________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998.
Commission File No. 1-8129.
US 1 INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Indiana 95-3585609
(State of Incorporation) (I.R.S. Employer Identification No.)
1000 Colfax, Gary, Indiana 46406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 944-6116
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes _X_ No ___
As of November 4, 1998, there were 10,618,224 shares of common stock were
outstanding.
TOTAL OF SEQUENTIALLY
NUMBERED PAGES: 14
Part I
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997
ASSETS
September30, December 31,
1998 1997
(Unaudited)
CURRENT ASSETS:
Cash $ 0 $ 298,079
Accounts receivable--trade less allowance for
doubtful accounts of $369,808 and $195,298 4,266,554 5,066,256
Other receivables 419,135 336,919
Deposits 146,643 154,068
Prepaid expenses 69,365 83,731
------------ -----------
Total current assets 4,901,697 5,939,053
------------ -----------
FIXED ASSETS:
Equipment 298,796 52,996
Less accumulated depreciation and amortization (76,778) (12,682)
------------ -----------
Net fixed assets 222,018 40,314
------------ -----------
ASSETS HELD FOR SALE:
Land 195,347 423,226
Valuation allowance (141,347) (141,347)
------------ -----------
Net assets held for sale 54,000 281,879
------------ -----------
TOTAL ASSETS $ 5,177,715 $ 6,261,246
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEBER 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
SEPTEMBER 30, DECEMBER 31,
1998 1997
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 2,533,003 $ 3,181,713
Accrued expenses 160,237 137,454
Short-term debt 2,899,683 3,292,945
Insurance and claims 221,533 241,607
Accrued interest 266,758 140,824
Accrued compensation 16,734 38,302
Estimated fuel and other taxes 80,202 273,901
----------- -----------
Total current liabilities 6,178,151 7,306,746
----------- -----------
LONG-TERM DEBT 2,566,028 2,599,815
REDEEMABLE PREFERRED STOCK,
authorized 5,000,000 shares; no par value,
Series A shares outstanding: 1,094,224
Liquidation preference $0.3125 per share. 807,254 753,254
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock authorized 20,000,000 shares;
no par value; shares outstanding:
September 30, 1998 and December 31, 1997 were
10,618,224 and 10,573,780, respectively. 40,844,296 40,844,296
Accumulated deficit (44,957,872 (45,036,724)
Accumulated other comprehensive loss (260,141 (206,141)
----------- ----------
Total shareholders' equity (deficiency) (4,373,717) (4,398,569)
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,177,715 $ 6,261,246
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 31,
1998 1997 1998 1997
OPERATING REVENUES $ 7,681,683 $ 6,440,892 $ 22,889,671 $17,096,558
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Purchased transportation 5,758,520 5,146,788 17,437,037 13,260,572
Insurance and claims 242,788 190,042 744,513 569,596
Salaries, wages, and other 297,152 314,872 820,846 926,630
Commissions 808,536 616,118 2,352,806 1,662,373
Operating supplies and expense 350,944 188,585 775,718 619,111
Operating taxes and licenses 13,810 34,952 52,497 101,608
Communications and utilities 21,674 36,424 77,272 106,311
Rents 21,390 14,945 63,694 62,586
Depreciation and amortization 58,543 1,734 64,096 5,780
------------ ------------ ------------ -----------
Total operating expenses 7,573,357 6,544,460 22,388,449 17,314,567
------------ ------------ ------------ -----------
OPERATING INCOME 108,326 (103,568) 501,222 (218,009)
------------ ------------ ------------ -----------
NON-OPERATING INCOME (EXPENSE):
Interest income 4,748 473 5,527 1,809
Interest expense (189,448) (93,836) (518,787) (253,353)
Other income 14,516 (8,876) 29,835 39,435
------------ ------------ ------------ -----------
Total non-operating (expense) (170,184) (102,239) (483,425) (212,109)
------------ ------------ ------------ -----------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (61,858) (205,807) 17,797 (430,118)
EXTRAORDINARY ITEM
GAIN ON SALE OF REAL ESTATE 61,055 61,055
------------ ---------- ------------ ----------
NET INCOME (LOSS) (803) (205,807) 78,852 (430,118)
DIVIDENDS ON PREFERRED SHARES 18,000 15,307 54,000 45,307
NET INCOME (LOSS) TO COMMON SHARES (18,803) (221,114) 24,852 (475,425)
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE
Continuing operations (0.006) (0.02) 0.002 (0.045)
Preferred Dividend (0.002) (0.001) (0.006) (0.005)
Extraordinary item 0.006 0.006
------------ ------------ ------------ ------------
Net Income (Loss) per common share
From continuing operations (0.002) (0.021) 0.002 (0.050)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 10,618,224 10,615,936 10,618,224 10,615,936
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
Nine Months Ended September 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 17,797 $(430,118)
Adjustments to reconcile net income (loss) to net
cash provided from (used for) operations:
Depreciation and amortization 64,069 5,780
Gain on Sale of Real Estate 61,055
Changes in operating assets and liabilities:
Accounts receivable - trade 799,702 (2,382,447)
Other receivables (82,216) (545,554)
Prepaid assets 14,366 (63,484)
Deposits 7,425 (234)
Accounts payable (648,710) 1,261,232
Accrued expenses 22,783 5,939
Accrued interest 125,934 40,472
Insurance and claims (20,074) 32,217
Other accrued compensation (21,568) (11,420)
Fuel and other taxes (193,699) (38,294)
--------- ----------
Net Cash used for operating activities 58,023 (2,125,911)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (245,800) (47,525)
Proceeds from the sale of Real Estate 229,879
--------- ----------
Net cash used for investing activities 17,921 (47,525)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit (393,262) 1,453,566
Proceeds from other related party long term loans (33,787) 1,629,419
