US 1 INDUSTRIES INC, 10-K, 2000-03-30

US 1 INDUSTRIES INC
10-K, 2000-03-30
TRUCKING (NO LOCAL)

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FORM 10-K

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, 1999.
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
(State of Incorporation)
(I.R.S. Employer Identification No.) 95-3585609

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 None

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 wherein, 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-K or any amendment to
this Form 10-K. [X]

On March 15, 2000, there were 10,618,224 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 $1,000,000. For purposes of the
forgoing statement, directors and officers of the registrant have been assumed
to be affiliates.

<PAGE>
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. 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 arrange 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 United States
Department of Transportation (the "DOT") and various state agencies.

Operations

The Company carries virtually all forms of freight transported by truck,
except bulk goods and hazardous materials, including specialized trucking
services such as containerized, refrigerated, and flatbed transportation.

The Company contracts with independent truckers and sales agents and pays
them a percentage of the revenue received from customers for the transportation
of goods. The expenses related to the operation of the trucks 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 employing
drivers and maintaining equipment. Like other truck transportation companies,
however, US 1's revenues are affected by competition and the state of the
economy.

The Company's principal focus during 1999 was growing the Company through
expansion of Carolina National Transportation, and controlling the cost of
operations.

Marketing and Customers

The Company conducts 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.

Approximately 86% of the Company's revenues from its trucking operations
are allocated to the payment of independent contractors and sales agents.

During 1999, the Company utilized the services of approximately 30 sales
agents. One agent accounted for 18% and 15% of the Company's revenue for the
years ended December 31, 1999 and December 31, 1998, respectively. The Company
shipped freight for approximately 1,000 customers in 1999, no one of which
accounted for more than of 10% of the Company's total revenues.

<PAGE>
In 1998 and 1997, one other agent accounted for 12% and 14%, respectively,
of the Company's total revenues. No customers in 1998 or 1997 accounted for more
than 10% of the Company's revenues.

The independent contractors used by the Company must enter into standard
equipment operating agreements. The agreements provide that independent
contractors must bear many of the costs of operations, including drivers'
compensation, maintenance costs, fuel costs, collision insurance, taxes related
to the ownership and 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. The Company is also required to
have random drug testing, enforce hours of service requirements, and monitor
maintenance of vehicles.

Employees

At December 31, 1999, the Company had approximately thirty-five full-time
employees. The Company's employees are not covered by a collective bargaining
agreement.

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 other modes of transportation including rail.

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 for services
rendered.

Competition is based on several factors; principally cost, timely
availability of equipment and quality of service.

Insurance

The Company insures the trucks with automobile liability insurance coverage
of up to $2 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.

Potential Changes in Fuel Taxes

From time to time, various legislative proposals are introduced to increase
federal, state, or local taxes, including taxes on motor fuels. The Company
cannot predict whether, or in what form, any increase in such taxes applicable
to the Company will be enacted and, if enacted, whether or not the Company will
be able to reflect the increases in prices to customer. Competition from
non-trucking modes of transportation and from intermodal transportation would be
likely to increase if state or federal taxes on fuel were to increase without a
corresponding increase in taxes imposed upon other modes of transportation.

<PAGE>
Independent Contractor Status

From time to time, various legislative or regulatory proposals are
introduced at the federal or state levels to change the status of independent
contractors' classification to employees for either employment tax purposes
(withholding, social security, Medicare and unemployment taxes) or other
benefits available to employees. Currently, most individuals are classified as
employees or independent contractors for employment tax purposes based on 20
"common-law" factors rather than any definition found in the Internal Revenue
Code or Internal Revenue Service regulations. In addition, under Section 530 of
the Revenue Act of 1978, taxpayers that meet certain criteria may treat
similarly situated workers as employees, if they have received a ruling from the
Internal Revenue Service or a court decision affirming their treatment, or if
they are following a long-standing recognized practice.

Although management is unaware of any proposals currently pending to change
the employee/independent contractor classification, the costs associated with
potential changes, if any, in the employee/independent contractor classification
could adversely affect the Company's results of operations if the Company were
unable to reflect them in its fee arrangements with the independent contractors
and agent or in the prices charged to its customer.

Regulation

The Company is a common and contract motor carrier regulated by the DOT and
various state agencies. Prior to 1980, the government 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 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 reduced
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.

Environmental Regulation

The Company owns 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. Currently the State
environmental authorities are requiring further testing of the property. The
Company believes it is in substantial compliance with state and federal
environmental regulations relative to the trucking business. However, the
Company is working with regulatory officials to eliminate any sources of
contamination and determine extent of existing problems. Estimates of the costs
to complete the future remediation of approximately $141,000 are considered in
the land valuation allowance at December 31, 1999 and 1998.

<PAGE>
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 of Financial Condition and Results of
Operation); particularly the statements under "Future Prospects" 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 2000 and beyond to differ materially
from those suggested by any forward-looking statements. These risks and
uncertainties include, without limitation, a lack of 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

The Company's administrative offices are at 1000 Colfax, Gary, Indiana. The
Company leases its administrative offices on a month to month basis for $2,200
per month from Mr. Michael E. Kibler, President, Chief Executive Officer and a
director of the Company, and Mr. Harold Antonson, Treasurer, Chief Financial
Officer and a director of the Company.
Carolina National leases 2,400 sq. ft of office space in Mt. Pleasant, SC
for $2,700 per month. The current lease expires June 30, 2000. Management
believes that the Company's leased properties are adequate for its current needs
and can be retained or replaced at acceptable cost.

Item 3. Legal Proceedings

Cam Regional Transport has filed a complaint against the Company which
alleges breach of contract, claiming that Trailblazer Transportation, Inc., a
subsidiary of the Company which filed bankruptcy, failed to abide by a purchase
agreement entered into with Cam Regional Transport, Inc and Laurel Mountain
Leasing, Inc. The complaint seeks damages of $284,000 plus interest from
November 1992. At this time, the Company and its legal counsel are unable to
assess the outcome of this complaint. The Company intends to vigorously defend
itself in this matter.

The Company is involved in other 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 consolidated financial position of the company.

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 1999.

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 NASD
Electronic "bulletin board market" under the symbol USOO.

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 through June 1998. The prices since June 1998 are as
reported from NASDAQ quotations provided by North American Quotations and
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.

