<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
-------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-16140
---------
U.S. TRANSPORTATION SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
Nevada 34-1397328
- ----------------------------------- -----------------------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
33 West Main Street
Elmsford, New York 10523
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (914) 345-3339
----------------
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 requirement for the past 90 days.
Yes __X__ No _____
As of November 20, 1997, there were 7,092,587 shares of Common Stock, $.01 par
value, net of treasury shares.
Transitional Small Business Disclosure Format
Yes _____ No __X__
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 905,242
Cash - restricted 232,879
Accounts receivable, net allowance for doubtful
accounts of $946,000 8,014,234
Notes receivable (note 3) 1,109,063
Net investment in sales-type leases 937,233
Inventories 393,943
Prepaid and other assets 836,795
------------
TOTAL CURRENT ASSETS 12,429,389
------------
PROPERTY, PLANT AND EQUIPMENT:
Revenue equipment 12,199,402
Land & building 636,119
Other 1,429,388
-----------
Total (at cost) 14,264,909
Less: Accumulated depreciation (4,365,405)
------------
PROPERTY, PLANT AND EQUIPMENT- NET 9,899,504
------------
ASSETS HELD FOR SALE 527,810
------------
OTHER ASSETS:
Net investment in sales-type leases 1,148,985
Goodwill, net of accumulated amortization
of $658,502 1,848,117
Other intangible assets, net of accumulated
amortization of $336,265 999,611
Notes receivable 239,432
Marketable securities 189,400
Other assets 429,274
------------
TOTAL OTHER ASSETS 4,854,819
------------
TOTAL ASSETS $ 27,749,022
============
See notes to consolidated financial statements.
Page 2
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash Overdraft $ 13,679
Notes payable 2,218,847
Line of credit 5,679,586
Accounts payable 1,526,279
Accrued liabilities 1,355,408
Due to related party 181,257
------------
TOTAL CURRENT LIABILITIES 10,975,056
------------
LONG-TERM OBLIGATIONS, NET OF CURRENT
MATURITIES:
Notes payable 5,223,088
Minority interest in subsidiary 580,125
Due to related party 817,312
------------
TOTAL LONG-TERM OBLIGATIONS, NET OF
CURRENT MATURITIES 6,620,525
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - par value $.01 per share,
redemption value $10.00 per share:
Authorized - 10,000,000 shares
Issued and outstanding - 180,000 shares 1,800,000
Common stock - par value $.01 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 7,020,679 shares 70,207
Additional paid-in capital 29,964,698
Stock subscription receivable (25,785)
Deferred compensation (456,697)
Retained earnings (deficit) (21,236,482)
-------------
TOTAL STOCKHOLDERS' EQUITY 10,115,941
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,749,022
============
See notes to consolidated financial statements.
Page 3
<PAGE>
U. S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
------------ ------------
REVENUES $ 25,417,444 $ 13,065,678
------------ ------------
EXPENSES:
Operating expenses 17,328,872 8,651,788
Selling, general and administrative 7,856,483 2,162,172
Depreciation expense 1,495,892 638,655
Rent expense 998,345 693,036
Amortization of intangible assets 403,105 124,169
------------ ------------
TOTAL EXPENSES 28,082,697 12,269,820
------------ ------------
INCOME (LOSS) FROM OPERATIONS (2,665,253) 795,858
------------ ------------
OTHER INCOME (EXPENSES):
Interest expense (894,173) (400,501)
Interest income 378,183 212,465
Gain / (loss) on sales of assets 148,333 80,285
Minority interest in subsidiary losses 77,569 -
Bridge loan expense - (441,038)
Other (66,363) (10,313)
------------ ------------
TOTAL OTHER EXPENSES, net (356,451) (559,102)
------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
(CARRIED FORWARD) $ (3,021,704) $ 236,756
------------ ------------
See notes to consolidated financial statements.
