carrier Act of 1980 (the "Act")
commenced a period of deregulation that has continued to the present. The Act
increased competition by easing barriers to entry into the trucking industry,
such as proof of public convenience and necessity. The Act also made rates
more competitive and greatly reduced ICC regulation of the industry.
Like all interstate motor carriers, the Company is subject to the safety
requirements prescribed by the DOT, including regulations effective in 1992
that instituted drug-testing procedures and a uniform commercial driver
license. The Company is in substantial compliance with these regulations,
although it has recently been fined for hours of service violations and was
under an enforcement policy during 1995 to assure owner-operator compliance
with the hours of service regulations. These restrictions have been lifted for
1996. However, because of a conditional safety rating, the Company is still
being monitored by the DOT.
In 1990, the Company was granted authority from Canadian authorities to
haul truckload freight between all points in the provinces of Ontario and
Quebec and the United States. The Company is therefore also subject to
Canadian regulation, which is not dissimilar to regulation in the states.
Environmental Regulation
Federal regulations require tractor manufacturers to certify that new
tractors meet certain federal emissions standards. The Company verifies that
the trucks that it leases and those that its independent contractors use have
received such certificates.
The Company owns a property in Phoenix, Arizona that was formerly leased
to Transcon Lines ("Lines") as a terminal facility, where soil contamination
problems existed or are known to exist currently. State environmental
authorities notified the Company of potential soil contamination from
underground storage tanks, and management has been working with the regulatory
authorities to implement required remediation. The underground storage tanks
were removed from the Phoenix facility in February 1994. Otherwise, the
Company believes it is in substantial compliance with state and federal
environmental regulations relative to the trucking business.
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
The statements contained in Item 1 (Description of Business) and Item 6
(Management Discussion and Analysis or Plan of Operation) are not historical
facts and may contain forward-looking statements that are subject to a variety
of risks and uncertainties. The Company cautions readers that these risks and
uncertainties could cause the Company's actual results in 1997 and beyond to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company. These risks and uncertainties include,
without limitation, no historic information for new operations on which
expectations regarding their future performance can be based, general economic
and business conditions affecting the trucking industry, competition from,
among others, national and regional trucking companies that have greater
financial and marketing resources than the Company, the availability of
sufficient capital, and the Company's ability to successfully attract and
retain qualified owner operators and agents.
Item 2. Properties
In 1993, the Company consolidated the administrative offices formerly
located in Los Angeles and Orange, California, at its new headquarters at 1000
Colfax, Gary, Indiana. The Company leases its headquarters for $2,200 per
month from Mr. Michael E. Kibler, President, Chief Executive Officer and a
director of the Company, and Mr. Harold Antonson, a partner in August
Investment Partnership ("AIP") and a shareholder and director of August
Investment Corporation ("AIC") also a general partner of AIP. Reference is
made to Note 5 of the notes to the consolidated financial statements for
discussion regarding the sale of certain properties during 1995.
Item 3. Legal Proceedings
Reference is made to Note 12 of the notes to the consolidated financial
statements for discussion regarding pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of 1996.
Item 4A. Executive Officers of the Registrant.
Name and Age Office and Experience
Michael E. Kibler, 56 Mr. Kibler is President and Chief Executive
Officer of the Company and has held these
positions since September 13, 1993. He also has
been President of Enterprise Truck Lines, Inc.,
an interstate trucking company engaging in
operations similar to the Company's, since 1972.
Mr. Kibler is also a director of American Inter-
Fidelity Exchange, an insurance recipical located
in Indiana that is the subject of an Order of
Rehabilitation by the Indiana Department of
Insurance. Mr. Kibler has served as a Director
of the Company since 1993.
James C. Day, 48 Mr. Day is Vice President, Treasurer and
Assistant Secretary of the Company, positions he
has held since September 13, 1993. Mr. Day also
has been Controller of K & A, Inc., a firm
providing support services to the Company and
certain other trucking companies since November
1992. Mr. Day is a certified public accountant.
Prior to Joining K & A, Inc., he was President of
Custom Business Systems, Inc., a software
company, from June 1990 to October 1992, and from
August 1988 to May 1990 he was Chief Financial
Officer of Floor Covering Associates, Inc. Mr.
Day has served as a director of the Company since
1993.
Richard Courtney, 55 Mr. Courtney has served as Vice President,
Secretary, and Controller of the Company since
September, 1993. Since 1982, Mr. Courtney has
been the Controller of Eastern Refrigerated
Express, Inc. Mr. Courtney has served as a
director of the Company since 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Shares of Common Stock of the Company are listed and traded on the New
York Stock Exchange under the symbol USO. The Company does not currently meet
the requirements for continued listing on the NYSE and could be de-listed
should the NYSE so elect. The Company is hopeful, however, that its
reorganization efforts will enable it to meet those requirements in the future.
The following table sets forth for the period indicated the high and
low sales prices per share of the Common Stock as reported on the New York Stock
Exchange Composite Tape:
Calendar Year High Low
1996
First Quarter 13/16 9/16
Second Quarter 9/16 5/16
Third Quarter 7/8 5/16
Fourth Quarter 11/16 5/16
1995
First Quarter 1 1/8 13/16
Second Quarter 1 5/8
Third Quarter 13/16 1/2
Fourth Quarter 11/16 9/32
As of March 7, 1997, there were 3,432 holders of record of Common Stock.
The Company has not paid any cash dividends on its Common Stock.
Management does not anticipate paying any dividends on the Common Stock in the
foreseeable future, and the Company's credit agreement currently prohibits the
payment of dividends.
The following equity sales during the fourth quarter of 1996 were not
registered under the Securities Act of 1933 since they qualify as private
offerings under Section 4(2) of that Act. The Company's president, Michael
Kibler, purchased 166,666 shares of common stock for $75,000. Harold Antonson,
a partner in August Investment Partnership, purchased 211,111 shares of common
stock for $95,000. Eastern Refrigerated Express, a company owned by the
partners of AIP, purchased 366,667 shares of common stock for $165,000.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
The financial statements and related notes contained elsewhere in this
Form 10-KSB are essential to an understanding of the comparisons and are
incorporated by reference into the discussion that follows.
1996 Compared to 1995
The Company's operating revenues from continuing operations increased
from $14.9 million in 1995 to $15.4 million in 1996. The Company's operating
revenues were generated principally by independent sales agents who originate
truckload shipments. These shipments are then transported by independent
trucking contractors, using their own equipment. The increase is due to
additional agents added during the year but may not fully reflect the long term
implications of the down turn in business in December 1996 as discussed below
in "Future Prospects."
Total operating expenses increased from $14.7 million in 1995 to $15.6
million in 1996. The largest component of operating expenses is purchased
transportation. Purchased transportation generally varies in proportion to
operating revenues at approximately 77% of revenues. Purchased transportation
increased from $11.3 million in 1995 to $11.7 million in 1996. Commissions
increased from $1.3 million in 1995 to $1.5 million in 1996, similarly vary in
proportion to operating revenues. Insurance and claims, which increased from
$0.5 million in 1995 to $0.6 million in 1996, vary in proportion to operating
revenues, although they also depend on claims experience. The remaining
operating expenses increased from $1.6 million in 1995 to $1.8 million in 1996
primarily as a result of the increase in wages and communication expenses.
The Company had other expense of approximately $0.2 million in 1996 as
compared to an income of $0.5 million in 1995. Interest, the largest ongoing
component of non-operating income and expense, varies in proportion to the
Company's outstanding interest-bearing indebtedness. Interest expense
increased from $0.2 million in 1995 to $0.3 million in 1996, primarily due to
the increased debt used to finance the LRS losses. The Company recognized a
gain from the sale of real estate of $0.6 million in 1995. No similar gain was
recognized in 1996.
In 1995, the Company recognized a loss from discontinued operations of
$1.5 million when it closed LRS Transportation and recorded income of $0.2 in
1996 on the settlement of the suit with Landair Transportation. A
extraordinary gain on the discontinuation of the Paltrans Partnership of $0.5
million was also recognized in 1996.
Overall, the Company's net results improved to a profit of $0.3 million
in 1996 as compared to a loss of $0.8 million in 1995. The difference is
principally a result of the closure of LRS and the gain on the closure of the
Paltrans Partnership.
Future Prospects
The Company's management remains optimistic about its future prospects
although several remaining hurdles must be successfully cleared. These hurdles
include adding revenue to the Company's core trucking operations, raising
capital to offset current losses and to improve its financial condition, and
renewing or replacing its revolving credit agreement.
The Company was able to reverse the trend of declining revenues in its
core trucking business as 1996 revenues slightly exceeded 1995 revenues.
However, revenues for December 1996 through February 1997 show significant
reductions relative to the prior year, without regard to Carolina National,
which is described below. The fourth quarter 1996 has shown and the first
quarter of 1997 is expected to show significant losses from operations. A
significant sales increase, beyond any increase provided by Carolina National,
will be required in the remainder of 1997 to achieve profitability for the
year. The Company believes that the key to increasing revenue is increasing
the number of agents. The Company continues to seek additional agents through
the use of incentives and agent recruiters.