Calendar Year High Low
- -----------------------------------------------------------------------------
1999
----
<S> <C> <C>
First Quarter 3/32 1/32
Second Quarter 1/8 1/64
Third Quarter 1/8 1/64
Fourth Quarter 9/64 3/64
1998
First Quarter 13/32 7/32
Second Quarter 3/8 1/4
Third Quarter 3/8 3/32
Fourth Quarter 3/32 1/16

<FN>
As of March 15, 2000, there were 3,281 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 current credit agreement prohibits the payment of
dividends.
</FN>
</TABLE>

Item 6. SELECTED FINANCIAL DATA

The selected consolidated financial data presented below have been derived
from the Company's consolidated financial statements. The consolidated financial
statements for the years ended December 31, 1999 and 1998 have been audited by
the Company's independent certified public accountants, whose report on such
consolidated financial statements is included herein under Item 8. The
consolidated financial statements for the year ended December 31, 1997 were
audited by PricewaterhouseCoopers, LLP whose report on such consolidated
financial statements is included herein under Item 8. The information set forth
below should be read in conjunction with the consolidated financial statements
and notes thereto under Item 8 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>

(in thousands, except per share data)
Fiscal Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995

STATEMENT OF OPERATIONS DATA:
Operating revenues $32,333 $30,177 $25,422 $15,412 $14,904
Other operating costs and expenses 3,481 3,408 3,806 2,394 2,147
Purchased transportation 24,846 23,417 19,676 11,694 11,318
Commissions 3,052 3,178 2,361 1,498 1,250

Operating income (loss) 954 174 (421) (174) 189

Interest expense 661 744 435 282 205

Income (loss) before extraordinary item 412 173 (803) (339) 679

Net income (loss) 412 173 (192) 341 (820)

Income (loss) per common share before Income (loss) from operations:
Basic $0.03 $0.01 ($0.08) ($0.01) ($0.08)
Diluted $0.03 $0.01 ($0.08) ($0.01) ($0.08)
Extraordinary item
Basic $0.00 $0.00 $0.06 $0.05 $0.00
Diluted $0.00 $0.00 $0.06 $0.05 $0.00
Earnings (loss) per share:
Basic $0.03 $0.01 ($0.02) $0.04 ($0.08)
Diluted $0.03 $0.01 ($0.02) $0.04 ($0.08)
Weighted average shares outstanding:
Basic 10,618,224 10,618,224 10,616,397 9,879,077 9,829,336
Diluted 10,618,224 10,618,224 10,616,397 9,879,077 9,829,336
</TABLE>
<PAGE>
<TABLE>

<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets 5,352 4,499 6,261 2,198 2,287
Long-term debt, including
current portion 2,547 2,967 2,571 583 530
Working capital deficiency (712) (861) (1,451) (3,016) (3,389)
Shareholders' deficiency (3,968) (4,298) (4,399) (4,020) (4,697)

OTHER DATA:
Cash (used in) provided by
operating activities (370) 490 (3,630) (445) (1,401)
Cash provided by (used in)
investing activities 74 58 (269) 149 592
Cash (used in) provided by
financing activities 296 (848) 3,971 468 781
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.

Overview

Purchased transportation represents the amount an independent contractor is
paid to haul freight and is primarily based on a contractually agreed-upon
percentage of revenue generated by the haul for truck capacity provided by
independent contractors. Purchased transportation is the largest component of
operating expenses and, on a consolidated basis, increases or decreases in
proportion to the revenue generated through independent contractors. Commission
to agents and brokers are primarily based on contractually agreed-upon
percentages of revenue. Commissions to agents and brokers as a percentage of
consolidated revenue will vary directly with revenue generated through
independent commission sales agents.

A majority of the insurance and claims expense is based on a percentage of
revenue and, as a result, will increase or decrease, on a consolidated basis
with the Company's revenue. Potential liability associated with accidents in the
trucking industry is severe and occurrences are unpredictable. A material
increase in the frequency or severity of accidents or the unfavorable
development of existing claims could adversely affect the Company's operating
income.

The following table set forth the percentage relationships of expense items
to revenue for the periods indicated:

<TABLE>
<CAPTION>
Fiscal Years
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%

Operating expenses:
Purchased transportation 76.8 77.6 77.4
Commissions 9.4 10.5 9.3
Insurance and claims 3.3 3.1 3.7
Salaries, wages and other 3.9 4.1 5.1
Other operating expenses 3.6 4.1 6.2
------ ------ ------
Total operating expenses 97.0 99.4 101.7
------ ------ ------
Operating income (loss) 3.0 0.6 (1.7)
</TABLE>

<PAGE>
1999 Compared to 1998

Revenue for the fiscal year 1999 was $32.3 million, an increase of $2.2
million, or 7.1%, over revenue for the 1998 fiscal year. The increase was
attributable to continued growth at Carolina National Transportation, and the
operations of a new agent at Keystone Lines.

Purchased transportation was 76.8% of revenue in 1999 compared with 77.6%
in 1998. The decrease in the percentage of purchased transportation to revenue
was primarily attributable to management having better control over the
ancillary costs.

Commissions to agents were 9.4% of revenue in 1999 compared with 10.5% in
1998 primarily due to contracts with newer divisions negotiated a lower
percentage rate.

Insurance and claims were 3.3% of revenue in 1999 compared with 3.1% in
1998 primarily due to higher premium costs associated with a new insurance
carrier for Carolina National.

Salaries, wages and other expenses were 3.9% of revenue in 1999 and 4.1% in
1998. The slight decrease in salaries, wages and other expenses as a percentage
of revenue was due to the Company's continued efforts to control overhead costs.
Other operating expenses were 3.6% of revenue in 1999 and 4.1% in 1998. The
decrease in other operating expenses as a percentage of revenue was also
primarily attributable to the cost containment measures established by the
Company.

Based on the changes in revenue and expenses discussed above, operating
income increased by $780,000 from $174,000 in 1998 to $964,000 in 1999.

Interest expense remained constant at $0.7 million for fiscal year 1999 and
1998. An increase in the Company's interest rate on its revolving line of credit
to a default rate of prime plus 4.75% was equally offset by a decrease in the
average outstanding balance in 1999.

Non-operating income (expense), exclusive of interest expense, decreased
from $743,000 in 1998 to $119,000 in 1999. The decrease was primarily
attributable to the write off of old payables in 1998 as discussed in Note 13 to
the consolidated financial statements.

Net income in 1999 was $412,000 compared with $173,000 in 1998. Income
available to common shareholders was $330,000, or $0.03 per common share, in
1999 compared with $101,000, or $0.01 per common share, in the prior year.