Page 4
<PAGE>
U. S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
(BROUGHT FORWARD) $(3,021,704) $ 236,756
----------- -----------
DISCONTINUED OPERATIONS:
(Loss) on operations from
entertainment ticketing segment -- (375,188)
(Loss) on operations of
custom equipment manufacturing segment -- (221,931)
Income (loss) on operations from
automobile harness manufacturing segment (34,932) 1,187,709
Adjustment of reserve for discontinued
operations (4,664,275) --
----------- -----------
PROFIT (LOSS) FROM DISCONTINUED OPERATIONS (4,699,207) 590,590
----------- -----------
NET INCOME (LOSS) (7,720,911) 827,346
Less: Preferred dividends -- 143,775
----------- -----------
NET INCOME (LOSS) applicable to common
shareholders $(7,720,911) $ 683,571
=========== ===========
EARNINGS PER COMMON SHARE:
Income (loss) from continuing operations $ (.44) $ .03
Income (loss) from discontinued operations (.68) .18
----------- -----------
EARNINGS (LOSS) PER SHARE $ (1.12) $ .21
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,901,253 3,307,110
=========== ===========
See notes to consolidated financial statements.
Page 5
<PAGE>
U. S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
----------- -----------
REVENUES $ 8,742,778 $ 5,462,204
------------ ------------
EXPENSES:
Operating expenses 6,030,781 3,145,740
Selling, general and administrative 4,440,741 1,511,142
Depreciation expense 509,392 187,993
Rent expense 267,117 201,503
Amortization of intangible assets 145,079 108,501
------------ ------------
TOTAL EXPENSES 11,393,110 5,154,879
------------ ------------
INCOME (LOSS) FROM OPERATIONS (2,650,332) 307,325
------------ ------------
OTHER INCOME (EXPENSES):
Interest expense (340,815) (167,888)
Interest income 51,517 72,333
Gain on sales of assets 123,676 44,756
Bridge loan expense -- (441,038)
Minority interest in subsidiary loss 48,821 --
Other -- 44,890
------------ ------------
TOTAL OTHER EXPENSES, net (116,801) (446,947)
------------ ------------
LOSS FROM CONTINUING OPERATIONS
(CARRIED FORWARD) $ (2,767,133) $ (139,622)
------------ ------------
See notes to consolidated financial statements.
Page 6
<PAGE>
U. S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
----------- -----------
LOSS FROM CONTINUING OPERATIONS
(BROUGHT FORWARD) $(2,767,133) $ (139,622)
----------- -----------
DISCONTINUED OPERATIONS:
(Loss) on operations from custom
equipment manufacturing segment -- (73,857)
Income (loss) on operations of harness
manufacturing segment (86,695) 523,242
(Loss) on operations of entertainment
ticketing segment -- (316,900)
Adjustment of reserve for discontinued
operations (4,517,330) --
----------- -----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (4,604,025) 132,485
----------- -----------
NET LOSS (7,371,158) (7,137)
Less: Preferred dividends -- 47,925
----------- -----------
NET LOSS applicable to common shareholders $(7,371,158) $ (55,062)
=========== ===========
EARNINGS PER COMMON SHARE:
Loss from continuing operations $ (.39) $ (.06)
Income (loss) from discontinued operations (.66) .04
----------- -----------
EARNINGS (LOSS) PER SHARE $ (1.05) $ (.02)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 7,002,343 3,111,746
=========== ===========
See notes to consolidated financial statements.
