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 March 31, 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 June 8, 1999, there were 10,618,224 shares of common stock were
outstanding.
<PAGE>
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
<TABLE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998
<CAPTION>
ASSETS March 31, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ $
Account receivable--trade less allowance for
doubtful accounts of $125,168 and $95,083 4,447,424 4,041,966
Other receivables 197,958 59,654
Deposits 128,766 132,429
Prepaid expenses 11,780 27,798
------------ ------------
Total current assets $ 4,785,928 $ 4,261,847
------------ ------------
FIXED ASSETS:
Equipment 260,405 258,445
Less accumulated depreciation and amortization (85,736) (75,316)
------------ ------------
Net fixed assets $ 174,669 $ 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 $ 5,014,597 $ 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
MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
<CAPTION>
March 31, December 31,
1999 1998
<S> <C> <C>
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 1,517,345 $ 1,445,889
Bank overdraft 337,436 260,404
Accrued expenses 155,719 183,400
Short-term debt 2,777,383 2,565,006
Insurance and claims 215,273 181,524
Accrued interest 455,259 392,883
Accrued compensation 18,948 17,591
Estimated fuel and other taxes 76,223 75,695
--------- -----------
Total current liabilities $ 5,553,586 $ 5,122,392
----------- -----------
LONG-TERM DEBT 2,890,217 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. 843,254 825,254
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock authorized 20,000,000 shares;
no par value; shares outstanding 10,618,224 40,844,296 40,844,296
Accumulated deficit (45,116,756) (45,142,228)
------------ ----------
Total shareholders' equity (deficiency) $(4,272,460) $(4,297,932)
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,014,597 $ 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 MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
CAPTION>
<S> <C> <C>
1999 1998
---- ----
OPERATING REVENUES $ 7,391,858 $ 7,125,645
----------- -----------
OPERATING EXPENSES:
Purchased transportation 5,659,825 5,494,135
Insurance and claims 200,440 252,032
Salaries, wages, and other 327,692 246,564
Commissions 725,749 681,966
Operating supplies and expense 215,817 213,144
Other expenses 80,490 74,878
------------ ------------
Total operating expenses $ 7,210,013 $ 6,962,719
------------ ------------
OPERATING INCOME $ 181,845 $ 162,926
------------ ------------
NON-OPERATING INCOME (EXPENSE):
Interest income 1,010 476
Interest expense (149,783) (161,496)
Other income 10,399 483
------------ ------------
Total non-operating (expense) $ (138,374) $ (160,535)
------------ ------------
NET INCOME (LOSS) $ 43,471 $ 2,389
DIVIDENDS ON PREFERRED SHARES (18,000) (18,000)
------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHARES $ 25,471 $ (15,611)
============ ============
INCOME PER COMMON SHARE:
Net Income:
Basic $0.00 ($0.00)
Diluted $0.00 ($0.00)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 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
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<CAPTION>
Three Months Ended March 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 43,471 $ 2,389
Adjustments to reconcile net income (loss) to net
cash provided from (used for) operations:
Depreciation and amortization 10,419 2,593
Changes in operating assets and liabilities:
Accounts receivable - trade (292,287) 649,506
Other receivables (251,475) (336,866)
Prepaid assets 16,018 (27,727)
Deposits 3,663 20
Accounts payable 71,455 236,506
Accrued expenses (27,681) (12,193)
Accrued interest 62,376 (85,360)
Insurance and claims 33,749 18,056
Other accrued compensation 1,357 2,851
Fuel and other taxes 528 (57,247)
--------- ---------
Net Cash provided by (used in) operating activities $(328,405) $392,527
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,960) (5,014)
-------- ---------
Net cash used in investing activities (1,960) (5,014)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit 218,896 (377,073)
Proceeds from other related party loans 72,992 163,124
Principal payments on long term debt (38,555)
Increase (Decrease) in bank overdraft 77,032 (346,612)
--------- ---------
Net cash provided from (used in) financing activities 330,365 $(560,561)
--------- ---------
NET DECREASE IN CASH 0 (173,047)
CASH, BEGINNING OF PERIOD 0 298,079
--------- ----------
CASH, END OF PERIOD 0 $125,032
========= ==========
<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
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of March 31, 1999 and the
consolidated statements of operations and cash flows for the three month periods
ended March 31, 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 three months ended March 31, 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 March 31, 1999 and
December 31, 1998, the Company's current liabilities exceeded its current assets
by $1.2 million and $1.4 million, 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, 1998 the lender issued a
letter of default for these covenant violations. At March 31, 1999, it is in
violation of the debt service coverage ratio and the net worth covenants. 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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. The Company, to date, has not engaged in
derivative and hedging activities.
4. EARNINGS PER COMMON SHARE
The Company calculates earnings per share in accordance with the 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. The average
market price of the common stock was greater than the exercise price of the
outstanding options, however, as the Company had a net loss available to
shareholders in 1998, the potentially dilutive securities (options) were
antidilutive.