<PAGE>
1998 Compared to 1997

Revenue for the fiscal year 1998 was $30.2 million, an increase of $4.8
million, or 18.7%, over revenue for the 1997 fiscal year. The increase was
primarily attributable to the start-up of Carolina National Transportation,
offset by a decrease in revenue of Keystone Lines caused by a loss of certain
agent relationships.

Purchased transportation was 77.6% of revenue in 1998 compared with 77.4%
in 1997. Commissions to agents were 10.5% of revenue in 1998 compared with 9.3%
in 1997 primarily due to change in agent relationships and the Company's need to
attract new agents with higher commission rates. Insurance and claims were 3.1%
of revenue in 1998 compared with 3.7% in 1997 primarily due to favorable loss
experience in 1998.

Salaries, wages and other expenses were 4.1% of revenue in 1998 and 5.1% in
1997. The decrease in salaries, wages and other expenses as a percentage of
revenue was due to the Company's efforts to control overhead costs. Other
operating expenses were 4.1% of revenue in 1998 and 6.2% in 1997. The decrease
in other operating expenses as a percentage of revenue was also primarily
attributable to the implementation of cost containment measures by the Company.

Based on the changes in revenues and expenses discussed above, operating
income (loss) increased by $595,000 from an operating loss of $421,000 in 1997
to an operating income of $174,000 in 1998.

Interest expense increased from $0.4 million in 1997 to $0.7 million in
1998. The Company's need for additional working capital to finance the Carolina
National Transportation start-up resulted in an increase in the average balance
of the revolving line of credit.

Non-operating income (expense), exclusive of interest expense, increased
from $54,000 in 1997 to $743,000 in 1998. The increase was primarily
attributable to the write off of old payables in 1998 as discussed in Note 13 to
the consolidated financial statements.

In 1997, the Company recorded an extraordinary gain of $610,000 (or $.06
per common share) resulting from the bankruptcy of Trailblazer Transportation (a
subsidiary of Keystone Lines, Inc.)

Net income in 1998 was $173,000 compared with a net loss of $192,000 in
1997. Income available to common shareholders was $101,000, or $0.01 per common
shared, in 1998 compared with a loss available to common shareholders of
$254,000, or $0.02 per common share, in the prior year.

Future Prospects

The Company has experienced operating losses and negative cash flows in
recent years and currently has a net working capital deficiency and
shareholders' deficiency. In addition, the company is in default of its
revolving line of credit agreement and the lender has demanded payment of all
outstanding balances no later than April 28, 2000. If the Company is unable to
refinance its line of credit by that date, the Company would not have sufficient
funds to pay its obligations including advances on its existing line of credit,
as they are due. The report of the Company's Independent Certified Public
Accountants contains an explanatory paragraph indicating that these factors
express substantial doubt about the Company's ability to continue as a going
concern.

<PAGE>
The Company's ability to continue as a going concern is ultimately
dependent on its ability to refinance its outstanding debt with a new lender,
increase sales to a level that will allow it to operate profitably and sustain
positive operating cash flows. In addition, the Company needs to reduce the
level of outstanding indebtedness which will, in turn, reduce the amount of
interest expense. Although the reduction of expenses, including interest, can
contribute to future profitability, achieving profitability without an increase
in sales would require a greater level of expense reductions which in all
likelihood could only be accomplished through a significant reduction and
restructuring of the nature and scope of operations.

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.

Liquidity and Capital Resources

As of December 31, 1999, the Company's financial position remained poor.
The Company had a net deficiency in shareholders' equity of $4.0 million.
Working capital deficiency at December 31, 1999 was ($0.7) million, compared to
($0.8) million at the end of 1998.

Accounts receivable at the end of 1999 were $5.0 million as opposed to
$4.0 million in 1998. This is due to the increase in revenue generated in 1999.

Accounts payable and other accrued expenses at the end of 1999 were $2.7
million, compared to $2.6 million at the end of 1998. The increase is due
primarily to an increase in accrued interest.

The bank overdraft and balance of the revolving line of credit has
increased by $0.7 million from 1998 due to increased business.

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 72% of
Keystone's, Gulf Line's and Carolina National's eligible accounts receivable. At
December 31, 1999, the outstanding borrowings were $3.1 million.

During 1999, the Company's lender issued several letters of default with
respect to covenant violations including violation of the minimum net worth
requirements and total debt service coverage ratio requirements. As a result of
the default status, the lender has increased the interest rate to the prime rate
plus 4.75% and reduced the percent of eligible accounts receivable from 80% to
72%.

In December 1999, the lender issued a notice of acceleration requiring
payment of the outstanding balance of the line of credit no later that April 28,
2000. The Company is currently in discussion with another lender and has
obtained a letter of commitment for $2 million of financing. Advances under the
new line of credit agreement will be limited to 70% of eligible accounts
receivable. Advances will bear interest at the lender's prime rate plus 0.5%.
The line of credit will be secured by substantially all of the Company's assets
and require personal guarantees from the Company's Chief Executive Officer and
Chief Financial Officer.

The Company intends to complete the refinancing of the revolving line of
credit no later that April 15, 2000. However, as the Company has not finalized
this new financing, there is no assurance that the Company will be successful in
refinancing its line of credit. If the Company is unsuccessful and Finova
demands repayment, there is substantial doubt that the Company will be able to
continue as a going concern. The difference between the amount currently
outstanding on the current line of credit agreement and the amount of the
commitment will be financed through subordinated debt from the Company's Chief
Executive Officer and Chief Financial Officer or entities controlled by them.

Related party loans from AIP and Messrs. Kibler and Antonson have decreased
from $2.7 million at December 31, 1998 to $2.4 million at December 31, 1999.

<PAGE>
Environmental Liabilities

The Company is not a party to any Super-fund 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
as this site and believes that it has reserved appropriately for its 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 Company
continues to monitor soil contamination and may be required to remediate the
property in the near future.

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.

Recently Issued Accounting Standards

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 No. 133 has been amended by SFAS No. 137,
which delayed the effective date to periods beginning after June 15, 2000. The
Company, to date, has not engaged in derivative or hedging activities.

In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective
for years beginning after December 15, 1998. SOP 98-1 provides guidance over
accounting for computer software developed or obtained for internal use,
including the requirements to capitalize and amortize specific costs. The
adoption of the standard did not have a material effect on the Company's
capitalization policy.