During 1997, the Company established two subsidiaries, Carolina National
Logistics and Carolina National Transportation, in Charleston, South Carolina.
These subsidiaries are managed by Martin Chitty, an experienced transportation
executive. Revenue from these subsidiaries has grown rapidly. These
subsidiaries are expected to be profitable by the second quarter of 1997 based
on our current revenue growth rate. In December 1996, the Company established
Gulf Line Transportation and Gulf Line Brokerage. These subsidiaries are
managed by Al Saland, operating out of Houston, Texas. The future
profitability of Gulf Line in undeterminable.
The Company's future depends heavily on raising the capital to fund
operations until revenue grows and generates sufficient cash flows to satisfy
its indebtedness. Revenue growth and the resulting improved cash flows will
enable the Company to reduce its third party debt and improve its working
relationships with potential agents and independent contractors. In recent
years, substantially all of the equity capital that the Company has needed was
provided by AIP and is affiliates. AIP and its affiliates have advised the
Company that their interest in providing, and ability to provide, additional
capital is limited. As a consequence, the Company is exploring other options
to raise capital, including a rights offering and various other potential
transactions. There can be no assurances, however, that the Company can raise
the necessary capital to assure its long-term viability.
Since May 1995 FINOVA has provided the Company an accounts receivable
based credit facility. This facility expires in May 1997. The Company is
hopeful that it can continue its relationship with FINOVA at that time, but if
it cannot, will be dependent upon obtaining an alternative credit facility.
The inability to obtain a new credit facility with FINOVA or another lender,
will directly impact the Company's ability to remain in operation.
Liquidity and Capital Resources
As of December 31, 1996, the Company's financial position remained poor.
The Company had a net deficit in shareholders' equity of $4.2 million and its
current liabilities of $5.1 million exceeded its current assets by $3.0
million. The Company's negative cash flow in recent months has required the
Company to rely on stockholder capital contributions of $335,000 in the fourth
quarter of 1996 and $321,000 in the first quarter of 1997 to maintain cash
flows sufficient to pay its current obligations. Through May of 1997, it is
anticipated that the Company will require an additional capital contribution of
$250,000. The Company anticipates cash flow in the second quarter of 1997 to
be provided from operating revenues, primarily from CNL and CNT. After the
second quarter, revenues are expected to provide the required cash flow to keep
the Company reasonably current in its obligations.
Cash flows during 1996 came primarily from additional capital
contributions. Cash flows from operations improved from a negative cash flow of
$1.2 million in 1995 to a negative cash flow of $0.4 million in 1996. The
negative cash flow in 1995 was primarily the result of losses at LRS. Cash
flows from investing activities decreased from $0.6 million in 1995 to $0.1
million in 1996 due to the lack of property sales in 1996. Cash flows from
financing decreased from 1995 to 1996 by $0.3 million due to decreased
borrowing from AIFE, AIP, and Landair.
The Company's principal source of liquidity is its $3 million line of
credit with FINOVA. The availability of the line of credit is based on 80% of
Keystone's and Gulf Line's eligible accounts receivable. At December 31, 1996,
the outstanding borrowings were $1.1 million, essentially the entire amount the
Company was eligible to borrow. The line of credit expires on May 31, 1997.
Reference is made to Note 7 of the consolidated financial statements for
discussion regarding the Company's violation of certain debt covenants. The
Company is currently negotiating a three year extension to its current
agreement with FINOVA which would increase its line of credit to $5 million.
Related party loans from AIP and Messrs. Kibler and Antonson has
provided the Company short term financing of $266,500 in 1995 and long term
financing of $250,000 in 1995.
Shareholders and potential investors in the Company are cautioned that
the Company's financial condition remains precarious and that an increase in
operating performance and an infusion of new capital are essential to its long-
term survival. There is no assurance that these goals will be achieved.
The Company is not a party to any Superfund litigation and otherwise
does not have any known environmental claims against it. However, the Company
does have one property where soil contamination problems existed or are known
to exist currently. The Company has preliminarily evaluated its potential
liability at this site and believes that it has reserved appropriately for it's
remediation or that the fair market value of the property exceeds its net book
value by an amount in excess of any remediation cost. There can be no
assurance, however, that the cost of remediation would not exceed the expected
amounts. The remediation is on hold until financing can be found.
Inflation
Changes in freight rates charged by the Company to its customers are
generally reflected in the cost of purchased transportation and commissions
paid by the Company to independent contractors and agents, respectively.
Therefore, management believes that future operating results of the Company
will be affected primarily by changes in volume of business. However, due to
the highly competitive nature of the truckload motor carrier industry, it is
possible that future freight rates and cost of purchased transportation may
fluctuate, affecting the Company's profitability.
Impact From Not Yet Effective Accounting Rules
Reference is made to Note 2 of the consolidated financial statements.
Item 7. Financial Statements and Supplementary Data.
To the Shareholders and
Board of Directors of US 1 Industries, Inc.
We have audited the accompanying consolidated balance sheets of US 1
Industries, Inc. and subsidiaries (the "Company") as of December 31, 1996 and
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 the overall financial statement
presentation. We believe our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of US 1 Industries,
Inc. and subsidiaries at December 31, 1996 and 1995 and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has experienced operating losses and negative
cash flows in recent years, has a net capital deficiency, and is not in
compliance with financial covenants regarding its line of credit needed for
working capital. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Coopers & Lybrand L.L.P.
Chicago, Illinois
April 4, 1997
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
------------ ------------
CURRENT ASSETS:
Cash $ 225,541 $ 53,602
Restricted cash - (former officer defense fund) 43,315
Accounts receivable-trade, less allowance for
doubtful accounts of $50,000 and $150,139 1,501,947 1,525,626
Other receivable, less valuation allowance
of $0 and $200,000 136,648 144,561
Deposits 153,892 172,180
Prepaid expenses 116,476 133,437
------------ ------------
Total current assets 2,134,504 2,072,721
------------ ------------
FIXED ASSETS:
Equipment 17,193 15,828
Less accumulated depreciation and amortization (7,682) (5,730)
------------ ------------
Net fixed assets 9,511 10,098
------------ ------------
ASSETS HELD FOR SALE:
Land 195,347 1,215,000
Valuation allowance (141,347) (1,011,000)
------------ ------------
Net assets held for sale 54,000 204,000
------------ ------------
TOTAL ASSETS $ 2,198,015 $ 2,286,819
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
1996 1995
----------- -----------
CURRENT LIABILITIES:
Accounts payable $ 2,722,897 $ 2,929,321
Accrued expenses 152,098 252,269
Short-term debt 1,769,146 1,822,519
Insurance and claims 252,153 209,678
Accrued compensation 46,880 41,291
Accrued interest 32,428 43,529
Estimated fuel and other taxes 174,377 163,027
------------ ------------
Total current liabilities 5,149,979 5,461,634
------------ ------------
LONG-TERM DEBT 521,160 515,767
NEGATIVE EQUITY IN PARTNERSHIP INVESTMENT 458,968
REDEEMABLE PREFERRED STOCK,
authorized 5,000,000 shares; no par value,
Series A shares outstanding:
1996 - 1,094,224; 1995 - 1,094,224.
