FORM 10-Q
------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 1999.
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 August 12, 1999, there were 10,618,224 shares of common stock outstanding.
<PAGE>
Part I
Item 1. FINANCIAL STATEMENTS.
<TABLE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
<CAPTION>
ASSETS June 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ $
Account receivable--trade less allowance for
doubtful accounts of $123,854 and $95,083 4,106,228 4,041,966
Other receivables 223,478 59,654
Deposits 126,150 132,429
Prepaid expenses 10,837 27,798
------------ ------------
Total current assets 4,466,693 4,261,847
------------ ------------
FIXED ASSETS:
Equipment 147,278 258,445
Less accumulated depreciation and amortization (57,637) (75,316)
------------ ------------
Net fixed assets 89,641 183,129
------------ ------------
ASSETS HELD FOR SALE:
Land 195,347 195,347
Valuation allowance (141,347) (141,347)
------------ ------------
Net assets held for sale 54,000 54,000
------------ ------------
TOTAL ASSETS $ 4,610,334 $ 4,498,976
============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,416,563 $ 1,445,889
Bank overdraft 396,280 260,404
Accrued expenses 165,031 183,400
Short-term debt 2,401,818 2,565,006
Insurance and claims 137,710` 181,524
Accrued interest 517,068 392,883
Accrued compensation 17,476 17,591
Estimated fuel and other taxes 42,962 75,695
----------- -----------
Total current liabilities 5,094,908 5,122,392
----------- -----------
LONG-TERM DEBT 2,838,141 2,849,262
REDEEMABLE PREFERRED STOCK,
authorized 5,000,000 shares; no par value,
Series A shares outstanding: 1,094,224
Liquidation preference $0.3125 per share. 861,254 825,254
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock authorized 20,000,000 shares;
no par value; shares outstanding 10,618,224 40,844,297 40,844,296
Accumulated deficit (45,028,266) (45,142,228)
------------ ----------
Total shareholders' equity (deficiency) (4,183,969) (4,297,932)
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,610,334 $ 4,498,976
============ ===========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
1999 1998 1999 1998
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 8,198,207 $ 8,082,343 $ 15,590,065 $15,207,988
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Purchased transportation 6,203,639 6,184,382 11,863,464 11,678,517
Insurance and claims 269,316 249,693 469,756 501,725
Salaries, wages, and other 304,229 277,130 631,921 523,694
Commissions 761,168 862,304 1,486,917 1,544,270
Operating supplies and expense 277,310 211,630 493,127 424,774
Other expenses 103,994 67,232 184,484 142,112
------------ ------------ ------------ -----------
Total operating expenses 7,919,656 7,852,371 15,129,669 14,815,092
------------ ------------ ------------ -----------
OPERATING INCOME 278,551 229,972 460,396 392,896
------------ ------------ ------------ -----------
NON-OPERATING INCOME (EXPENSE):
Interest income 2,337 300 3,347 779
Interest expense (165,387) (167,843) (315,170) (329,339)
Other income (expense) (9,010) 14,835 1,389 15,320
------------ ------------ ------------ -----------
Total non-operating (expense) (172,060) (152,708) (310,434) (313,240)
------------ ------------ ------------ -----------
NET INCOME $ 106,491 $ 77,264 $ 149,962 $ 79,656
DIVIDENDS ON PREFFERRED SHARES 18,000 18,000 36,000 36,000
----------- ------------ ------------ ------------
NET INCOME AVAILABLE TO COMMON
SHARES 88,491 59,264 113,962 43,656
============ ============ ============ ============
EARNINGS PER COMMON SHARE -
BASIC AND DILUTED $ 0.02 $ 0.01 $ 0.02 $ 0.01
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES-
BASIC AND DILUTED 10,618,224 10,618,224 10,618,224 10,618,224
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<CAPTION>
Six Months Ended June 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 149,962 $ 79,656
Adjustments to reconcile net income (loss) to net
cash provided from (used for) operations:
Depreciation and amortization 19,906 5,552
Loss from disposal of equipment 18,765
Changes in operating assets and liabilities:
Accounts receivable - trade (64,262) 413,164
Other receivables (163,824) (489,506)
Prepaid assets 16,961 32,234
Deposits 6,279 2,056
Accounts payable (29,326) 234,366
Accrued expenses (18,369) 11,078
Accrued interest 124,185 (77,774)
Insurance and claims (43,814) 59,328
Other accrued compensation (115) (23,723)
Fuel and other taxes (32,733) (247,727)
--------- ----------
Net Cash provided by (used for) operating activities (16,385) (1,296)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,183) (9,330)
Proceeds from disposal of equipment 60,000