Repayment of other related party short term loans (654,800)
Proceeds from issuance of common stock 20,000
Net cash provided from financing activities (427,049) 2,448,185
--------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (298,079) 274,749
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 298,079 225,541
--------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 0 $ 500,290
========= ==========
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of September 30, 1998 and the
consolidated statements of operations and cash flows for the nine month
periods ended September 30, 1998 and 1997 are unaudited, but, in the
opinion of management, include all adjustments necessary for a fair
presentation of the financial position and the results of operations for
such periods. The December 31, 1997 balance sheet data was derived from
audited financial statements. These statements should be read in
conjunction with the Company's audited consolidated financial statements
for the year ended December 31, 1997 and the notes thereto included in
the Company's Annual Report on Form 10-KSB.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted, as permitted by the requirements of the
Securities and Exchange Commission, although the Company believes that the
disclosures included in these financial statements are adequate to make the
information not misleading. The results of operations for the nine months
ended September 30, 1998 and 1997 are not necessarily indicative of the
results for a full year.
2. GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has experienced
operating losses and negative cash flows in recent years. At September 30,
1998 and December 31, 1997, the Company's current liabilities exceeded its
current assets by $1.2 million and $1.3 million, respectively. While this
situation continues to improve, the Company's future depends heavily on
revenue growth and control of operating expenses so that sufficient cash
flow is generated to satisfy its indebtedness. Revenue growth and the
resulting improved cash flows would enable the Company to reduce its third
party debt and improve its working relationships with potential agents and
independent contractors. The Company is exploring options to raise capital
and various other potential transactions to improve this situation. Recent
poor results and negative cash flows from operations, continue to raise
substantial doubts about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. EARNINGS PER COMMON SHARE
The Company calculates earnings per share in accordance with the Statement of
Financial Accounting Standards No. 128 effective for both interim and annual
financial statement periods. As required by this statement, the company
adopted the standards for computing and presenting earnings per share (EPS)
and for all prior period earnings per share data presented.
Following are the reconciliation of the numerators and denominators of the
basic and diluted EPS. There were no outstanding options these periods.
Numerator 1998 1997
Income (Loss) from continuing operations $ 17,797 $ (103,986)
Dividends on preferred shares (54,000) (30,602)
-------- --------
Net Income (Loss) available to common (36,203) (134,588)
Shareholders for basic and diluted EPS
-------- ---------
Denominator
Weighted average common shares 10,618,224 10,573,780
Outstanding for basic and diluted EPS
4. SHORT-TERM DEBT
Short-term debt at September 30, 1998 and December 31, 1997 comprises:
September 30, December 31,
1998 1997
---------- ----------
Line of credit $2,842,522 $3,188,581
Current portion of long-term debt 57,161 54,364
Note on Kansas City Property 50,000
---------- ----------
Total $2,899,683 $3,292,945
========== ==========
Under its revolving line of credit agreement the Company may borrow up to a
maximum of $3,300,000. Borrowings are limited to 80% of eligible accounts
receivable and bear interest at the prime rate (8.00% at September 30, 1998
and 8.25% at December 31, 1997, respectively) plus 2.75% and 3.25%
respectively. Advances under the line of credit agreement are
collateralized by the Company's accounts receivable, property and other
assets.
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, 1997 the
Company was in violation of the debt service coverage ratio covenant.
At September 30, 1998, the company is not in violation of any of the
financial covenants of the agreement as amended.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. LONG-TERM DEBT
Long-term debt at September 30, 1998 and December 31, 1997 comprises:
September 30, December 31,
1998 1997
--------- ------------
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 Antonson/Kilber
collateralized by land, interest at
prime + .75%, interest only payments
required, principal balance due
July 3, 2003 500,000 500,000
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 229,971 221,475
TIP trailer settlement payments of principal
only of $1,000 per month, principal due
February, 2003 74,400 83,400
Due to August Investment Partnership
interest at prime + .75%, interest only
payments required, principal balance due
January, 1999 100,000 100,000
Due to Antonson/Kibler interest at prime + .75%,
interest only payments required, principal
balance due January, 1999 1,468,818 1,499,304
---------- --------
Total debt 2,684,244 2,654,179
Less current portion 57,161 54,364
---------- --------
Total long-term debt $ 2,566,028 $ 2,599,815
========== ========
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. 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 Company believes it has adequately reserved for these claims however,
additional liability is possible and the ultimate disposition of these claims
may have a material adverse effect on the Company's results of operations,
cash flows and financial position.