Liquidation preference $0.3125 per share 691,541 547,112
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock, authorized 20,000,000 shares;
no par value; shares outstanding:
1996 - 10,573,780 1995 - 9,829,336 40,824,296 40,489,296
Accumulated deficit (44,988,961) (45,185,958)
------------ ------------
Total shareholders' equity (deficiency) (4,164,665) (4,696,662)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 2,198,015 $ 2,286,819
============ ============
The accompanying notes are an integral part of the consolidated financial
statements
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, AND 1995
1996 1995
----------- -----------
OPERATING REVENUES $15,412,322 $14,903,766
------------ ------------
OPERATING EXPENSES:
Purchased transportation 11,694,203 11,318,394
Insurance and claims 623,445 512,351
Salaries, wages, and other 727,231 400,553
Commissions 1,498,404 1,250,488
Operating supplies and expenses 822,251 850,569
Operating taxes and licenses 86,781 270,625
Communications and utilities 81,725 63,105
Rents 50,677 46,750
Depreciation and amortization 1,951 1,951
------------ ------------
Total operating expenses 15,586,668 14,714,786
------------ ------------
OPERATING INCOME (LOSS) (174,346) 188,980
NON-OPERATING INCOME (EXPENSES):
Interest income 18,733 20,520
Interest expense (282,121) (205,171)
Gain on sale of property 562,503
Loss on joint venture investment (75,064)
Other income (expense), net 98,449 187,238
------------ ------------
Total other income (expense) (164,939) 490,026
------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY GAIN (339,285) 679,006
DISCONTINUED OPERATIONS:
Net loss from LRS Transportation (1,170,006)
Gain (loss) on disposal of LRS 221,743 (329,085)
------------ ------------
LOSS FROM DISCONTINUED OPERATIONS 221,743 (1,499,091)
------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (117,542) (820,085)
EXTRAORDINARY GAIN: TERMINATION OF PALTRANS 458,968
------------ ------------
NET INCOME (LOSS) $341,426 ($820,085)
============ ============
INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Earnings(loss)from continuing operations ($0.05) $0.07
Discontinued operations 0.02 (0.15)
------------ ------------
Earnings (loss) before extraordinary gain ($0.03) ($0.08)
Extraordinary gain 0.05
------------ ------------
Net Income (loss) $0.02 ($0.08)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 9,879,077 9,829,336
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1996, AND 1995
Common Stock Accumulated
Shares Amount Deficit Total
-----------------------------------------------------
Balance at
January 1, 1995 9,544,194 $40,430,180 ($44,365,873) ($3,935,693)
Stock award and
exercise of options 285,142 59,116 59,116
Net loss (820,085) (820,085)
-----------------------------------------------------
Balance at
December 31, 1995 9,829,336 40,489,296 (45,185,958) (4,696,662)
Issuance of Common Stock 744,444 335,000 335,000
Accrued Dividends on
redeemable Preferred stock (144,429) (144,429)
Net income 341,426 341,426
-----------------------------------------------------
Balance at
December 31, 1996 10,573,780 $40,824,296 ($44,988,961) ($4,164,665)
=====================================================
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, AND 1995
1996 1995
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $341,426 ($820,085)
Adjustments to reconcile net income (loss) to net cash
provided from (used for) operating activities:
Depreciation and amortization 1,951 3,085
Provision for losses on accounts receivable (100,139) (142,118)
Transfer of Dallas Property 150,000
Extraordinary item: Gain Paltrans partnership (458,968)
Loss on disposal of LRS Transportation 329,085
Gain on sale of property (562,503)
Changes in operating assets and liabilities:
Accounts receivable-trade 123,818 719,006
Other receivables 7,913 158,157
Prepaid expenses 16,961 (62,717)
Deposits 18,288 79,945
Accounts payable (387,565) 160,128
Accrued expenses (100,171) 8,979
Insurance and claims 42,475 (302,984)
Accrued interest (11,101) 43,529
Accrued compensation 5,589 (152,196)
Estimated fuel and other taxes 11,350 (428,823)
Other 43,315 (275,966)
--------- -----------
Net cash (used in) operating activities (294,858) (1,245,478)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,365) (11,500)
Purchase of LRS Transportation (50,000)
Distributions in excess of investment in joint venture 90,564
Proceeds from sale of property 562,503
--------- -----------
Net cash provided from investing activities (1,365) 591,567
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under line of credit (40,482) (305,130)
Proceeds from issuance of common stock through exercise
of stock options 59,116
Proceeds from issuance of common stock 335,000
Proceeds from (repayment of) other related party loans (7,498) 481,031
Cash overdraft 181,142
Proceeds from issuance of mortgages to related parties 530,070
Repayment of related party mortgages (139,587)
--------- -----------
Net cash provided from financing activities 468,162 625,500
--------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 171,939 (28,411)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 53,602 82,013
--------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $225,541 $53,602
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Cash paid during year for interest $293,222 $174,302
========= ===========
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, AND 1995
1. OPERATIONS
In March 1994, Transcon Incorporated formally changed its name to US 1
Industries, Inc. The accompanying consolidated financial statements include
the operations of US 1 Industries, Inc. and its wholly owned subsidiaries, TC
Services, Inc. ("TCS"), Keystone Lines ("Keystone"), Blue and Grey Transport,
Inc. ("BGT"), Blue and Grey Brokers, Inc. ("BGB"), Carolina National Logistics,
Inc. ("CNL"), Carolina National Transportation, Inc. ("CNT"), Gulf Line
Brokerage, Inc. ("GLB"), and Gulf Line Transportation, Inc. ("GLT") together
referred to herein as the "Company." Trailblazer Transportation and LRS
Transportation, Inc. are wholly owned subsidiaries of Keystone Lines. In
February 1995, the Company, formerly a California corporation, merged with an
Indiana Corporation for purposes of re-incorporation under the laws of Indiana.
The Company is primarily an interstate truckload carrier of general
commodities, which uses independent agents and contractor equipment to contract
for and haul freight for its customers. Two agents each accounted for 15% of
the Company's revenue for the year ended December 31, 1996.
In September 1993, August Investment Partnership ("AIP") acquired a
significant portion of the Company's equity and provided the Company with a new
management team. The new management team took control of the operations and
moved its headquarters from California to Gary, Indiana and implemented
significant cost reductions. Management has refinanced its line of credit
through May 1997. However, as discussed in Note 7, the Company is in violation
of certain financial covenants. Management's goals in 1996 and into the future
are to expand the Company's revenue base in an effort to get the Company on a
solid financial standing. However, there is no assurance that this can be
accomplished.
Going Concern--The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern. As
shown in the accompanying consolidated financial statements, the Company
experienced operating losses and negative cash flows in recent years. At
December 31, 1996 and 1995, the Company's current liabilities exceeded its
current assets by $3.0 million and $3.3 million, respectively. At December 31,
1996 the shareholder deficit was $4.2 million. The Company's future depends
heavily on raising the capital to fund operations until revenue grows and
generates sufficient cash flows to satisfy its indebtedness. Revenue growth
and the resulting improved cash flows will 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, including a rights offering and various other potential transactions.
While there had been improved results from continuing operations, the fourth
quarter 1996 losses and a significant decrease in cash flows, shareholders'
deficiency, 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. 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)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation--The consolidated financial statements include the
accounts of US 1 Industries, Inc. and its subsidiaries. All significant inter-
company accounts and transactions have been eliminated.
Revenue Recognition--Revenue for freight in transit is recognized upon
delivery. Amounts payable for purchased transportation, commissions and
insurance expense are accrued when the related revenue is recognized.
Cash and Cash Equivalents--The Company considers as cash equivalents
all highly liquid investments with an original maturity of three months or less.
Fixed Assets--Fixed assets are stated at cost. Equipment is depreciated
using the straight-line method over the estimated useful lives of the related
assets, which range from three to eight years.
Assets Held for Sale--Such assets comprise real estate, not required
for the Company's operations, which is carried at the lower of historical cost
or estimated net realizable value.
Net Income (Loss) per Common and Common Equivalent Share--Net income
(loss) per share is based upon the weighted average number of shares of common
stock and common stock equivalents outstanding after recognition of dividend
requirements on the redeemable preferred stock.
Accounting Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
Impact From Not Yet Effective Rules--In February 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standard No. 128-Earnings Per Share ("SFAS 128"). SFAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per share.
SFAS 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The Company will adopt SFAS 128
for the year ended December 31, 1997. Management has not yet determined the
impact of implementing this standard.
Income Taxes--Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. In
addition, the amount of any future tax benefits are reduced by a valuation
allowance to the extent such benefits are not expected to be fully utilized.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments--The carrying value of cash and cash
equivalents approximates fair value. For debt instruments, it is not
practicable to determine the fair value at December 31, 1996 due to several
factors which include; related party considerations, the current financial
status of US 1, and the lack of valuation information regarding certain
collateral.
Former Officer Defense Fund - A cash fund set up as part of the agreement
when AIP replaced former management. This fund was for the benefit of certain
former officers and directors, an indemnification and defense fund with up to
$100,000 from the proceeds from the sale of certain real estate.
3. EXTRAORDINARY INCOME
The Company's fifty percent investment in a joint venture, Paltrans
Associates, in which the Company is a General Partner, was recorded on the
equity method. Paltrans owned and leased a terminal facility located on the
west coast. As of December 31, 1996, and 1995, the Company had received
$458,968, and $368,404, respectively, in cash in excess of the profits of the
partnership. At December 31, 1995, the Company had a $200,000 receivable from
Paltrans Associates, which has been reduced to its estimated net realizable
value of zero. The property was foreclosed on by the mortgage holder in the
third quarter of 1996 relieving the Company of any recourse with regards to the
mortgage. The amount $458,968, which represented the Company's share of the
negative equity of the partnership was recorded as income and classified as
extraordinary since it represented, in effect, the extinquishment of non-
recourse mortgage debt. The note for $200,000 with its reserve of $200,000
were removed from the books of the Company.
4. REDEEMABLE PREFERRED STOCK AND COMMON STOCK
AIP has advanced $547,112 to the Company in exchange for Series C no par
value, cumulative redeemable preferred stock. The Series C preferred shares
are not convertible into common stock, are non-voting, and earn dividends at
the rate of $0.0375 per share per annum (increasing by $0.0063 on each of
January 1, 1995, 1996 and 1997, and by $0.0094 on January 1, 1998 and on each
January 1 thereafter until redeemed) payable quarterly on the first day of
February, May, August, and November. The Series C preferred stock is
redeemable at the option of the Company at any time, and is redeemable at the
option of the holders at the end of two years.