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 is effective years beginning after December 15,
1998. SOP 98-5 requires costs of start-up activities and organization costs to
be expensed as incurred. The adoption of this standard did not have a material
effect on the Company's consolidated financial statements.

<PAGE>
Item 7a. Quantitative and Qualitative Disclosures about Market Risk

The Company has a credit agreement with FINOVA Capital Corporation that
provides $3,300,000 of borrowing capacity to finance operations. Borrowings
under the agreement bear interest at the prime rate plus 2.75%. During 1999, the
average outstanding balance under the credit agreement was $2,162,000. During
1999, FINOVA issued a letter of default and increased the interest rate on
outstanding advances under the credit agreement to the prime rate plus 4.75%.
Based on the default status of the Company with FINOVA, the fair value of the
outstanding borrowings as of December 31, 1999 was estimated to approximate
carrying value.

In December 1999, the lender issued a notice of acceleration requiring
payment of the outstanding balance of the line of credit no later that April 28,
2000.

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors of
US 1 Industries, Inc.
Gary, Indiana

We have audited the accompanying consolidated balance sheets of US 1
Industries, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, shareholders' deficiency, 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 of 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 estimated made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that 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, 1999 and 1998, and the 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
consolidated financial statements, the Company has experienced operating losses
and negative cash flows in recent years and has a net working capital deficiency
and shareholders' deficiency. In addition, the Company is in default of its
revolving line of credit agreement and its lender has demanded payment of the
outstanding balance no later than April 28, 2000. 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
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

BDO Seidman, LLP

Chicago, Illinois
March 10, 2000

<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS (Continued)

To the Shareholders and Board of Directors of US 1 Industries, Inc.

We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of US 1 Industries, Inc. and subsidiaries
(the "Company") for the year ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of the operations and cash
flows of US 1 Industries, Inc. and subsidiaries for the year ended December 31,
1997 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 and has a net capital deficiency. 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.

PricewaterhouseCoopers LLP

March 27, 1998

<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998

ASSETS
<S> <C> <C>

1999 1998
---- ----
CURRENT ASSETS:
Accounts receivable-trade, less allowance for
doubtful accounts of $66,648 and $95,083
respectively $4,972,846 $4,041,966
Other receivables 105,770 59,654
Deposits 162,173 132,429
Prepaid expenses 9,245 27,798
---------- ----------
Total current assets 5,250,034 4,261,847

FIXED ASSETS:
Equipment 100,738 258,445
Less accumulated depreciation and amortization 52,756 (75,316)
---------- ----------
Net fixed assets 47,982 183,129
---------- -----------
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 $ 5,352,016 $ 4,498,976
========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>

<PAGE>

US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998

LIABILITIES AND SHAREHOLDERS' DEFICIENCY
<S> <C> <C>
1999 1998
---- ----
CURRENT LIABILITIES:
Accounts payable $ 1,341,134 $ 1,445,889
Bank overdraft 345,719 260,404
Accrued expenses 215,505 183,400
Short-term debt 3,173,990 2,565,006
Insurance and claims 204,592 181,524
Accrued compensation 17,314 17,591
Accrued interest 613,567 392,883
Fuel and other taxes payable 49,948 75,695
----------- ------------
Total current liabilities 5,961,769 5,122,392
----------- ------------
LONG-TERM DEBT TO RELATED PARTIES 2,451,028 2,849,262

COMMITMENTS AND CONTINGENCIES

REDEEMABLE PREFERRED STOCK:
Authorized 5,000,000 shares; no par value,
Series A shares outstanding:
1999 and 1998 - 1,094,224
Liquidation preference $0.3125 per share 907,540 825,254
SHAREHOLDERS' DEFICIENCY:
Common stock, authorized 20,000,000 shares; no par value; shares outstanding:
1999 and 1998 - 10,618,224 40,844,296 40,844,296
Accumulated deficit (44,812,617) (45,142,228)
----------- -----------
Total shareholders' deficiency (3,968,321) (4,297,932)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIENCY $ 5,352,016 $4,498,976
=========== ============
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>

<PAGE>

US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, AND 1998

<S> <C> <C> <C>
1999 1998 1997
OPERATING REVENUES $32,333,528 $30,176,818 $25,421,806
OPERATING EXPENSES:
Purchased transportation 24,846,421 23,416,624 19,676,213
Commissions 3,052,406 3,177,908 2,360,989
Insurance and claims 1,070,564 938,044 941,700
Salaries, wages, and other 1,248,089 1,223,113 1,285,778
Other Operating expenses 1,162,189 1,247,334 1,578,486
--------- ---------- ------------

Total operating expenses 31,379,669 30,003,023 25,843,166
---------- ---------- ----------
OPERATING INCOME (LOSS) 953,859 173,795 (421,360)
NON OPERATING INCOME (EXPENSE):
Interest income 9,840 7,702 2,430
Interest expense (660,509) (743,953) (435,042)
Write off of old payables 530,674
Other income (expense), net 108,707 204,419 51,462
-------- ---------- ---------
Total non operating expense (541,962) ( 1,158) (381,150)
-
INCOME (LOSS)
BEFORE EXTRAORDINARY GAIN 411,897 172,637 (802,510)
EXTRAORDINARY GAIN:
Forgiveness of debt 0 0 610,318
--------- ---------- ----------
NET INCOME (LOSS) 411,897 172,637 (192,192)
DIVIDENDS ON PREFERRED SHARES 82,286 72,000 61,712
---------- ---------- ----------
NET INCOME(LOSS)AVAILABLE TO COMMON SHARES 329,611 $100,637 ($253,904)
--------- ---------- ----------

INCOME (LOSS) PER COMMON SHARE:
Income (loss) from operations:
Basic $0.03 $0.01 ($0.08)
Diluted $0.03 $0.01 ($0.08)
Extraordinary gain:
Basic $0.00 $0.00 $0.06
Diluted $0.00 $0.00 $0.06
Net Income (loss):
Basic $0.03 $0.01 ($0.02)
Diluted $0.03 $0.01 ($0.02)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 10,618,224 10,618,224 10,616,397

<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>

<PAGE>

US 1 INDUSTRIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF
SHAREHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1999,1998, and 1997
<TABLE>
<CAPTION>