<TABLE>
<CAPTION>
Numerator 1999 1998
<S> <C> <C>
Income (Loss) from continuing operations % 43,471 $ 2,389
Dividends on preferred shares (18,000) (18,000)
---------- ------------
Loss available to common shareholders
for basic and diluted EPS $ 25,471 $ (15,611)
---------- ------------
Net income (loss) available to common
Shareholders for basic and diluted EPS $ 25,471 $ (15,611)
Denominator
Weighted average common shares 10,618,224 10,618,224
Outstanding for basic and diluted EPS
</TABLE>
<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
3. SHORT-TERM DEBT
Short-term debt at March 31, 1999 and December 31, 1998 comprises:
<CAPTION>
March 31, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Line of credit $ 2,665,756 $2,446,861
Current portion of long-term debt 111,627 118,145
---------- ----------
Total $ 2,777,383 $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 March 31,
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. At March 31, 1999 the amount
borrowed was $ 2.7 million. 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, 1998
the lender issued a letter of default for these covenant violations. At March
31, 1999, it is in violation of the debt service coverage ratio and the net
worth covenants.
<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
6. LONG-TERM DEBT
Long-term debt at March 31, 1999 and December 31, 1998 comprises:
<CAPTION>
March 31, December 31,
1999 1998
<S> <C> <C>
Note payable to August Investment
Partnership interest at prime + .75%,
interest only payments required, principal
balance due January 2000 $ 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 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 32,875 56,428
Note payable collateralized by equipment
monthly payments of $ 5679 interest at 7.8%
through February, 2001 94,390 109,392
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 1,924,034 1,851,042
---------- --------
Total debt $ 3,001,844 $ 2,967,407
Less current portion 111,627 118,145
---------- --------
Total long-term debt $ 2,890,217 $ 2,849,262
========== ========
</TABLE>
<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. 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.
8. 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 March 31, 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 March
31, 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 March 31, 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-QSB 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 $7.1 million for the first
quarter of 1998 to $7.3 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) 76.3%
Commissions to agents 9.0%
Insurance (Liability & Cargo) 4.2%
Total 89.5%
</TABLE>
These expenses, as a result, remain relatively consistent (as a percent of
sales). Actual results were as follows;
<TABLE>
<CAPTION>
(Dollar amounts stated in thousands)
<S> <C> <C>
First Quarter actual results 1999 1998
Sales $ 7,391 $ 7,125
PURTRANS+ Commissions + Insurance 6,586 6,428
Actual Percentage 89.1% 90.2%
</TABLE>
The rest the of operations expenses have remained relatively fixed:
<TABLE>
<CAPTION>
<S> <C> <C>
First Quarter results 1999 1998
Remaining operation expenses (Fixed Expenses) $ 624 $ 535
</TABLE>
Fixed Expenses have increased by $ 89,000 between the first quarter of 1998 and
the first quarter of 1999 which is not consistent with expected results. A large
part of that increase is the cost of getting the companies software modified so
it will function correctly when the date changes to the year 2000.
During the first quarter 1999 the increased sales less variable expenses reached
a point where after subtracting the fixed expenses, an operating income of
$181,845 was reached compared with $162,926 for the first quarter of 1998.
Lower interest rates combined with better collection and credit practices
resulted in interest expense decreasing from 161,496 for the first quarter of
1998 to 149,783 for the first quarter 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 December 31, 1998, the Company's financial position remained poor. The
Company had a net deficiency in shareholders' equity of $4.3 million. Working
capital at December 31, 1998 and March 31, 1999 was $0.8 million.
Accounts receivable at March 31, 1999 were $4.4 million, up from the
balance of $4.0 million at year end December 31, 1998. The increase was due to a
new office started in Wilmington, NC by Keystone and unusually high sales during
the month of March.
The bank overdraft and balance of the revolving line of credit has increase
by $0.287 million from December 31, 1998 to March 31, 1999 due to the start up
of the Wilmington office.
The Company's principal source of liquidity is its $3.3 million line of
credit with FINOVA. The availability of the line of credit is based on 80% of
Keystone's, Gulf Line's and Carolina National's eligible accounts receivable. At
March 31, 1999, the outstanding borrowings were $2.8 million.
The Company is currently in violation of several covenants of the lender,
and as noted elsewere has received a letter of default from FINOVA.
Related party loans from AIP and Messrs. Kibler and Antonson have increased
by $72,992 between December 31, 1998 and March 31, 1999.
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.
Quanitative 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 by approximately 20% as a result of Finova declaring the Company in
default on the loan agreement.
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.
<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
June 14, 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> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> (337436)
<SECURITIES> 0
<RECEIVABLES> 4447424
<ALLOWANCES> 125168
<INVENTORY> 0
<CURRENT-ASSETS> 4785928
<PP&E> 11780
<DEPRECIATION> 85736
<TOTAL-ASSETS> 5014597
<CURRENT-LIABILITIES> 5553586
<BONDS> 0
0
843254
<COMMON> 40844296
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5014597
<SALES> 7391858
<TOTAL-REVENUES> 7391858
<CGS> 7210013
<TOTAL-COSTS> 7210013
<OTHER-EXPENSES> 11409
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149783
<INCOME-PRETAX> 43471
<INCOME-TAX> 0
<INCOME-CONTINUING> 43471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43471
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