Sale of assets held for sale 227,879
--------- ----------
Net cash provided by investing activities 54,817 218,549
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under line of credit (172,286) (47,566)
Principal payments on long term debt (42,667)
Net proceeds from related party loans 40,644 197,110
Increase (Decrease) in bank overdraft 135,876 (530,133)
--------- ----------
Net cash provided from (used for)financing activities (38,433) (380,589)
--------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (163,336)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 298,079
--------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $134,743
========= ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of June 30, 1999 and the
consolidated statements of operations and cash flows for the six month periods
ended June 30, 1999 and 1998 are unaudited, but, in the opinion of management,
include all adjustments (consisting of normal, recurring accruals) necessary for
a fair presentation of the financial position and the results of operations for
such periods. The year-end balance sheet data was derived from audited financial
statements. These statements should be read in conjunction with the Company's
audited consolidated financial statements for the year ended December 31, 1998
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 six months ended June 30, 1999 and
1998 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 June 30, 1999 and
December 31, 1998, the Company's current liabilities exceeded its current assets
by $628,000 and $861,000, respectively. While this is an improvement, the
Company's future still depends heavily on raising the capital to fund operations
until its revenue growth generates sufficient cash flows to satisfy its
indebtedness. Revenue growth and the resulting improved cash flows would enable
the Company to reduce its third party debt and improve its working relationships
with potential agents and independent contractors. The Company is exploring
options to raise capital and various other potential transactions. Recent poor
results and the inability to remain in compliance with financial covenants with
its lenders continue to raise substantial doubts about the Company's ability to
continue as a going concern. As of December 31, 1998, the Company was in
violation of the debt service coverage ratio and covenants relating to capital
expenditure limitation. On April 9, 1999 the lender issued a letter of default
for these covenant violations. At June 30, 1999, the company is in violation of
the net worth covenant. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
<PAGE>
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 Financial
Accounting Standards No. 128. Following is the reconciliation of the numerators
and denominators of the basic and diluted earnings per share (EPS). There were
no outstanding options these periods.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Numerator 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Income from continuing operations $ 106,491 $ 77,264 $ 149,962 $ 79,656
Dividends on preferred shares (18,000) (18,000) (36,000) (36,000)
---------- ----------- ------- --------
Net income available to common
shareholders for basic and
diluted EPS $ 88,491 $ 59,264 $ 113,962 $ 43,656
---------- ------------ ------- --------
Denominator
Weighted average common shares
outstanding for basic and
diluted EPS 10,618,224 10,618,224 10,618,224 10,618,224
</TABLE>
<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
4. SHORT-TERM DEBT
Short-term debt at June 30, 1999 and December 31, 1998 comprises:
<CAPTION>
JUNE 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Line of credit $2,274,575 $2,446,861
Current portion of long-term debt 127,243 118,145
---------- ----------
Total $2,401,818 $2,565,006
========== ==========
</TABLE>
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 (7.75% and 8.50% at June 30, 1999
and December 31, 1998, respectively) plus 2.75% respectively. The Company's
accounts receivable; property and other assets are pledged as collateral for
advances under the line of credit agreement. The line of credit expires in May
2002.
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, 1998, the Company was in violation of the debt service coverage
ratio and covenants relating to capital expenditure limitation. On April 9, 1999
the lender issued a letter of default for these covenant violations. At June 30,
1999, it is in not violation of the debt service coverage ratio, but is still in
violation of the net worth covenant. As a result, at June 30, 1999 the company
remains in default for covenant violations.