Common Stock Accumulated
Shares Amount Deficit Total
<S> <C> <C> <C> <C>
Balance at
December 31, 1996 10,573,780 $40,824,296 ($44,988,961) ($4,164,665)
Issuance of Common Stock 44,444 20,000 20,000
Dividends on Preferred Stock (61,712) (61,712)
Net(loss) (192,192) (192,192)
Balance at
________________________________________________
December 31, 1997 10,618,224 $40,844,296 ($45,242,865) ($4,398,569)
Dividends on Preferred Stock (72,000) (72,000)
Net income 172,637 172,637
Balance at __________ ___________ ___________ __________
December 31, 1998 10,618,224 $40,844,296 ($45,142,228) ($4,297,932)
Dividends on Preferred Stock (82,286) (82,286)
Net Income 411,897 411,897
Balance at
__________ ___________ ___________ __________
----------- ----------- ------------ --
December 31, 1999 10,618,224 $40,844.296 ($44,812,617) ($3,968,321)

<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
YEARS ENDED DECEMBER 31, 1999,1998 AND 1997
<CAPTION>

<S> <C> <C> <C>
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) $ 411,897 $ 172,637 ($192,192)
Adjustments to
reconcile net income (loss) to net
cash provided by (used in)operating activities:
Depreciation and amortization 30,795 74,963 9,533
Provision on accounts receivable 145,298
Write off of old payables (530,674)
Loss on disposal of equipment 30,177 17,488 1,160
Extraordinary gain - forgiveness of debt (610,318)
Gain on sale of property (44,800)
Changes in operating assets and liabilities:
Accounts receivable-trade (930,880) 1,024,290 (3,709,607)
Other receivables (46,116) 277,265 (200,271)
Prepaid expenses 18,553 55,933 32,745
Deposits (29,744) 21,639 (176)
Accounts payable (104,755) (758,417) 720,143
Accrued expenses 32,105 207,570 (14,644)
Insurance and claims 23,068 (60,083) (10,546)
Accrued interest 220,684 252,059 108,396
Accrued compensation (277) (20,711) (8,578)
Fuel and other taxes payable (25,747) (198,206) 99,524
------- --------- --------
Net cash (used in) provided by operating
activities (370,240) 490,953 (3,629,533)
--------- -------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,183) (2,566) (41,496)
Purchase of land (227,879)
Proceeds from sale of property and equipment _79,358 61,055 _________
------- -------- ---------
Net cash provided by (used by) investing
activities 74,175 58,489 (269,375)
------- -------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit 630,745 (741,720) 2,135,847
Proceeds from issuance of common stock 20,000
Proceeds from short term loan on property 50,000
Repayment of long-term loans (64,277) (123,308) (10,000)
Net repayments of proceeds from related party loans (355,718) 287,236 926,608
Increase (decrease)in bank overdraft 85,315 (269,729) 348,991
Proceeds from issuance of mortgages to
related parties ________ _ 500,000
Net cash -------- -------
provided by (used in)financing
activities 296,065 (847,521) 3,971,446
-------- --------- ---------

NET INCREASE (DECREASE)IN CASH (298,079) 72,538

CASH, BEGINNING OF YEAR _ 298,079 225,541
------- -------- -------
CASH, END OF YEAR $______0 $ 0 $298,079
- ----------------------
- -------------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--
Cash paid during year for interest $439,825 $491,894 $326,646

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Note payable incurred for purchase of equipment $ 0 $232,700 $ 0

<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
YEARS ENDED DECEMBER 31, 1999, AND 1998

1. OPERATIONS

The Company is primarily an interstate truckload carrier of general
commodities, which uses independent agents and drivers to contract for and haul
freight for its customers in 48 states with a concentration in the Southeastern
United States. One agent accounted for 18% and 15% of the Company's revenue for
the years ended December 31, 1999 and December 31, 1998, respectively. Another
agent represented 12% and 14% of sales for the year ended December 31, 1998 and
1997, respectively.

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 and
currently has a net working capital deficiency and shareholders' deficiency. In
addition, the Company is in default of its revolving line of credit agreement
and the lender has demanded payment of all outstanding balances no later that
April 28, 2000. If the Company is unable to refinance its line of credit by that
date, the Company would not have sufficient funds to pay its obligations
including advances on its existing line of credit, as they are due. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.

The Company's ability to continue as a going concern is ultimately
dependent on its ability to refinance its outstanding debt with a new lender,
increase sales to a level that will allow it to operate profitably and sustain
positive operating cash flows. In addition, the Company needs to reduce the
level of outstanding indebtedness which will, in turn, reduce the amount of
interest expense. Although the reduction of expenses, including interest, can
contribute to future profitability, achieving profitability without an increase
in sales would require a greater level of expense reductions which in all
likelihood could only be accomplished through a significant reduction and
restructuring of the nature and scope of operations. Management is in the
process of negotiating a line of credit agreement with a new lender (see Note 7)
and continues its efforts to improve profitability through expansion of the
Company's business in new markets. However, there is no assurance that the
Company will be successful in refinancing its line of credit or improving the
Company's operating results. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation--The consolidated financial statements include
the accounts of US 1 Industries, Inc. and its subsidiaries. All significant
intercompany 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.

Fixed Assets--Fixed assets are stated at cost and 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. See Note 12.

<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-Lived Assets - The Company assesses the realizability of its
long-lived assets in accordance with statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be disposed of."

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.

Recently Issued Accounting Standards--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 has been amended by SFAS 137, which delayed the
effective date to periods beginning after June 15, 2000. The Company, to date,
has not engaged in derivative and hedging activities.

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.

<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Earnings Per Common Share--In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, "Earnings per Share," which became
effective for both interim and annual financial statement periods ending after
December 15, 1997. As required by this statement, the Company adopted the new
standards for computing and presenting earnings per share ("EPS") for 1997.
Following are the reconciliations of the numerators and denominators of the
basic and diluted EPS.

<TABLE>

<S> <C> <C> <C>
Numerator 1999 1998 1997
Income (loss)before extraordinary gain $ 411,897 $172,637 ($802,510)
Extraordinary gain 0 0 610,318
-------- ---------- ----------
Net income (loss) $ 411,897 $172,637 ($192,192)

Dividends on preferred shares ($ 82,286) ($ 72,000) ($ 61,712)
--------- ---------- ----------
Income (loss) available to common
shareholders for basic and diluted EPS $ 329,611 100,637 ($253,904)

Denominator
Weighted average common shares
outstanding for basic and diluted EPS 10,618,224 10,618,224 10,616,397
</TABLE>

As of December 31, 1998 and 1997, the Company had options outstanding that
are not included in the computation of diluted EPS because the options were
considered antidulitive for the periods presented.