Page 7
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Additional
Common Stock Preferred Stock Paid-In
Shares Amount Shares Amount Capital
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 2,232,035 $ 22,320 180,000 $ 1,800,000 $ 17,056,511
- -------------------------- ------------ ------------ ------------ ------------ ------------
Net proceeds from exercise of warrants and options 60,000 600 -- -- 206,900
Common stock issued in connection with
purchase of Krogel Freight 18,333 183 -- -- 54,817
Preferred stock issuance -- -- 300 300,000 (43,272)
Conversion of debentures into common stock 753,667 7,537 -- -- 1,768,751
Preferred stock conversion 88,889 889 (300) (300,000) 299,111
Restricted stock grant issuance -- -- -- -- --
Preferred stock dividends -- -- -- -- --
Repurchase of common stock (47,500) (475) -- -- (89,495)
Common stock issued in connection with bridge loan 109,957 1,100 -- -- 248,454
Common stock offering 1,705,043 17,050 -- -- 4,996,006
Common stock issued in connection with
consulting services 314,167 3,142 -- -- 874,733
Common stock issued in connection with
employment contracts 16,667 167 -- -- 124,833
Common stock issued in connection with
purchase of BancPro Transportation 336,000 3,360 -- -- 864,540
Common stock issued in exchange for
covenant not-to-compete 199,444 1,994 -- -- 548,006
Change in features of preferred stock -- -- -- -- 680,000
Obligation to issue 1,000,000 shares of common
stock in regards to long-term employment
agreement with Company officer 1,000,000 10,000 -- -- 1,552,500
Other 14,810 148 -- -- 61,786
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 6,801,512 $ 68,015 180,000 $ 1,800,000 $ 29,204,181
------------ ------------ ------------ ------------ ------------
</TABLE>
Page 8
<PAGE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Stock Sub- Deferred Retained
scription Compen- Earnings
Receivable sation (Deficit) Total
----------- ----------- ------------- ---------
Balance, December 31, 1995 $ (290,285) $ 658,504) $ 6,651,785) $ 11,278,257
- -------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net proceeds from exercise of warrants and options -- -- -- 207,500
Common stock issued in connection with
purchase of Krogel Freight -- -- -- 55,000
Preferred stock issuance -- -- -- 256,728
Conversion of debentures into common stock -- -- -- 1,776,288
Preferred stock conversion -- -- -- --
Restricted stock grant issuance -- 113,415 -- 113,415
Preferred stock dividends -- -- (169,335) (169,335)
Repurchase of common stock -- -- -- (89,970)
Common stock issued in connection with bridge loan -- -- -- 249,554
Common stock offering -- -- -- 5,013,056
Common stock issued in connection with
consulting services 252,500 -- -- 1,130,375
Common stock issued in connection with
employment contracts -- -- -- 125,000
Common stock issued in connection with
purchase of BancPro Transportation -- -- -- 867,900
Common stock issued in exchange for
covenant not-to-compete -- -- -- 550,000
Change in features of preferred stock -- -- -- 680,000
Obligation to issue 1,000,000 shares of common
stock in regards to long-term employment
agreement with Company officer -- -- -- 1,562,500
Other -- -- -- 61,934
Net loss -- -- (6,694,451) (6,694,451)
------------ ------------ ------------ ------------
Balance, December 31, 1996 $ (37,785) $ (545,089) $(13,515,571) $ 16,973,751
------------ ------------ ------------ ------------
</TABLE>
Page 9
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Additional
Common Stock Preferred Stock Paid-In
Shares Amount Shares Amount Capital
------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 (carried forward) 6,801,512 $ 68,015 180,000 $ 1,800,000 $29,204,181
- -------------------------------------------- ----------- ----------- ----------- ----------- -----------
Restricted stock grant -- -- -- -- --
Common stock issued in connection with
Mencor acquisition 37,500 375 -- -- 74,625
Common stock issued in exchange for consulting
services and board participation 165,000 1,650 -- -- 655,850
Stock options exercised 12,500 125 -- -- 21,750
Other 4,167 42 -- -- 8,292
Net income -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1997 7,020,679 $ 70,207 180,000 $ 1,800,000 $29,964,698
=========== =========== =========== =========== ===========
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Stock Sub- Deferred Retained
scription Compen- Earnings