<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
5. LONG-TERM DEBT
Long-term debt at June 30, 1999 and December 31, 1998 comprises:
<CAPTION>
June 30, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Mortgage note payable to August Investment
Partnership collateralized by land,
interest at prime + .75%, interest only
payments required, principal balance
due July 31, 2001 $250,000 $250,000
Mortgage note payable to Antonson/Kibler
collateralized by land, interest at
prime + .75% interest only payments
required, principal balance due
July 2, 2003 500,000 500,000
Mortgage note payable to ITE,
collateralized by land, interest at 9%,
monthly repayments of $5,000, including
interest, remaining principal balance
due March, 2002. 23,131 56,428
Note payable collateralized by equipment
monthly payments of $ 3985.39 interest at 7.8%
through February, 2001 66,725 109,392
Mortgage note payable to ITE interest at 9%
Monthly repayment of $2850 are to begin
on August 15, 1999 57,289 57,289
Mortgage note payable to AIFE interest at 9%
Monthly installments of $2150 are to begin
on August 15, 1999 43,256 43,256
Mortgage note payable to August Investment
Partnership, interest at prime + .75%, interest
only payments required, principal balance due
January, 2001 100,000 100,000
Note payable to Antonson/Kibler interest at
prime + .75%, interest only payments required,
principal balance due January, 2001 1,924,983 1,851,042
-------- --------
Total debt 2,965,384 2,967,407
Less current portion 127,243 118,145
---------- --------
Total long-term debt $2,838,141 $2,849,262
========== ========
</TABLE>
<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS AND CONTINGENCIES
The company is involved in litigation in the normal course of its business.
Management intends to vigorously defend these cases. In the opinion of
management, the litigation now pending will not have a material adverse effect
on the financial position of the Company.
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.
7. STOCK OPTIONS
The Company has a stock option plan which allows the Board of Directors to grant
options to officers and certain key employees to purchase common stock at the
fair market value on the date of the grant. At June 30, 1999 and December 31,
1998 96,500 share were available for future option grants under the stock option
plan. There were no options outstanding under the stock option plan as of June
30, 1999 and December 31, 1998.
During 1997, the Board of Directors granted options to purchase 80,000 shares of
the Company's common stock to an unaffiliated investor at an exercise price of
$.25 per share. These options were immediately exercisable and expire on
December 31, 1999. As of June 30, 1999, no options under this grant had been
exercised.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
Results of Operations
The financial statements and related notes contained elsewhere in this Form 10-Q
and in the Company's Form 10-KSB for its fiscal year ended December 31, 1998 are
essential to an understanding of the comparisons and are incorporated by
reference into the discussion that follows.
Period 1999 Compared to 1998
The Company's operating revenues increased from $15.2 million for the first six
months of 1998 to $15.6 million for the same period in 1999. The Company's
operating revenues are generated principally from two truckload carriers
Keystone, and Carolina National Transportation. Sales are generated through
independent agents who originate shipments that then are transported by
independent contractors who own their own equipment.
The company contracts with third parties for most services and as a matter of
contract agrees to pay certain percentages of revenue for services rendered. The
three major items so managed are:
<TABLE>
<CAPTION>
Item: Average Percent
<S> <C>
Purchased Transportation (PURTRANS) 76.10%
Commissions to agents 9.54%
Insurance 3.01%
Total 88.65%
</TABLE>
These expenses, as a result, remain relatively consistent (as a percent of
sales). Insurance rates will be increasing in the second half of 1999 by
approximately 20%. This is likely to adversely affect net income. Actual results
were as follows;
<TABLE>
<CAPTION>
(Dollar amounts stated in thousands)
<S> <C> <C>
First Six months actual results 1999 1998
Sales $15,590 $ 7,125
PURTRANS+ Commissions + Insurance 13,820 6,428
Actual Percentage 88.6% 90.2%
</TABLE>
The rest of the operating expenses are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
First Six months actual results 1999 1998
Remaining operating expenses (Fixed Expenses) $1,310 $1,090
</TABLE>
Fixed Expenses have increased by $ 220,000 between the first six months of 1998
and the first six months of 1999 which is not consistent with expected results.