The Company carries insurance for public liability and property damage, and
cargo loss and damage through various programs. The Company's insurance
liabilities are based upon the best information currently available and are
subject to revision in future periods as additional information becomes
available. Management believes it has adequately provided for insurance
claims.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
Results of Operations
The consolidated financial statements and related notes contained elsewhere
in this Form 10-QSB and in the Company's Form 10-KSB for its fiscal year ended
December 31, 1997 are essential to an understanding of the comparisons and are
incorporated by reference into the discussion that follows. The consolidated
financial statements have been prepared assuming that the company will
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. See
note 2.
Three month period 1998 Compared to 1997
The Company's operating revenues increased from $6.4 million for the three
months ended September 30, 1997 to $7.7 million for the same period in 1998,
an increase of 19%. The increase in operating revenues resulted from the
addition of Carolina National Transportation in January 1997 and their
continued growth. The total operating expenses increased from $ 6.6 million
to $ 7.6 million.
Most of the components of operating expenses increased proportionally to the
increase in sales except "Operating Supplies and Expense". The increase in
this expense was due to the closure of the Sugar Creek office of Keystone
Lines. Their principal customer went out of business during the second
quarter of 1998. During the third quarter Keystone wrote off the receivable
of that customer. Operating Expense increased approximately $ 110,000 as a
result.
Control of expenses improved such that operating income (loss) improved from
a deficit $(103,568) to a positive $ 108,326.
During the third quarter ended September 30, 1998 Carolina National lost one
of it's larger agents and closed the office of another. The result was that
sales were $700,000 less than planned for and the operating income was
approximately $ 90,000 less than expected.
Nine Month Period 1997 Compared to 1996
The Company's operating revenues increased from $17.1 million for the first
nine months of 1997 to $22.8 million for the same period in 1998. The increase
in operating revenues resulted from the start up of Carolina National
Transportation in January 1997.
Three of the companies expense items tend to vary in direct proportion to
sales. They are Purchased Transportation, Commissions to agents, and
Insurance. The rest of the expenses tend to remain fixed relative to sales.
During the first 9 months of 1997 variable expenses were 89.5% of sales while
during the first 9 months of 1998 variable expenses were 90.1% of sales.
Fixed expenses were $1.8 million both periods. The increased sales less
variable expenses resulted in operating (loss) of $ (114,441) for 1997 and
an operating income of $ 392,896 for 1998.
Interest expense increased from 159,000 in 1997 to 329,000 in 1998. This was
due to increased borrowing to fund the startup of Carolina National. Carolina
National has reached the point where it is close to breakeven so additional
borrowing to fund losses and startup expenses are not expected.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two-
digit year is commonly referred to as the year 2000 compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company expects to begin the conversion and modification and testing of
existing systems and software in the near future. The company also has plans
to communicate with customers, vendors and other third parties with which it
does significant business to determine their year 2000 compliance readiness.
There can be no guarantee that our systems or that of other entities will be
sufficiently compliant and not have an adverse effect on the Company
Subsequent Events
A possible defalcation has been discovered in one of the offices of Keystone
Brokerage a company subsidiary. Management and their attorneys are
investigating. The maximum the loss could be is $ 200,000. Management has
not been able to accurately determine the extent of the loss at this time.
Future Prospects
The Company's management remains cautiously optimistic about its future
prospects. Revenue for each month in 1998 has increased over revenue in the
same month of the prior year. While Carolina National closed two offices
during the third quarter, they have subsequently opened two new offices and
the prospects for additional offices is good. However, the Company's future
depends on continuing to increase its revenues, improving its control over
operations, and bringing its new operations up to more profitable levels.
The company has excessive debt. Management is exploring the possibility of
converting debt to equity as one way to improve the situation.
Liquidity and Capital Resources
As of September 30, 1998, the Company's financial position remains precarious.
The Company had a deficit in shareholders' equity of $4.6 million and its
current liabilities of $6.0 million exceeded its current assets by $1.3
million. The Company has experienced significant operating losses in prior
years leaving the Company in its current position. The Company's borrowing
from the partners of AIP and the Company's president to alleviate the current
cash shortages has enabled the Company to continue in operation. Accounts
receivable were reduced by $ 799,702 due to increased collection efforts.
Funds obtained from that effort together with proceeds from the sale of real
estate, net income, depreciation, and other items were used to reduce accounts
payable by $ 648,710 and reduce other loans by $ 365,994. While the
Company's current situation is not good, plans are to continue to grow the
Company and improve profits.
Shareholders and potential investors in the Company are cautioned that the
Company's financial condition remains precarious. An increase in operating
performance is essential to its long-term survival. Unfortunately, there can
be no assurance that this will be achieved.
PART II. OTHER INFORMATION
Item 6(b). Reports on Form 8-K
One Report on Form 8-K has been filed during the quarter. It pertains to the
resignation of Coopers & Lybran as the Companies auditor.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
US 1 Industries, Inc.
Michael E. Kibler
President
Harold Antonson
Chief Financial Officer
November 15, 1998