Receivable sation (Deficit) Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 (carried forward) ($ 37,785) $ (545,089) $(13,515,571) $ 16,973,751
- -------------------------------------------- ------------ ------------ ------------ ------------
Restricted stock grant -- 88,392 -- 88,392
Common stock issued in connection with
Mencor acquisition -- -- -- 75,000
Common stock issued in exchange for consulting
services and board participation -- -- -- 657,500
Stock options exercised -- -- -- 21,875
Other 12,000 -- -- 20,334
Net income -- -- (7,720,911) (7,720,911)
------------ ------------ ------------ ------------
Balance, September 30, 1997 $ (25,785) $ (456,697) $(21,236,482) $ 10,115,941
============ ============ ============ ============
</TABLE>
Page 10
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
----------- -----------
OPERATING ACTIVITIES:
Income from continuing operations $(3,021,704) $ 236,756
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation and amortization 1,856,798 762,824
Amortization of deferred compensation 88,392 --
Minority interest in subsidiary losses 77,569 --
Stock issuance in exchange for consulting
services and board participation 657,500 --
Bad debt expense 640,217 --
Gain on sales of assets 148,333 (80,285)
Change in assets and liabilities:
Accounts receivable (1,891,289) (2,145,698)
Inventories 336,793 (220,862)
Other receivables -- 42,092
Notes receivable 98,148
Prepaid and other assets 127,627 35,317
Accounts payable 26,871 (212,251)
Accrued liabilities 637,870 (55,557)
----------- -----------
Net cash used in continuing operations (216,875) (1,637,664)
----------- -----------
Income (loss) from Discontinued Operations: (4,699,207) 590,590
Adjustments:
Change in net assets and liabilities
of discontinued operations 3,299,420 (1,126,602)
Proceeds from sale of assets held for sale 100,000 --
Depreciation and amortization 21,317 --
----------- -----------
Net cash used in discontinued operations (1,278,470) (536,012)
----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (CARRIED FORWARD) $(1,495,345) $(2,173,676)
----------- -----------
Page 11
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (BROUGHT FORWARD) $(1,495,345) $(2,173,676)
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures (402,420) (266,117)
Acquisition of intangible assets (126,016) (506,000)
Transfers to restricted cash (73,132) (3,063)
Advances on notes receivable (586,750) (204,000)
Collection of notes receivable 1,023,140 90,007
Collection of leases receivable 262,420 210,750
Proceeds from sale of assets 48,700 10,500
Other 34,869 2,121
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 180,811 (665,802)
----------- -----------
FINANCING ACTIVITIES:
Cash overdraft (381,476) 484,565
Advances from related party 146,315 883,430
Proceeds from issuance of convertible debentures -- 256,728
Payment of preferred dividends -- (143,775)
Principal payments to related party (252,860) (367,354)
Principal payments on debt (4,285,785) (8,326,909)
Borrowing on debt 3,579,078 5,886,614
Proceeds from common stock offering -- 5,117,709
Proceeds from options and warrants 21,875 207,500
Proceeds from bridge loan -- 887,554
----------- -----------
NET CASH PROVIDED BY (USED IN)-
FINANCING ACTIVITIES (1,172,853) 4,886,062
----------- -----------
NET INCREASED (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,487,387) 2,046,584
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,392,629 1,645,031
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 905,242 $ 3,691,615
=========== ===========
Page 12
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for: 1997 1996
---- ----
Interest $742,000 $454,000
======== ========
Taxes $ 75,000 $ -0-
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
In January 1997, the Company acquired 100% of the common stock of
Mencor Inc. in exchange for $70,000 cash and 37,500 shares of the Company's
common stock. (See Note 2.)
In January 1997, the Company sold the assets of its discontinued
entertainment segment in exchange for 850,000 shares of common stock of
Packaging Plus Services, Inc. (See Note 3.)
In January 1997, the Company acquired 100% of the common stock of Gulf
Northern Transport, Inc. in exchange for $225,000 cash and common shares of its
subsidiary U.S. Trucking, Inc. ("USTI") representing 25% of the issued and
outstanding common stock of USTI. (See Note 2.)