Business Segments - Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" requires
public enterprises to report certain information about reporting segments in
financial statements. The Company presents its operations in one business
segment.

Reclassifications - Certain items in the prior year financial statements
have been reclassified to conform with the current year presentation.

3. EXTRAORDINARY GAIN

During the fourth quarter of 1997, the bankruptcy of Trailblazer
Transportation (a subsidiary of Keystone Lines, Inc.) was finalized and,
accordingly, the Company recorded an extraordinary gain of $610,318 on the
forgiveness of debt.

4. REDEEMABLE PREFERRED STOCK

The Series A 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 A
preferred stock is redeemable at the option of the Company or the holders at any
time.

As of December 31, 1999, series A cumulative preferred stock dividends are
in arrears by $360,427. The Company's current line of credit prohibits the
payment of dividends.

1
<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. RELATED PARTY TRANSACTIONS

One of the Company's subsidiaries provides safety, management, and
accounting services to companies controlled by the Chief Executive Officer and
Chief Financial Officer of the Company. These services are priced to cover the
cost of the employees providing the services. Revenues related to those services
totaled $77,640, $70,607, and $149,442 in 1999, 1998, and 1997, respectively.

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, the Director also manages an affiliated insurance
carrier, Indiana Truckers Exchange (ITE). For the years ended December 31, 1999,
1998, and 1997, cash paid for related party insurance premiums and deductibles
amounted to $532,586, $751,123, and $770,704, respectively. The Company also has
long term notes payable to AIFE and ITE as described in Note 8.

The Company has notes payable due to its Chief Executive Officer, Chief
Financial Officer, and August Investment Partnership, an affiliated entity
through common ownership, as described in Note 8.

6. 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 Chief
Executive Officer and Chief Financial Officer. No formal lease agreement with
the Company existed at December 31, 1999. The Company leases office space in Mt.
Pleasant, South Carolina for $ 2,700 per month. The lease agreement expires in
June, 2000. Rent expense for the years ended December 31, 1999, 1998, and 1997
was approximately $59,000, $59,000, and $80,000, respectively.

7. SHORT-TERM DEBT

Short-term debt at December 31, 1999 and 1998 comprises:
<TABLE>

<S> <C> <C>
December 31, December 31,
1999 1998
----------- ----------
Line of credit $3,077,606 $2,446,861
Current portion of long-term debt 96,384 118,145
----------- ----------
Total $3,173,990 $2,565,006
=========== ==========
</TABLE>

Under its revolving line of credit agreement the Company may borrow up to a
maximum of $3,300,000. Under the agreement borrowings are limited to 80% of
eligible accounts receivable and bear interest at the prime rate (8.50% and
7.75% at December 31, 1999 and 1998, respectively) plus 2.75%. 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.

<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In December 1999, the lender issued a notice of acceleration requiring
payment of the outstanding balance of the line of credit no later that April 29,
2000. The Company is currently in discussion with another lender and has
obtained a letter of commitment for $2 million of financing. Advances under the
new line of credit agreement will be limited to 70% of eligible accounts
receivable. Advances will bear interest at the lender's prime rate plus 0.5%.
The line of credit will be secured by substantially all of the Company's assets
and require personal guarantees from the Company's Chief Executive Officer and
Chief Financial Officer.

The Company intends to complete the refinancing of the revolving line of
credit no later that April 15, 2000. However, as the Company has not finalized
this new financing, there is no assurance that the Company will be successful in
refinancing its line of credit. If the Company is unsuccessful and the current
lender demands repayment, there is substantial doubt that the Company will be
able to continue as a going concern. The difference between the amount currently
outstanding on the line of credit agreement and the amount of the commitment
will be financed through subordinated debt from the Company's Chief Executive
Officer and Chief Financial Officer or entities controlled by them.

8. LONG-TERM DEBT TO RELATED PARTIES

Long-term debt at December 31, 1999 and 1998 comprises:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998

Note payable to August Investment Partnership,
interest at prime + .75%,
interest only payments required, principal
balance due January 2001 $ 250,000 $ 250,000

Mortgage note payable to the Chief Executive Officer and Chief Financial Officer
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 paid in 1999 56,428

Note payable, collateralized by equipment,
monthly payments of $3,985 including
interest at 7.8% through February, 2001 45,115 109,392

Mortgage note payable to ITE,
Monthly payments of $2,850 including
Interest at 9% through March 2002 68,443 57,289

Mortgage note payable to AIFE,
monthly payments of $2,150 including
interest at 9% through March 2002 51,689 43,256
</TABLE>

<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Mortgage note payable to August Investment Partnership, interest at prime +
.75%, interest only payments required, principal balance due
<TABLE>
<S> <C> <C>
January, 2001 100,000 100,000

Note payable to the Chief Executive Officer And Chief Financial Officer,
interest at prime + .75%, interest only payments required,
principal balance due January, 2001 1,532,165 1,851,042
--------- ----------
Total debt 2,547,412 2,967,407
Less current portion 96,384 118,145
--------- ----------
Total long-term debt $ 2,451,028 $ 2,849,262
========== ==========
</TABLE>

Interest expense on related party notes was approximately $261,000, $325,000 and
$273,000 for the years ended December 31, 1999 ,1998, and 1997 respectively.

Scheduled maturities of the long-term debt at December 31, 1999 are due as
follows:
<TABLE>

9. 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 December 31, 1999 and 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
December 31, 1999 and 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 expired
on December 31, 1999.

10. INCOME TAXES

The effective tax rate differs from the U.S. statutory federal income tax
rate of 34% as described below:
<TABLE>

<S> <C> <C> <C>
1999 1998 1997
--------- ------ ------
Income tax expense (benefit)
At statutory rate 140,000 59,000 (65,000)

(Decrease)Increase In Valuation (169,000) (71,000) 78,000
Allowance

State income taxes
Net of federal income tax 29,000 12,000 (13,000)
- -----------------------------------------------------------------------------
Income tax expense (benefit) - - -
</TABLE>

<PAGE>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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, 1999 and 1998 are as follows:
<TABLE>

<S> <C> <C>
1999 1998
------------ -------------
Deferred tax assets:
Accounts receivable and other $ 45,000 $ 32,000
Estimated fuel and other taxes 19,000 47,000
Insurance and claims 82,000 68,000
Litigation reserves 17,000 17,000
Land valuation allowance 48,000 48,000
Net operating loss carry forwards 19,787,000 19,938,000
---------- -----------
Total deferred tax assets 19,998,000 20,150,000
Less valuation allowance (19,998,000) (20,150,000)
----------- ------------
Total net deferred tax asset $ --- $ ---
=========== =============
</TABLE>

The Company has provided a valuation allowance to write-down deferred tax
assets due to uncertainty of its ability to utilize them in future periods.
During 1999 and 1998, the valuation allowance was decreased by approximately
$152,000 and $59,000 respectively, to reflect the utilization of net operating
loss carryforwards.