With the completion of the merger of the California corporation into the
Indiana corporation in the first quarter of 1995, the authorized common shares
increased from ten million to twenty million and the previous series C
preferred stock became series A preferred stock with the same redeemable
options described above. As of December 31, 1996, series A cumulative
preferred stock dividends are in arrears by approximately $144,429, which
represents $0.01 per share. The Company's current line of credit prohibits the
payment of dividends.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. SALE OF PROPERTY
In September 1995, the Company completed the sales of one of its properties and
a parcel of another in Omaha and Phoenix for a net gain of $562,503. Title to
these two properties formerly belonged to the bankruptcy trust for a previously
wholly owned subsidiary of the Company, Transcon Lines ("Lines"). In 1990, the
Company sold Lines to Growth Financial Corporation ("Growth"). Contrary to the
purchase agreement between Growth and the Company, Growth terminated the
operations of Lines in late April 1990, and Lines failed to meet certain of its
obligations, guaranteed by the Company or for which the Company was otherwise
purportedly liable. As a result of these actions, various lawsuits were
initiated against the Company and its affiliates and an involuntary bankruptcy
petition against Lines was filed in May 1990. Lines' trustee in bankruptcy
also brought a lawsuit against the Company and two of its subsidiaries.
A Global Settlement Agreement ("GSA") was reached in April 1991 between the
bankruptcy trust and the Company. The GSA included a requirement that the
Company convey to the Trustee 15 terminal properties. At that time all
ownership interests were conveyed to the bankruptcy trust and removed from the
Company's books. However, the GSA also required that a wholly owned subsidiary
of the Company, TC Services, actively market two of the properties, the Phoenix
and Omaha properties, to repay amounts owed to the lien holder. Under the
terms of the GSA if after one year these properties were not sold, the lien
holder could either take title to one or both of the properties or release the
liens. At the end of the year, the lien holder released the liens on both
properties.
Upon the release of the liens, TC Services retained ownership interest in
both properties, recorded at zero book value, which approximated the fair
market value at the time. Property taxes were accrued and expensed from 1993
through the sale date in 1995 by the Company and all such taxes were paid at
closing on the sales transactions to perfect title to the properties. Because
of the zero book value associated with these properties the entire amount of
the proceeds were recognized as gain on the sale in the accompanying
consolidated statements of operations. The majority of the proceeds of the
sale were used to retire the 1993 mortgage on the Omaha property and pay the
respective property taxes on the properties. The Company retained
approximately $10,000 of the proceeds.
6. 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 AIP. Total charges from K&A during 1995 were
$171,000. These amounts have been classified as salaries, wages, and other in
the accompanying consolidated statements of operations for the year ended
December 31, 1995. During 1996, these employees became employees of TC
Services, Inc. and began billing other related companies owned by the partners
of AIP for their services. Revenues related to those services totaled $353,729
in 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 and entered into the agreements disclosed in Note 1. The terms and
conditions of the policies have not changed. For the years ended December 31,
1996 and 1995, cash paid for related party insurance premiums and deductibles
amounted to $582,543 and $888,000, respectively.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $239,372 and $280,070 at December 31, 1996 and 1995,
respectively, as disclosed in Note 8.
7. SHORT-TERM DEBT
Short-term debt at December 31, 1996 and 1995 comprises:
December 31, December 31,
1996 1995
---------- ----------
Line of credit $1,052,734 $1,093,216
Current portion of long-term debt 61,612 14,303
Due to Landair 200,000
Due to August Investment Partnership 100,000 100,000
Due to Antonson/Kibler 554,800 415,000
---------- ----------
Total $1,769,146 $1,822,519
========== ==========
The weighted average interest rate of short-term debt outstanding as of
December 31, 1996 and 1995 was 12.35% and 11.61%, respectively.
In May 1995, the Company replaced its previously existing revolving line
of credit with a new revolving line of credit agreement under which 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% and
8.5% at December 31, 1996 and 1995, 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 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 is in violation of the
debt service coverage ratio covenant. 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.
Due to Landair--Mortgage note payable to the 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 settled these notes as described in
Note 12.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other-- Outstanding loans from the President and the General Partner of AIP
(Kibler and Antonson) were $554,800 and $415,000 at December 31, 1995 and 1995,
respectively. The interest rate on these loans approximates the prime rate
(8.25%) and (8.50%)at December 31, 1996 and 1995, 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% and 9.25%) at December 31, 1996 and 1995, respectively.
8. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 comprises:
December 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 239,372 280,070
Tip trailer settlement payments on principal
Only of $1,000 per month, principal due
February, 2003 (See Note 12) 93,400
-------- --------
Total debt 582,772 530,070
Less current portion 61,612 14,303
-------- --------
Total long-term debt $521,160 $515,767
======== ========
Scheduled maturities of the non-current portion of long-term at December 31,
1996 are due as follows:
1997 $ 61,612
1998 66,266
1999 295,915
2000 43,683
2001 68,078
2002+ 47,218
$ 582,772
========
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. STOCK OPTION PLANS
Options to purchase common stock under the Company's stock option plans
had been granted to officers and other key employees at the fair market value
on the dates of grant. At December 31, 1996, and 1995, 96,500 shares remain
available for future option grants under the Company's stock option plans.
A summary of stock option activity is as follows:
1995
Outstanding, January 1 127,500
Granted 284,366
Canceled ---
Exercised (127,500)
Forfeited (284,366)
---------
Outstanding, December 31,
average option price of
$0.00 in 1995, and 1996
=========
Exercisable, December 31
=========
In December 1994, the Board of Directors approved a Restricted Stock
Agreement between the Company and the Chief Financial Officer, whereby the
Company awarded, at no cost, 157,642 shares of common stock. The stock award
is based on the Company's results of operations and other performance criteria
during 1994 and 1995. The Company had recorded compensation expense of
$137,937 in 1994. The shares were issued during 1995, however, a decline in
the market price of the stock during the intervening period resulted in a
reduction of compensation expense of $78,821 in 1995.
During 1995, Michael Ashker, a director of the Company, was given options
for certain acquisitions based on performance. The only options awarded to
date were with regards to the LRS acquisition. During 1995, the awarded
options were forfeited by Mr. Ashker.
Options were provided to John Wilkins to use his earned commissions for
the first year to purchase up to 500,000 shares of stock at the 20 day average
stock price immediately prior to the signing of an agent or acquisition. At
December 31, 1996, no commissions had been earned which are eligible for this
treatment. The management team of Carolina National can based on various
performance criteria earn an option to purchase up to 40,000 shares of common
stock at $.525 per share. The required performance criteria were not met at
December 31, 1996.
10. LEASES
The Company leases office space on a month-to-month basis for its
headquarters in Gary, Indiana for $ 2,200 per month from the Company's
President and another General Partner of AIP. No formal lease agreement with
the Company existed at December 31, 1996.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and income tax purposes. A valuation allowance
for the net deferred tax asset has been recognized due to the uncertainty of
realizing the benefit of the loss carry forwards and future deductible
temporary differences. The components of deferred tax assets as of December
31, 1996 and 1995 are as follows:
1996 1995
------------- -------------
Deferred tax assets:
Accounts receivable and other $ 17,000 $ 106,587
Estimated fuel and other taxes 38,770 31,181
Insurance and claims 61,429 64,152
Litigation reserves 17,170 85,000
Land valuation allowance 48,058 343,740
Net operating loss carry forwards 19,963,283 19,953,991
------------- -------------
Total deferred tax assets 20,145,710 20,584,651
Less valuation allowance (20,145,710) (20,584,651)
------------- -------------
Total net deferred tax asset $ --- $ ---
============= =============
During 1996, the valuation allowance was decreased by approximately
$439,000 to reflect the reversal of deductible temporary differences which were
incurred by the Company. The Company has net operating loss carry forwards of
approximately $59 million and $58 million at December 31, 1996 and 1995,
respectively. These carry-forwards are available to offset taxable income in
future years and will expire in the years 2000 through 2008.
12. 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 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.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. The
Company expects to recover an amount of income under these proceedings when
they are completed in 1997.
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.
Settled litigation during 1996 include-
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 action in
the Superior Court has been settled as of September 30, 1996.
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. This suit was settled
as of December 31, 1996. The Company gave Landair the title to the Company's
property in Dallas, Texas and a cash payment of $175,000 to settle this case.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. ENVIRONMENTAL MATTERS
The Company owns a property in Phoenix where soil contamination problems
exist. The Company has been working with regulatory officials to eliminate new
contamination sources and determine the extent of existing problems. Estimates
of the cost to complete the required remediation of $141,347 are considered in
the land valuation allowance at December 31, 1996 and 1995.
14. SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING INFORMATION
During 1995, shareholder notes payable totaling $4,425 were converted
into 8,850 shares of Series A preferred stock, respectively.