In March 1997, the Company sold the assets of its discontinued custom
equipment manufacturing segment in exchange for $100,000 cash and notes with a
present value of $5,810,868. (See Note 3.)
In 1997, the Company issued 165,000 shares of common stock in
exchange for consulting services and board participation.
During the nine months ended September 30, 1996, the Company sold
buses in exchange for $154,000 of sales type financing lease receivables.
During the nine months ended September 30, 1996, the Company acquired
revenue equipment utilizing long term debt of $4,555,205.
During the nine months ended September 30, 1996, holders of
$1,776,288 of convertible debentures converted such debentures into 753,667
shares of the Company's common stock.
During the nine months ended September 30, 1996, the Company
converted 300 shares of convertible preferred stock into 88,889 shares of
common stock.
Page 13
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES (CONTINUED)
During the nine months ended September 30, 1996, the Company acquired
47,500 shares of its common stock for $89,970, which included the cancellation
of a note receivable of $68,960.
During the nine months ended September 30, 1996, the Company declared
$150,660 of preferred dividends.
During the nine months ended September 30, 1996, the Company issued
18,333 shares of common stock valued at $55,000 as part of its acquisition of
certain personal property and contract rights from Krogel Freight Systems of
Tampa, Inc. and Krogel Air Freight, Inc.
During the nine months ended September 30, 1996, the Company issued
136,111 shares of common stock in connection with a covenant not to compete.
During the nine months ended September 30, 1996, the Company issued
104,167 shares of common stock and forgave notes aggregating $252,500 in
exchange for a consulting agreement.
During the nine months ended September 30, 1996, the Company
acquired Banc-Pro Transportation, Inc. in exchange for a $1,150,000 zero
interest-bearing note due September 1998; 336,000 shares of the Company's
common stock; and 105,000 shares of convertible preferred stock that relate to
an employment contract and a consulting agreement with the sellers.
Page 14
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
[1] MANAGEMENT'S REPRESENTATION
In the opinion of management, the accompanying unaudited financial
statements present fairly, in all material respects, the financial position of
U.S. Transportation Systems, Inc. and Subsidiaries and the results of their
operations and their cash flows for the nine months ended September 30, 1997
and 1996, and, accordingly, all adjustments (which include only normal
recurring adjustments) necessary to permit a fair presentation have been made.
Certain information and footnote disclosures normally required by financial
accounting principles have been condensed or omitted. It is recommended that
these statements be read in conjunction with the financial statements and
notes thereto included in the Company's December 31, 1996 Form 10-KSB report.
The results of operations for the period ended September 30, 1997 are not
necessarily indicative of the operating results for the full year.
U.S. Transportation Systems, Inc. has signed a definitive agreement
to transfer substantially all of the assets and certain liabilities to Precept
Investments, Inc (Precept) in exchange for 9,500,000 shares of Precept Common
Stock which will represent 21% of the outstanding Precept Capital Stock upon
completion of the asset sale. The agreement provides that the Precept Shares
will be listed on NASDAQ and that they will be distributed to the shareholders
of USTS immediately after completion of the sale, except that some number of
the shares (currently estimated at 550,000) will be used by USTS to satisfy
liabilities which are not being assumed by Precept. USTS is withholding its
rental car brokerage business from the sale.
[2] ACQUISITIONS
On January 30, 1997 the Company formed a wholly-owned subsidiary, U. S.
Trucking, Inc. ("USTI"). Thereafter, the following transactions took place:
--100% of the issued and outstanding stock of the Company's
wholly-owned tractor-trailer subsidiaries, Trans Lynx Express, Inc.
and Jay & Jay Transportation, Inc., were merged into USTI as
wholly-owned subsidiaries thereof;
--USTI acquired 100% of the issued and outstanding stock of Mencor,
Inc. ("Mencor"), a tractor-trailer brokerage company in exchange for
$70,000 and 37,500 shares of the Company's common stock;
--USTI acquired 100% of the issued and outstanding stock of Gulf
Northern Transport, Inc. ("GNT"), a tractor-trailer delivery
company, for $225,000 cash and common shares of USTI which
represented 25% of the issued and outstanding stock of USTI.