The Company has net operating loss carryforwards of approximately $59
million at December 31, 1999. These carryforwards are available to offset
taxable income in future years and substantially all of these carryforwards will
expire in the years 2003 through 2008.

11. COMMITMENTS AND CONTINGENCIES

Cam Regional Transport has filed a complaint against the Company which
alleges breach of contract, claiming that Trailblazer Transportation, Inc., a
subsidiary of the Company which filed bankruptcy, failed to abide by a purchase
agreement entered into with Cam Regional Transport, Inc. and Laurel Mountain
Leasing, Inc. The complaint seeks damages of $284,000 plus interest from
November 1992. At this time, the Company and its legal counsel are unable to
assess the outcome of this complaint. The Company intends to vigorously defend
itself in this matter.

The Company has entered into an agreement with certain key employees of
Carolina National Transportation, Inc.("Carolina"), a wholly owned subsidiary of
the Company, in which these employees will receive up to 40% ownership in
Carolina. These key employees will earn the 40% ownership interest in Carolina
over a three year period beginning in the year in which Carolina achieves
positive net worth. Carolina has a negative net worth of $482,000 and $744,000
at December 31, 1999 and 1998, respectively.

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.

<PAGE>

US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. ENVIRONMENTAL MATTERS

The Company owns a piece of 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 future remediation of
approximately $141,000 are considered in the land valuation allowance at
December 31, 1999 and 1998.

13. OTHER MATTERS

a) In 1999 and 1998, other income(expense),net, in the consolidated
statement of operations is comprised primarily of a write off net
payables from fiscal years 1996 and 1997 relating to revisions of
estimates of amounts due from or payable to drivers and agents.
b) During 1998, the Company has written off approximately $531,000 in
vendor accounts payable which are no longer considered by management
and the Company's legal Counsel to be valid obligations of the
Company. These payables relate to fiscal years prior to 1994 and no
claims have been made against these amounts since September 1993.

Item 9. Changes in and Disagreements with Accountants' on Accounting and
Financial Disclosure.

None.

<PAGE>
PART III

Item 10. Directors and Executive Officers of the Registrant.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the company as of March 15, 2000 were as follows
<TABLE>
<CAPTION>

<S> <C> <C>
NAME AGE POSITION
- ---- --- --------
Michael E. Kibler 59 President, Chief Executive
Officer,
and Director
Harold E. Antonson 60 Chief Financial Officer, treasurer,
and Director
Richard Courtney 58 Vice President, Secretary and Director
Lex Vendetti 47 Director
Robert I. Scissors 66 Director
Gage Blue 29 Director
Brad James 44 Director
</TABLE>

<TABLE>

<S> <C>
Name Office and Experience
Michael E. Kibler 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 reciprocal
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.

Harold E. Antonson Mr. Antonson is Chief Financial Officer of the
Company, a position he has held since March
1998. Mr. Antonson is a certified public
accountant. Prior to joining the Company,
he was Secretary/Treasurer of American
Inter-fidelity Exchange. Mr Antonson is also a
partner in August Investment Partnership. Mr.
Antonson was elected a director and Treasurer of
the Company in November 1999.

Lex Vendetti Mr. Vendetti has served as a Director of the
Company since 1993. Mr. Vendetti has been the
General Manager of American Interfidelity, an
insurance reciprocal located in Indiana that is
the subject of an order of rehabilitation by the
Indiana Department of Insurance, since 1995.

Robert Scissors Mr. Scissors has been a Director of the Company
since 1993. Mr. Scissors began his career in
the Insurance Industry in 1957. Later, in
1982, Mr. Scissors joined a brokerage firm
called Alexander/Alexander where he worked until
retiring in 1992. Mr. Scissors currently serves
as an insurance consultant and broker.

<PAGE>
Gage Blue Mr. Blue was elected Director in 1999. Mr. Blue
is Vice President of Operations for Carolina
National, a subsidiary of US1 Industries, which
began operations in 1996. Mr. Blue has held the
position of Vice President of Operations since
December 1996.

Brad James Mr. James is the President of Seagate
Transportation Services, Inc. Mr. James
graduated from Bowling Green University with a
Bachelors Degree in Science in Business
Administration. He has been in the trucking
industry since 1977.
Mr. James was elected Director of the Company in
1999.

Richard Courtney Mr. Courtney has served as Vice-President and
Secretary of the Company since September, 1993.
Since 1982, Mr. Courtney has been the Controller
of Eastern Refrigerated Express, Inc., an
affiliate of the Company. Mr. Courtney has
served as a director of the Company since 1994.

</TABLE>

Item 11. Executive Compensation

The following Summary Compensation Table sets forth compensation paid by
the Company during the years ended December 31,1999,1998 and 1997 to its Chief
Executive Officer. No other officer earned in excess of $ 100,000.
<TABLE>
<CAPTION>

Summary Compensation Table

Annual Compensation

Name and Position Year Salary Bonus Other
- ----------------- ---- ------ ----- -----
<S> <C> <C> <C> <C>
Michael Kibler 1999 33,048 0 0
President 1998 33,048 0 0
1997 33,048 0 0
</TABLE>

EMPLOYEE STOCK OPTIONS

The company's 1987 Stock Option Plan (Nonqualified) (the "Option Plan")
authorizes the Board of Directors or a committee thereof to grant to officers,
including officers who are also directors, and employees of the Company options
to purchase from the Company shares of Common Stock. The Option Plan originally
covered an aggregate of 570,000 shares of Common Stock. At December 31, 1999
there were no options outstanding under the Option Plan and 96,500 shares
remained available for future grants of options thereunder.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Security Ownership of Management

The following table sets forth the number and percentage of shares of
Common Stock that as of March 15, 2000 are deemed to be beneficially owned by
each director of the company and director nominee, by each executive officer of
the Company and by all directors and executive officers of the company as a
group