15. DISCONTINUED OPERATIONS
LRS - 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 was 8.5% until January 10, 1996 and at the prime rate
published on January 10, 1996 thereafter. Collateral for the note consisted of
unimproved land owned by the Company located in Texas.
The acquisition was accounted for using the purchase method of
accounting. Identifiable intangible assets of $100,000, consisting of
contracts, documents, and proprietary rights, and goodwill of $150,000 arising
from the transaction each were recorded and scheduled to be amortized over five
years using the straight line method. During 1995, LRS had gross revenues of
$4.3 million. Results of operations of LRS had been consolidated into US 1
from the date of acquisition, January 11, 1995.
After sustaining substantial losses through July 1995, the Board of
Directors approved shutting down the operations of LRS effective August 15,
1995. For the time LRS was operating, the Company considered it a separate
segment. This business was distinguished from the Company's other businesses
in that LRS was under separate management in a separate location with separate
accounting, leased its own terminals and trucks necessary to operate the
business and hired drivers as employees. The LRS freight consisted of
refrigerated partial loads. Trucks were assigned routes to make intermittent
deliveries. The Company's other remaining operations involve the use of
independent sales agents who in turn contract with independent owner operators
to haul freight to the desired destination. This business does not own any
trucks or terminals and does not have any drivers on the payroll. Further,
this business generally hauls non-refrigerated full loads that are arranged by
independent sales agents. The Company's primary role is to provide
administrative services to billing, collection, safety, permits, licensing and
disbursement.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
After evaluating the criteria contained in Accounting Principles Board
Opinion No. 30 "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" the loss on disposal and
results of operations related to LRS have been classified on the accompanying
1995 consolidated statements of operations under the caption of "Discontinued
operations." No separate segment disclosure is made in 1995 due to the
purchase and discontinuation of LRS during the year.
As of December 31, 1996 and 1995, LRS's remaining liabilities were
approximately $1.0 million and $1.5 million, respectively. Of this amount
$520,000 are loans payable to related parties as discussed in footnotes 6 and
7. Included in this amount at December 31, 1996 is $93,400 in settlement
payments due to TIP Trailer related to a cancelled operating lease. Also
included in this amount at December 31, 1995 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 12 for disclosure of related litigation.
During 1996, the lawsuit with Landair Services, Inc. was settled. As a
result the Company, recorded $221,743 into income from discontinued operations
and removed the note payable and other accounts payable from the books.
Item 8. Changes in and Disagreements with Independent Auditors' on Accounting
and Financial Disclosure.
During 1995, the Company changed independent Auditors' from Deloitte and
Touche, LLP to Coopers & Lybrand L.L.P.
PART III
Item 9. Directors and Executive Officers of the Registrant.
In response to the information called for by Item 401 of Regulation S-K
with respect to directors of the Company, the material set forth under
"ELECTION OF DIRECTORS -- Nominees for Board of Directors" in the Company's
proxy statement for the annual meeting of shareholders to be held on May 29,
1997, which will be filed with the Securities and Exchange Commission pursuant
to Regulation 14A, is incorporated herein by reference.
In response to the information called for by Item 401 of Regulation Item
401 of Regulation S-K with respect to executive officers of the Company, the
material set forth under "Executive Officers of the Registrant" in Part I of
this Form 10-K Annual Report for the year ended December 31, 1996, is
incorporated herein by reference.
Item 10. Executive Compensation
In response to the information called for by Item 402 of Regulation S-K
with respect to directors of the Company, the information under "COMPENSATION
OF DIRECTORS" in the Company's proxy statement for the annual meeting of
shareholders to be held on May 29, 1997, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, is incorporated
herein by reference.
In response to the information called for by Item 402 of Regulation S-K
with respect to executive officers of the Company, the information under
"EXECUTIVE COMPENSATION" (exclusive of the "Report of Compensation Committee"
and the "Performance Graph") in the Company's proxy statement for the annual
meeting of shareholders to be held on May 29, 1997, which will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A, is
incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
In response to the information called for by Item 403 of Regulation S-K,
the information under "SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS" in the Company's proxy statement for the annual meeting of shareholders
to be held on May 29, 1997, which will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, is incorporated herein by
reference.
Item 12. Certain Relationships and Related Transactions.
In response to the information called for by Item 404 of Regulation S-K,
the information under "CERTAIN BUSINESS RELATIONSHIPS" in the Company's proxy
statement for the annual meeting of shareholders to be held on May 29, 1997,
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A, is incorporated herein by reference.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) List of Financial Statements
The following is a list of financial statements filed herewith:
Page Number
Report of Independent Accountants Coopers & Lybrand LLP 13
Consolidated Balance Sheets as of December 31, 1996 and 1995 14
Consolidated Statements of Operations for the years ended 16
December 31, 1996 and 1995
Consolidated Statements of Shareholders' Equity (Deficiency) 17
for the years ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows 18
for the years ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements 19
(a)(2) List of Financial Statement Schedules
Certain schedules are not included because of the absence of
the conditions under which they are required or because the
required information is included in the consolidated financial
statements or notes thereto.
(a)(3) List of Exhibits
The following exhibits, numbered in accordance with Item 601 of
Regulation S-K, are filed as part of this report:
Exhibit 3.1 Articles of Incorporation of the Company.
(incorporated herein by reference to the Company's Proxy Statement
of November 9, 1993).
Exhibit 3.2 By-Laws of the Company.
(incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
Exhibit 10.1 Loan and Security Agreement with FINOVA and Keystone Lines
and L.R.S. Transportation, Inc.
Exhibit 10.2 Loan agreements with August Investment Partnership and US 1
Industries.
Exhibit 10.3 Loan agreements with Michael Kibler/Harold Antonson and US 1
Industries.
Exhibit 10.4 Loan agreements with AIFE/ITE and US 1 Industries.
Exhibit 10.5 First Amendment of Loan and Security Agreement with FINOVA
and Keystone Lines and L.R.S. Transportation, Inc.
Exhibit 16 Letter re Change in Certifying Accountant.
(incorporated herein by reference to the Company's Form 8-K
filed on November 20, 1995 for the year ended
December 31, 1995).
Exhibit 21.1 Subsidiaries of Registrant
Exhibit 23.1 Consent of Coopers & Lybrand LLP
(b) Reports on Form 8-K
Reported on Form 8-K a change in certifying accountants on November 20, 1995.
SIGNATURES
Pursuant to the requirements of Sections 13 and 15(d) 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.
Date:_________________ By: _________________________
Michael E. Kibler
President & Chief Executive Officer
(Principal Executive Officer)
Date:_________________ By: _________________________
Richard Courtney
Vice President & Secretary
Date:_________________ By: _________________________
James C. Day
Vice President, Treasurer, & Assistant Secretary
(Principal Financial Officer & Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date:_________________ _________________________
Mike Ashker, Director
Date:_________________ _________________________
Richard Courtney, Director
Date:_________________ _________________________
James C. Day, Director
Date:_________________ _________________________
Michael E. Kibler, Director
Date:_________________ _________________________
Robert I. Scissors, Director
Date:_________________ _________________________
Lex L. Vendetti, Director
Date:_________________ _________________________
Steve Green, Director
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 225541
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<RECEIVABLES> 1501947
<ALLOWANCES> 50000
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<DEPRECIATION> 7682
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<TOTAL-LIABILITY-AND-EQUITY> 2198015
<SALES> 15412322
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<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 282121
<INCOME-PRETAX> 341426
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FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated as of December 3, 1996, is entered into among FINOVA CAPITAL CORPORATION,
a Delaware corporation ("FINOVA"), with a place of business at 355 South Grand
Avenue, Suite 2400, Los Angeles, California 90071,and KEYSTONE LINES, a
California corporation ("Keystone"), CAROLINA NATIONAL LOGISTICS INC., an
Indiana corporation ("CNL"), CAROLINA NATIONAL TRANSPORTATION INC., an Indiana
Corporation ("CNT"), GULF LINE TRANSPORT INC., an Indiana corporation ("GLT")
and GULF LINE BROKERAGE INC., an Indiana corporation ("GLB"), (jointly and
severally, individually, a "Borrower", and collectively, the "Borrowers") with
their chief executive office located at 1000 Colfax, Gary, Indiana 46406, and
L.R.S. TRANSPORTATION, INC., an Indiana corporation ("LRS").
RECITAL
A. Keystone, LRS and FINOVA have previously entered into that certain
Loan and Security Agreement dated as of May 31, 1995 (the "Loan Agreement"),
pursuant to which FINOVA has made certain loans and financial accommodations
available to Keystone and LRS. Terms used herein without definition shall have
the meanings ascribed to them in the Loan Agreement.
B. US 1 Industries, Inc., an Indiana corporation ("US1") is the parent
of Keystone and Keystone is the parent of LRS.