The acquisitions of Mencor and GNT were accounted for as purchases
and resulted in goodwill of $352,396. Additionally, at the time the
acquisition of GNT, the Company recorded a liability for the resulting
minority interest in USTI of $645,194.
During the nine months ended September 30, 1996, the Company
purchased certain personal property, intangible assets and contract rights
from Krogel Air Freight, Inc. and Krogel Freight Systems of Tampa, Inc. for
$150,000 in cash and 18,333 shares of common stock. The acquisition was
accounted for as a purchase.
During the nine months ended September 30, 1996, the Company
purchased certain assets from Jackson & Johnson, Inc. for $160,000 in cash and
the assumption of approximately $2,930,000 in accrued debt. The acquisition
was accounted for as a purchase.
During the nine months ended September 30, 1996, the Company
purchased 100% of the outstanding stock of Banc-Pro Transportation, Inc. for
336,000 shares of common stock. This acquisition was accounted for as a
purchase.
Page 15
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
[3] DISCONTINUED OPERATIONS
During the third quarter of 1997, the Company closed ATAB of
Texas, all equipment was sold yielding a profit of $1,545, all personnel were
terminated and land and building were transferred to Assets Held for Sale.
On March 28, 1997 the Company sold ASI for: $100,000 cash; a 10.5%
interest bearing note of approximately $5,200,000 with monthly payments of
approximately $80,000, the unpaid principal fully due on April 1, 1999; and a
non-interest bearing note of $685,000 also due April 1, 1999. The Company
received the first two payments from the purchasors of ASI. Subsequently, the
purchasor of ASI defaulted on the note. ASI is currently experiencing severe
cash flow problems. Negotiations are underway to modify the note receivable
extending payment terms. ASI is currently attempting to raise additional
capital to support its operations. There is no assurance that ASI will be able
to raise this capital and accordingly, the Company has recorded a reserve of
$5,239,086 to adjust the carrying value of the note receivable to the
estimated cash to be received. The adjustment to the note receivable is
included in the reserve for discontinued operations
On January 7, 1997 the Company sold the entertainment divisions as a
continuing operation for 850,000 shares of common stock of Packaging Plus
Services, Inc., a publicly-held company (Symbol: "PKGP"). PKGP was trading at
$1.0625 per share at the time of the sale. This transaction resulted in a loss
on disposal of $146,944.
At September 30, 1997, Assets Held for Sale consisted of one
motorcoach bus with a carrying value of $55,953, land and building in Phoenix,
Arizona with a carrying value, net of related debt, of $153,080 and land and
building in Sealy, Texas with a carrying value of $318,777. The carrying
values of these assets approximate estimated realizable value.
[4] CAPITALIZATION
In January, 1996, the Company issued $300,000 of convertible
preferred stock, which were converted into 88,889 shares of common stock in
March 1996.
During the nine months ended September 30, 1996, the Company
increased the authorized common stock shares from 20,000,000 to 50,000,000
shares.
During the nine months ended September 30, 1996, the Company
issued $1,200,000 of 5% subordinated promissory notes and bridge units. These
notes were paid and the Company recorded expenses related to this issuance of
$441,038 during the nine months ended September 30, 1996.
During the nine months ended September 30, 1996, the Company had a
one-for-six reverse split of its common stock, effective August 27, 1996. The
par value remained at $.01 per share, and all share data has been adjusted for
this split.
During the nine months ended September 30, 1996, the Company had a
common stock unit offering whereby 1,705,043 units, each comprising of one
share of common stock and one warrant (exercisable under certain conditions)
at $3.82 for one share of common stock, were issued.