The increase is primarily due to the cost of modifying the companies software so
it will function correctly when the date changes to the year 2000.
During the first six months of 1999 the increased sales less variable expenses
reached a point where, after subtracting the fixed expenses, an operating income
of $ 460,396 was reached.
Better collection and credit practices resulted in lower outstanding balances of
debt and as a result interest expense has decreased from $ 329,339 for the first
six months of 1998 to $ 315,170 for the first six months of 1999.
<PAGE>
Future Prospects
The Company's management remains hopeful about its future prospects. However,
the Company's future depends on continued increases in revenue, and bringing its
operations up to greater profitability.
Liquidity and Capital Resources
As of June 30, 1999, the Company's financial position remains precarious. The
Company had a deficit in shareholders' equity of $4.1 million.
Working capital has increased from $ 0.8 million at December 31, 1999 to $ 1.0
million at June 30, 1999.
Accounts receivable at June 30, 1999 were 4.1 million, up from the balance of
4.0 million at December 31, 1998.
The Company's principal source of outside liquidity is its $3.3 million line of
credit with FINOVA. The availability of the line of credit is based on 80% of
eligible accounts receivable. At June 30, 1999, the outstanding borrowings were
$2.3 million. The Company is in violation of the net worth covenant with the
lender and therefore has been placed in default.
Shareholders and potential investors in the Company are cautioned that the
Company's financial condition remains precarious and that an increase in
operating performance is essential to its long-term survival. Unfortunately,
there can be no assurance that these goals will be achieved.
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.
<PAGE>
Certain Relationships and Related Transactions.
The company leases office space for its headquarters in Gary, Indiana, for
$2,200 per month from Michael E. Kibler, the president and Chief Executive
Officer and a director of the Company, and Harold E. Antonson, the Chief
Financial Officer of the company and beneficial owner of more than five percent
of the outstanding Common Stock. Messrs. Kibler and Antonson own the property as
joint tenants.
One of the Company's subsidiaries provides safety, management, and accounting
services to companies controlled by the President and Chief Financial Officer of
the Company. These services are priced to cover the cost of the employees
providing the services.
One of the Company's insurance providers, American Inter-Fidelity Exchange
(AIFE) is managed by a Director of the Company and the Company has an investment
in the provider. In addition, that Director also manages an affiliated insurance
carrier, Indiana Truckers Exchange (ITE).
The Company has notes payable due to August Investment Partnership as
described in Note 8.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's management believes that fluctuations in interest rates in the
near term would not materially affect the Company's consolidated operating
results, financial position, or cash flows as the Company has limited risks
related to interest rate fluctuations. The interest rate paid to Finova has
increased from March 31, 1999 to June 30, 1999 as a result of Finova declaring
the Company in default on the loan agreement.
<PAGE>
PART II. OTHER INFORMATION
Item 6(b). Reports on Form 8-K
No Reports on Form 8-K have been filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
US 1 Industries, Inc.
Michael E. Kibler
President
Harold E. Antonson
Chief Financial Officer
August 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000351498
<NAME> US1 INDUSTRIES, INC
<MULTIPLIER> 1
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> (396280)
<SECURITIES> 0
<RECEIVABLES> 4230082
<ALLOWANCES> 123854
<INVENTORY> 0
<CURRENT-ASSETS> 4466693
<PP&E> 10837
<DEPRECIATION> (57,637)
<TOTAL-ASSETS> 4610334
<CURRENT-LIABILITIES> 5094908
<BONDS> 0
0
861254
<COMMON> 40844297
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4610334
<SALES> 15590065
<TOTAL-REVENUES> 15590065
<CGS> 15129669
<TOTAL-COSTS> 15129669
<OTHER-EXPENSES> (4736)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (315170)
<INCOME-PRETAX> 149962
<INCOME-TAX> 0
<INCOME-CONTINUING> 149962
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149962
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