C. LRS has ceased business operations and desires to withdraw as a
Borrower under the Loan Agreement, there being no Revolving Loan advances under
the Loan Agreement currently outstanding to LRS.
D. US1 has formed additional transportation subsidiaries, CNL, CNT,
GLT and GLB (the "Additional Subsidiaries, and, together with Keystone, the
"Constituent Entities") and Keystone acting on instructions from US1, has
requested that FINOVA agree to add the Additional Subsidiaries as co-borrowers
under the Loan Agreement.
E. Keystone and the Additional Subsidiaries, as sister corporations to
Keystone, and wholly owned subsidiaries of US1, are inter-related entities
which, collectively, constitute an integrated provider of transportation
services, with US1 providing all administrative services for Keystone and the
Additional Subsidiaries.
F. The Constituent Entities are sufficiently dependent upon each other
and so interrelated, that any advances made by FINOVA under the Loan Agreement
to any of them would directly benefit all of the other Constituent Entities as
a result of their consolidated operations and identity of interests, and that
the Constituent Entities rely on each other for management and/or financial
resources.
G. The Constituent Entities have requested that FINOVA treat them as
co-borrowers under the Loan Agreement, as a single, consolidated business
enterprise, jointly and severally responsible for the Obligations under the
Loan Agreement, so as to permit advances to be allocated among the Constituent
Entities as they shall decide, from time to time, to be in their best
interests.
H. FINOVA is willing to proceed on the basis of treating all of the
Constituent Entities as a single, consolidated business enterprise, and view
their operations on a consolidated basis as requested by Keystone, to add the
Additional Subsidiaries as co-Borrowers under the Loan Agreement, and to delete
LRS as a Borrower under the Loan Agreement.
I. FINOVA is willing to further amend the Loan Agreement under the
terms and conditions set forth in this Amendment. The Constituent Entities are
entering into this Amendment with the understanding and agreement that, except
as specifically provided herein, none of FINOVA's rights or remedies as set
forth in the Loan Agreement are being waived or modified by the terms of this
Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. The definitions of "Borrower" and "Borrowers" set forth in the
preamble to the Loan Agreement are hereby amended to delete LRS as a Borrower
under the Loan Agreement and to include the Additional Subsidiaries, as jointly
and severally responsible with Keystone for all Obligations now or hereafter
outstanding under the Loan Agreement, and by its execution of this Amendment,
LRS withdraws as a Borrower under the Loan Agreement, and by their execution of
this Amendment, the Additional Subsidiaries assume all of the rights, duties
and obligations of a Borrower under the Loan Agreement as if they had initially
been parties thereto.
2. Section 14.2 of the Loan Agreement is hereby amended to read in its
entirety as follows:
"14.2 Loans. Make advances, loans or extensions of credit to, or
invest in, any Person, except for (i) advances, loans or extensions
of credit to the other Borrower(s) in an aggregate amount
outstanding at any time of not greater than Two Hundred Thousand
Dollars ($200,000); provided, however, that no such advance, loan
or extension of credit shall be made by a Borrower to any other
Borrower if an Event of Default had occurred and was continuing
hereunder or would occur with notice or the passage of time, or
both, or would result from such payment; provided further, however,
that after giving effect to each such advance, loan or extension of
credit, the Borrower making such advance, loan or extension of
credit shall have Excess Availability in an amount not less than
twenty percent (20%) of that amount equal to eighty percent (80%)
of the net amount of the then Eligible Receivables of such
Borrower; and provided further, however, that Borrowers shall
provide to FINOVA no later than the next succeeding Business Day
after the date of any such advance, loan or extension of credit, a
report, in form and substance satisfactory to FINOVA, setting forth
the calculation, in the manner provided in Schedule 14.2 attached
hereto, demonstrating that after giving effect to any such advance,
loan or extension of credit, Borrowers have Excess Availability in
the minimum amount required by the preceding proviso; (ii)
advances, loans or extensions of credit to US 1 in an aggregate
principal amount outstanding at any time of not greater than One
Hundred Thousand Dollars ($100,000), and (iii) advances to
owners/operators in the ordinary course of business in an amount
not to exceed either Five Thousand Dollars ($5,000) to any
owner/operator, or Three Hundred Fifty Thousand Dollars ($350,000)
to all owners/operators;"
3. Section 14.5 of the Loan Agreement is hereby amended to read in its
entirety as follows:
"14.5 Indebtedness of Others. Become directly or contingently
liable for the Indebtedness of any Person, except by endorsement of
instruments for deposit, except for (i) Indebtedness of the other
Borrower(s) in an aggregate amount outstanding at any time of not
greater than Two Hundred Thousand Dollars ($200,000), and (ii)
Indebtedness of US 1 in an aggregate principal amount outstanding
at any time of not greater than One Hundred Thousand Dollars
($100,000);"
4. The section in the Schedule to the Loan Agreement entitled "Loans
(Section 1.2)" is hereby amended to read in its entirety as follows:
"LOANS (Section 1.2): Revolving Loans: A revolving line of credit
consisting of loans against the Borrowers' Eligible Receivables
("Receivable Loans"), accounted for on the basis of each individual
Borrower, in an aggregate outstanding principal amount at any time
which shall not exceed the lesser of:
(a) the amount of the Total Facility; or
(b) the sum of (i) with respect to loans to Keystone, the
lesser of (A) Two Million Dollars ($2,000,000) or (B)
an amount equal to eighty percent (80%) of the net
amount of Eligible Receivables of Keystone only, and
(ii) with respect to loans to each of CNL, CNT, GLT or
GLB, the lesser of (A) One Million Dollars ($1,000,000)
or (B) an amount equal to eighty percent (80%) of the
respective net amount of Eligible Receivables of each
of GLT or GLB, or seventy-five percent (75%) of the
respective net amount of Eligible Receivables of each
of CNL or CNT, as the case may be; provided, however,
that in the event FINOVA receives a field audit of CNL
and CNT, such field audit anticipated to be commenced
approximately thirty (30) days after the initial
advance to CNL or CNT hereunder, satisfactory to
FINOVA, the advance rate against the Eligible
Receivables of CNL and CNT shall increase from seventy-
five percent (75%) to eighty percent (80%); and
provided further, however, that at no time shall
aggregate advances to CNL, CNT, GLT and GLB exceed One
Million Dollars ($1,000,000).
Each Revolving Loan advance hereunder shall be advanced
by FINOVA to a specified Borrower based upon the net
amount of the Eligible Receivables of the specific
Borrower to whom the Revolving Loan advance is to be
made. The Borrowers shall reconcile, by Borrower,
Revolving Loan Advances to the net amount of Eligible
Receivables on a monthly basis, by providing FINOVA
with a consolidating borrowing base certificate
pursuant to Section 5.1(1) hereof."
5. (a) The first subparagraph of the section in Schedule to the Loan
Agreement entitled "Reporting Requirements (Section 5.2)" is hereby amended to
read in its entirety as follows:
"1. Each of the Borrowers shall provide FINOVA with monthly
agings aged by invoice date and reconciliations of
receivables within ten (10) days after the end of each month,
which aging reports shall be accompanied by a consolidating
borrowing based certificate dated as of the last day of the
preceding month showing the calculation of the net amount of
Eligible Receivables by Borrower, the outstanding Revolving
Loan advances to each such Borrower, and the resulting net
borrowing availability to each Borrower as of the end of the
preceding month, such consolidating borrowing based
certificate to be in form satisfactory to FINOVA."
(b) The following provision is added at the end of the Section in
the Schedule entitled "Reporting Requirements (Section 5.2)":
"In the event that any Borrower is not in compliance with any
of the reporting requirements set forth in Section 5.2 of the
Loan Agreement and the Schedule, FINOVA may, in addition to
its right to exercise any other rights or remedies hereunder
in response to such non-compliance, charge the Borrowers a
fee for such failure to comply of Two Hundred Dollars ($200)
per day from the date of the occurrence of such failure to
comply with the reporting requirements hereunder until such
failure is either cured or waived by FINOVA as provided
herein (the 'Late Reporting Charge'); provided, however, that
the Late Reporting Charge will not be assessed for a late
submission of the reconciliation of Receivables as required
by subparagraph 1 of Section 5.2 of the Schedule unless such
report is not submitted within fifteen (15) days after the
end of the applicable month.
6. The section on the Collateral Monitoring Fee, set forth under
"Interest and Fees" (Section 3.1) in the Schedule to the Loan and Security
Agreement, is hereby amended to read in its entirety as follows:
"Collateral Monitoring Fee. Commencing December 1, 1996, and
on the first day of each calendar month thereafter, the
Borrowers shall pay FINOVA a Collateral Monitoring Fee of
Five Hundred Dollars ($500) which shall be deemed fully
earned as of the time of each payment."