<TABLE>
<CAPTION>
Number of Shares of
Common Stock
Name and position Beneficially Owned Percentage of Class
- ----------------- ------------------ -------------------
<S> <C> <C> <C>
Michael E Kibler 3,489,507 (1,2) 32.9%
Director, President and
Chief Executive Officer

Richard Courtney 3,434,507 (1) 32.3%
Director, Vice President and
Secretary

Robert I. Scissors, 36,770 0
Director

Lex L. Vendetti 20,000 0
Director

Harold E. Antonson 3,489,507 (1,3) 32.9%
Chief Financial Officer,
Treasurer and Director

All Directors and Executive Officers 3,735,919 35.2%
</TABLE>

(1) As partners of August Investment Partnership (AIP), Messrs. Kibler,
Antonson, Courtney, and Lavery may be deemed to be beneficial owners of
3,067,840 shares of common stock owned by AIP
(2) As Director of Eastern Refrigerated Express Inc, )an entity under common
control) Messrs. Kibler, Antonson, and Courtney may be deemed to be
beneficial owner of 366,667 Shares of Common Stock owned by Eastern.

(3) Mr. Antonson disclaims beneficial ownership of 197,500 shares of Common
Stock owned by American Inter-Fidelity Exchange, of which Mr Antonson is
Secretary and Treasurer

Security Ownership of Certain Beneficial Owners

The following table sets forth the number and percentage of shares of
Common Stock beneficially owned as of March 15, 2000 by any person who is known
to the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock:
<TABLE>
<CAPTION>

Number of Shares of
Name and Address of Common Stock Percentage
Beneficial Owner Beneficially Owned of Class
- ---------------- ------------------ --------
<S> <C> <C> <C>
Harold E. Antonson 3,489,507 (1,2,3) 32.9%
8400 Louisiana Street
Merrillville, IN 46410

August Investment Partnership 3,067,840 28.9%
8400 Louisiana Street
Merrillville, IN 46410

Richard Courtney 3,434,507 (1,3) 32.3%
8400 Louisiana Street
Merrillville, IN 46410

<PAGE>
Brad A. James 3,067,840 (1) 28.9%
8400 Louisiana Street
Merrillville, IN 46410

Michael Kibler 3,489,507 (1,3) 33.0%
8400 Louisiana Street
Merrillville, IN 46410

John K. Lavery 3,438,507 (1,3) 32.4%
8400 Louisiana Street
Merrillville, IN 46410
</TABLE>

(1) As partners of AIP, Messrs. Kibler, Courtney, Antonson, and Lavery may be
deemed to be beneficial owners of the shares of Common Stock owned by AIP.

(2) Mr. Antonson disclaims beneficial ownership of 197,500 shares of Common
Stock owned by American Inter-Fidelity Exchange, of which Mr. Antonson is
Secretary and Treasurer.

(3) As directors of Eastern Refrigerated Express, Inc. Messrs. Antonson,
Courtney, Kibler and Lavery may be deemed to be beneficial owners of 366,667
shares of Common Stock owned by Eastern.

Item 13. 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, treasurer and a director of the Company. 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. Revenues related to those services totaled
$77,640 and $149,442 in 1999, 1998, and 1997 respectively.

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, the Director also manages an affiliated insurance
carrier, Indiana Truckers Exchange (ITE). For the years ended December 31, 1999,
1998 and 1997 cash paid for related party insurance premiums and deductibles
amounted to $532,586, $751,123 and $770,704 respectively. The Company also has
long term notes payable to AIFE and ITE as described in Note 8 to the
consolidated financial statements.

The Company has notes payable due to its Chief Executive Officer, Chief
Financial Officer, and August Investment Partnership, an affiliated entity
through common ownership, as described in Note 8 to the consolidated financial
statements.

<PAGE>
PART IV

Item 14. 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:

<TABLE>
<CAPTION>
Page Number

<S> <C> <C>
Reports of Independent Certified Public Accountants 11 and 12

Consolidated Balance Sheets as of December 31, 1999 and 1998 13

Consolidated Statements of Operations for the years ended 15
December 31, 1999, 1998 and 1997

Consolidated Statements of Shareholders' Deficiency 16
for the years ended December 31, 1999,1998, and 1997

Consolidated Statements of Cash Flows 17
for the years ended December 31, 1999,1998, and 1997

Notes to Consolidated Financial Statements 18

</TABLE>

(a)(2) List of Financial Statement Schedules

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.

<PAGE>
(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 10.6 Second Amendment of Loan and Security Agreement with FINOVA and
Keystone Lines and L.R.S. Transportation, Inc.

Exhibit 10.7 Mortgage and Loan agreements with Michael Kibler/Harold
Antonson and US 1 Industries, Inc.

Exhibit 21.1 Subsidiaries of Registrant

Exhibit 27.1 Financial Data Schedule

(b) Reports on Form 8-K

NONE

<PAGE>

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.
<TABLE>
<CAPTION>

US 1 INDUSTRIES, INC.

<S> <C>
Date:_________________ By: _________________________
Michael E. Kibler
President & Chief Executive Officer
(Principal Executive Officer)

Date:_________________ By: _________________________
Harold Antonson
Chief Financial Officer & Treasurer
(Principal Financial & Accounting Officer)
</TABLE>

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.
<TABLE>

<S> <C>

Date:_________________ _________________________
Richard Courtney, Director

Date:_________________ __________________________
Michael E. Kibler, Director

Date:_________________ _________________________
Robert I. Scissors, Director

Date:_________________ _________________________
Lex L. Vendetti, Director

Date:_________________ _________________________
Gage Blue, Director

Date:_________________ _________________________
Brad James, Director

Date:_________________ _________________________
Harold Antonson, Director
</TABLE>

<ARTICLE> 5

<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 5,145,264
<ALLOWANCES> 66,648
<INVENTORY> 0
<CURRENT-ASSETS> 5,250,034
<PP&E> 9,245
<DEPRECIATION> 52,756
<TOTAL-ASSETS> 5,352,016
<CURRENT-LIABILITIES> 5,961,769
<BONDS> 0
0
907,540
<COMMON> 40,844,296
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,352,016
<SALES> 32,333,528
<TOTAL-REVENUES> 32,333,528
<CGS> 31,379,669
<TOTAL-COSTS> 31,379,669
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (660,509)
<INCOME-PRETAX> 411,897
<INCOME-TAX> 0
<INCOME-CONTINUING> 411,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 411,897
<EPS-BASIC> .03
<EPS-DILUTED> .03

</TABLE>