7. The following changes are made to the section entitled "Borrower
Information" in the Schedule to the Loan Agreement:
Borrowers' States of Incorporation (Section 12.1):
Keystone Lines - California
Carolina National Logistics, Inc. - Indiana
Carolina National Transportation, Inc. - Indiana
Gulf Line Transport, Inc. - Indiana
Gulf Line Brokerage, Inc. - Indiana
Borrowers' Location (Section 12.16): 1000 Colfax
Gary, Indiana 46406
8. The Financial Covenants (Section 13.14), as set forth in the
Schedule to Loan and Security Agreement, are hereby amended to read in their
entirety as follows:
"The Borrowers shall comply with the following financial
covenants. Compliance shall be determined individually for
each Borrower, and on a consolidated basis at the US1 level,
as of the end of each month, as specifically provided below:
Net Worth: The Borrowers shall maintain Net Worth of not less than the
correlative amounts set forth below for the periods stated:
Period
December 3, January 1, 1997 July 1, 1997 and
1996 through through June 30, thereafter
December 31, 1997
Borrower(s) 1996
Consolidated (-$4,400,000)* (-$4,100,000)* (-$3,800,000)*
Keystone $ 900,000 $ 950,000 $ 1,000,000
CNL $ 1,000** $ 1,000** $ 1,000**
CNT $ 1,000** $ 9,000** $ 250,000**
GLT $ 1,000 $ 9,000 $ 75,000
GLB $ 1,000 $ 35,000 $ 1,000
* The minimum Net Worth requirement for the applicable period shall be reduced
(if negative) or increased (if positive), at such time, and from time to time,
as US1 shall have received additional cash equity capital, in an amount equal
to one hundred percent (100%) of the additional cash equity capital up to an
amount of Two Hundred Thousand Dollars ($200,000), and fifty percent (50%) of
any additional cash equity capital in excess of such amount.
**The minimum Net Worth requirement for the applicable period shall be reduced
(if negative) or increased (if positive), at such time, and from time to time,
as CNL or CNT, as the case may be, shall have received additional cash equity
capital, in an amount equal to fifty percent (50%) of the additional cash
equity capital.
Total Debt Service
Coverage Ratio: The Borrowers shall maintain Total Debt Service
Coverage ratios of not less than the correlative
ratios set forth for the periods stated.
Compliance with this covenant shall be measured
on a cumulative monthly rolling basis of twelve
(12) months (or for such lesser period as a
Borrower has been in operation). All
calculations shall be based on the profit and
loss statements for each borrower and on a
consolidated basis for all Borrowers at the US1
level prepared in accordance with generally
accepted accounting principles consistently
applied:
Period
December 3, June 1, 1997 July 1, 1997 and
1996 through through June 30, thereafter
December 31, 1997
Borrower(s) 1996
Consolidated 1.25:1.00 1.25:1.00 1.25:1.00
Keystone 1.10:1.00 1.10:1.00 1.10:1.00
CNL 1.10:1.00 1.10:1.00 1.10:1.00
CNT 1.10:1.00 1.10:1.00 1.10:1.00
GLT 1.10:1.00 1.10:1.00 1.10:1.00
GLB 1.10:1.00 1.10:1.00 1.10:1.00
9. The following definitions set forth in Section 18 of the Loan
Agreement are hereby amended to read as follows:
"Current Assets" at any date means the amount at which the
current assets of an individual Borrower, or of all of the
Borrowers on a consolidated basis determined at the US1
level, would be shown on a balance sheet of the individual
Borrower or of all of the Borrowers, as the case may be, as
of such date, prepared in accordance with generally accepted
accounting principles, consistently applied, provided that
amounts due from Affiliates and investments in Affiliates
shall be excluded therefrom."
"Current Liabilities" at any date means the amount at which
the current liabilities of an individual Borrower, or of all
of the Borrowers on a consolidated basis determined at the
US1 level, would be shown on a balance sheet of the
individual Borrower or of all of the Borrowers on a
consolidated basis, as the case may be, as of such date,
prepared in accordance with generally accepted accounting
principles, consistently applied."
"Excess Availability" means, on an individual Borrower
basis, the amount, as determined by FINOVA, calculated at any
time, equal to: (a) the amount of the Revolving Loans
available to a Borrower as of such time based on the
applicable lending formulas multiplied by the net amount of
Eligible Receivables, as determined by FINOVA, and subject to
the sublimits and availability reserves from time to time
established by FINOVA hereunder, minus (b) the sum of: (i)
the amount of all then outstanding and unpaid Revolving Loan
advances made by FINOVA to such Borrower, (ii) the aggregate
amount of all trade payables of such Borrower which are more
than sixty (60) days past due as of such time, and (iii) the
aggregate amount of such Borrower's bank overdrafts.
"Net Worth" at any date means an individual Borrower's net
worth, or the net worth of all of the Borrowers determined on
a consolidated basis at the US1 level, as the case may be, in
each case determined in accordance with generally accepted
the accounting principles, consistently applied."
"Total Debt Service Coverage Ratio" means, as to each
Borrower and as to all Borrowers on a consolidated basis at
the US1 level, the ratio of each Borrower's or all of the
Borrowers', as the case may be, (i) net profit after taxes
but before any extraordinary items or non-recurring events,
plus depreciation, plus amortization, plus interest, minus
cash Capital Expenditures, to (ii) principal, plus interest,
plus dividends and distributions to US 1."
10. The following definitions are added to Section 18 of the Loan
Agreement:
"KL" means Keystone Logistics, Inc., an Indiana corporation
and a co-borrower hereunder.
"CNL" means Carolina National Logistics, Inc., an Indiana
corporation and a co-borrower hereunder.
"CNT" means Carolina National Transportation, Inc., an
Indiana corporation and a co-borrower hereunder.
"GLT" means Gulf Line Transport, Inc., an Indiana corporation
and a co-borrower hereunder.
"GLB" means Gulf Line Brokerage, Inc., an Indiana corporation
and a co-borrower hereunder.
11. Remedies. The second sentence of Section 17.2 of the Loan
Agreement is hereby amended to read as follows:
"Borrowers agree that FINOVA shall have all of its rights and
remedies under applicable law, including, without limitation,
the default rights and remedies of a secured party under the
Code, and upon the occurrence of an Event of Default
Borrowers hereby consent to the appointment of a receiver by
FINOVA in any action initiated by FINOVA pursuant to this
Agreement and to the jurisdiction and venue as set forth in
Section 19.7 hereof, and Borrowers waive notice and posting
of a bond in connection thereof".
12. Effectiveness of this Amendment. FINOVA must have received the
following items, in form and content acceptable to FINOVA, before this
Amendment is effective and before FINOVA is required to extend any credit to
the Borrowers (with the exception of advances to CNL and CNT for which the
additional requirements of Paragraph 13 shall apply) as provided for by this
Amendment. The date on which all of the following conditions have been
satisfied is the "Closing Date".
(a) Amendment. This Amendment fully executed in a sufficient
number of counterparts for distribution to FINOVA and the Borrowers.
(b) Authorizations. Evidence that the execution, delivery and
performance by each Borrower and each guarantor or subordinating creditor
of this Amendment or consents thereto and of any other instrument or
agreement required by FINOVA in connection therewith have been duly
authorized.
(c) Representations and Warranties. The Representations and
Warranties set forth in the Loan Agreement must be true and correct.
(d) Other Required Documentation. All other documents and legal
matters in connection with the transactions contemplated by this
Agreement, including all items set forth on the Document Checklist
attached as Exhibit A hereto and incorporated herein by this reference
shall have been delivered or executed or recorded and shall be in form
and substance satisfactory to FINOVA.
(e) Payment of Modification Fee. FINOVA shall have received from
the Borrowers a Modification Fee of $1,000 for the processing and
approval of this Amendment.
(f) Credit Policies. The Borrowers shall have demonstrated to
the satisfaction of FINOVA the policies and procedures by which they
screen and approve the credit quality of new account debtors.
(g) Employment Contracts. The Borrowers shall have provided
FINOVA with copies of all employee employment contracts or other
agreements and such contracts and agreements shall be acceptable in form
and substance to FINOVA.
(h) Projections. The Borrowers shall have provided to FINOVA, in
form and substance satisfactory to FINOVA, projected consolidating
financial statements through December 31, 1997.
13. Effectiveness of this Amendment with Respect to Advances to CNL and
CNT.
FINOVA shall have received the following items, in addition to the items set
forth in Paragraph 12 above, in form and content acceptable to FINOVA, before
this Amendment is effective with respect to advances to CNL and CNT and before
FINOVA is required to extend any credit to CNL and CNT as provided for by this
Amendment.
(a) US1 Equity. US1 shall have raised additional cash equity
capital in the minimum amount of Two Hundred Thousand Dollars ($200,000).
(b) CNL and CNT Equity. CNL and CNT, individually or in the
aggregate, shall have received additional cash equity capital in the minimum
amount of One Hundred Thousand Dollars ($100,000) which amount shall be in
addition to the minimum amount of cash equity capital required to be raised by
US1 as provided in subparagraph (a) above.
(c) Lockbox. CNL and CNT shall have established lockbox or
dominion accounts as provided by Section 7.3 of the Loan Agreement.
(d) Field Audit. FINOVA shall have received and reviewed its
field audit of the Borrowers for the period ending September 30, 1996 and as a
result of such review, FINOVA shall have determined that Borrowers are in
compliance with the financial reporting and other requirements of the Loan
Agreement.
(e) Background Report. FINOVA shall have received such credit
and background reviews as FINOVA considers appropriate on Mr. Martin F. Chitty,
Sr., and of such reports shall be satisfactory to FINOVA.
(f) Delivery Receipts. Notwithstanding any other provision of
this Agreement to the contrary, Receivables of CNL and CNT in excess of One
Thousand Dollars ($1,000) each shall not be considered Eligible Receivables
until such time as FINOVA shall have received and approved the delivery
receipts with respect to the shipment giving rise to the Receivables.
14. Choice of Law. The validity of this Amendment, its construction,
interpretation and enforcement, the rights of the parties hereunder, shall be
determined under, governed by, and construed in accordance with the internal
laws of the State of Arizona governing contracts only to be performed in that
State.
15. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument.
16. Due Execution. The execution, delivery and performance of this
Amendment are within the power of the Borrowers, have been duly authorized by
all necessary corporate action, have received all necessary governmental
approval, if any, and do not contravene any law or any contractual restrictions
binding on the Borrowers.
17. Effect of Amendment. Except as set forth expressly herein, all
terms of the Loan Agreement and the other Loan Documents shall be and remain in
full force and effect and shall constitute the legal, valid, binding and
enforceable obligations of the Borrowers to FINOVA. To the extent that any
terms and conditions in any of the Loan Documents shall contradict or be in
conflict with any terms or conditions of the Loan Agreement, after giving
effect to this Amendment, such terms and conditions are hereby deemed modified
and amended accordingly to reflect the terms and conditions of the Loan
Agreement as modified and amended hereby.
18. Ratification. Borrowers hereby restate, ratify and reaffirm each
and every term and condition set forth in the Loan Agreement, as amended
hereby, and the Loan Documents effective as of the date hereof.
19. Estoppel. To induce FINOVA to enter into this Amendment and to
continue to make advances to Borrowers under the Loan Agreement, Borrowers
hereby acknowledge and agree that, after giving effect to this Amendment, as of
the date hereof, there exists no Event of Default and no right of offset,
defense, counterclaim or objection in favor of any Borrower as against FINOVA
with respect to the Obligations.
20. Waiver. The Borrowers acknowledge that FINOVA may not have
strictly enforced the reporting requirements, or financial covenants or other
terms and conditions of the Loan Agreement. Any such prior failure by FINOVA,
pursuant to Section 19.2 of the Loan Agreement, shall not operate as a waiver
of Borrowers' required future compliance with all of the terms and conditions
of the Loan Agreement. The Borrowers agree that FINOVA may strictly enforce
all of the terms and conditions of the Loan Agreement including, but not
limited to, the reporting requirements as amended by this Amendment and that
any past leniency by FINOVA shall not be deemed a waiver of the Borrowers
requirements for future performance. In furtherance of the foregoing, the
Borrowers acknowledged that FINOVA has been advancing against Receivables shown
on Borrowers' aging reports as outstanding for the period of from 60 to 90 days
of invoice date, notwithstanding the fact that the definition of Eligible
Receivables considers Receivables unpaid after 75 days after invoice date to be
ineligible. Commencing with Borrowers' reporting period ending December 31,
1996, FINOVA shall no longer advance against any Receivables shown under a
category in a monthly aging report as outstanding for a period longer than 75
days after invoice date, or against any Receivables shown in a aging category
that includes the 75th day after invoice date, such as a reporting category of
from 60 to 90 days.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.
KEYSTONE LINES,
a California corporation
By:______________________________
Title:____________________________
L.R.S. TRANSPORTATION, INC.,
an Indiana corporation
By:_____________________________
Title:___________________________
CAROLINA NATIONAL LOGISTICS, INC.,
an Indiana corporation
By:______________________________
Title:___________________________
CAROLINA NATIONAL
TRANSPORTATION INC.,
an Indiana corporation
By:_______________________________
Title:____________________________
GULF LINE TRANSPORT INC.,
an Indiana corporation
By:______________________________
Title:___________________________
GULF LINE BROKERAGE INC.,
an Indiana corporation
By:______________________________
Title:___________________________
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:______________________________
Title:___________________________
Schedule 14.2
Date of Intercompany Advance,
Loan or Extension of Credit: _______________, 19__
(a) Net Amount of Eligible
Receivables (gross
Eligible Receivables
less returns, allowances
and other adjustments) $____________________
(b) Eighty Percent (80%) of
the net amount of
Eligible Receivables $____________________
(c) Twenty Percent (20%) of (b) $____________________
(d) Total Excess Availability
(as defined in the Schedule
to Loan and Security Agreement) $____________________
(e) (d) > (c) ? yes
? no
I hereby certify that the foregoing calculations are true and correct to
the best of my knowledged after due inquiry as of the date hereof.
Dated:________________ ________________________________
Chief Financial Officer
Antonson & Kibler
1000 Colfax
Gary, Indiana 46406
PROMISSORY NOTE
$138,500.00 Date: March 31, 1996
For value received, the undersigned Keystone Lines (the "Promisor")
promises to pay to the order of Harold Antonson and Michael Kibler
(the "Payee"), at 1000 Colfax, Gary, Indiana 46406, (or at such other
place as the Payee may designate in writing) the sum of $138,500.00
with interest from date of receipt as detailed below, on the unpaid
principal at the rate of 1.50 percent over the National Price as
published in the Wall Street Journal.
The unpaid principal and accrued interest shall be payable on demand.
All payments on this Note shall be applied first in payment of accrued
interest and any remainder in payment of principal.
If any payment obligation under this Note is not paid when due, the
Promisor promises to pay all costs of collection, including reasonable
attorney fees, whether or not a lawsuit is commenced as part of the
collection process.
No renewal or extension of this Note, delay in enforcing any right of
the Payee under this Note, or assignment by Payee of this Note shall
affect the liability of the Promisor. All rights of the Payee under
this Note are cumulative and may be exercised concurrently or
consecutively at the Payee's option.
This Note shall be construed in accordance with the laws of the State
of Indiana.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining
provisions shall remain fully operative.
All payments of principal and interest on this Note shall be paid in
the legal currency of the United States.
Promisor waives presentment for payment, protest, and notice of protest
and nonpayment of this Note.
Signed this 5th day of May, 1996, at Gary, Indiana.
Keystone Lines
By: ____________________________________________________
Michael Kiber
President
Schedule of Loans
January 1996 $ 73,000
February 29, 1996 $ 48,700
March 8, 1996 ($ 16,700)
March 31, 1996 $ 33,500
-------
$138,500
=======
Antonson & Kibler
1000 Colfax
Gary, Indiana 46406
PROMISSORY NOTE
$1,300.00 Date: July 7, 1996
For value received, the undersigned Keystone Lines (the "Promisor")
promises to pay to the order of Harold Antonson and Michael Kibler
(the "Payee"), at 1000 Colfax, Gary, Indiana 46406, (or at such other
place as the Payee may designate in writing) the sum of $1,300.00 with
interest from date of receipt as detailed below, on the unpaid princi-
pal at the rate of 1.50 percent over the National Price as published
in the Wall Street Journal.
The unpaid principal and accrued interest shall be payable on demand.
All payments on this Note shall be applied first in payment of accrued
interest and any remainder in payment of principal.
If any payment obligation under this Note is not paid when due, the
Promisor promises to pay all costs of collection, including reasonable
attorney fees, whether or not a lawsuit is commenced as part of the
collection process.
No renewal or extension of this Note, delay in enforcing any right of
the Payee under this Note, or assignment by Payee of this Note shall
affect the liability of the Promisor. All rights of the Payee under
this Note are cumulative and may be exercised concurrently or
consecutively at the Payee's option.
This Note shall be construed in accordance with the laws of the State
of Indiana.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining
provisions shall remain fully operative.
All payments of principal and interest on this Note shall be paid in
the legal currency of the United States.
Promisor waives presentment for payment, protest, and notice of protest
and nonpayment of this Note.
Signed this 7th day of July, 1996, at Gary, Indiana.
Keystone Lines
By: ____________________________________________________
Michael Kiber
President
Schedule of Loans
April 1996 $ 1,300
-------
$ 1,300
=======
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorportation by reference in the registration
statement of US 1 Industries, Inc. on Form S-8 (Commission File No. 1-8129)
of our report, which includes an explanatory paragraph regarding the
ability of US 1 Industries to continue as a going concern, dated
April 4, 1997 on our audit of the financial statements of US 1 Industries,
Inc. and Subsidiaries as of December 31, 1996 and 1995 and for the years
then ended.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
April 4, 1997