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U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
[5] SUBSEQUENT EVENTS
On January 30, 1997, U.S. Trucking, Inc. (USTI), a subsidiary of U.S.
Transportation Systems, Inc. (the Company) which owns the Company's
tractor-trailer operations, acquired 100% of the capital stock of Gulf
Northern Transport Inc. (GNTI). On April 16, 1997, United Acquisition II
Corporation (UACQ), which is the subject of a Bankruptcy petition, commenced
an adversary proceeding in the Bankruptcy Court against the Company, its
Chairman and many other corporate and individual defendants. UACQ alleges that
it acquired beneficial ownership of GNTI prior to the transfer of GNTI to
USTI, and that the defendants conspired to deprive UACQ of its interest in
GNTI. In November, 1997, the defendants reached an agreement with UACQ to
settle the litigation. The settlement will be effective only if it is approved
by the Bankruptcy Court. If approved, the settlement would eliminate the
claims by UACQ to ownership of GNTI, in exchange for 25,000 shares of the
Company's common stock and payment of $100,000 plus a promissory note of
$100,000 payable over three years.
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U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 vs.
Nine Months Ended September 30, 1996
Results of Operations
The Company's revenue for the first nine months of 1997 increased
significantly from the same period in 1996, from $13,065,678 in 1996 to
$25,417,444 in 1997, a 94.5% increase. This dramatic increase resulted
primarily from the acquisition of BancPro Transportation, Inc. in September
1996, which had revenues of $1,872,050 in the first nine months of 1997 as
compared to $157,612 for one month in 1996, and the acquisition of three
tractor-trailer operations, Jay & Jay Transportation, Inc. in June 1996,
Mencor, Inc. and Gulf Northern Transport, Inc. in January 1997. The tractor
trailer operations, operated within the Company's 75 percent owned
subsidiaries, USTI, had revenues of $12,837,190 in the nine months ended
September 30, 1997 as compared to $1,855,956 for the same period in 1996.
The Company's income from continuing operations for the first nine
months of 1997 decreased from the same period in 1996, from a profit of
$236,756 in 1996 to a loss of $3,021,704 in 1997. This loss was primarily the
result of postings made by corporate of a non-recurring nature to: increase
overall reserves for bad debt by $400,000; accrue for tax, legal and other
pending liabilities of $1,036,000; issue the Company's common stock in
exchange for consulting services and board participation totaling $657,500
and the balance of expenses resulting from corporate overhead.
In the fourth quarter, the Company anticipates profits from its
transportation operations and the potential for overall profitability with a
reduction in merger related costs and corporate overhead.
Liquidity and Capital Resources
The Company's working capital at September 30, 1997 was $1,454,333,
as compared to $6,496,866 at September 30, 1996. The working capital at
September 30, 1996 included proceeds from a public offering in August, 1996 of
$5,013,056.
The net cash used in continuing operations was $216,875 for the nine
months ended September 30, 1997. The Company anticipates positive cash flow
from continuing operations in the foreseeable future. The Company further
anticipates that cash flow from the collection of notes receivable and sale of
assets of discontinued segments will further enhance future cash flow. The
Company's line of credit with the Israel Discount Bank of New York was reduced
from $5.0 million to $4.5 million. The Company believes that its agreement
with Precept Investors, Inc. will have an overall positive impact on the
Company's liquidity and capital resources.
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U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
The Company sold the assets of both its custom equipment
manufacturing segment and its entertainment segment in the first quarter of
1997. The Company sold ASI and received $100,000 cash; a 10.5% interest
bearing note of approximately $5,200,000 with monthly payments of
approximately $80,000, the unpaid principal fully due on April 1, 1999; and a
non-interest bearing note of $685,000 also due April 1, 1999. These notes are
currently in-default for late payments and have been written-down by
$5,239,086 (see note 3). The Company sold the entertainment divisions in
exchange for 850,000 shares of common stock of Packaging Plus Services, Inc.,
a publicly-held company (Symbol: "PKGP"), subject to various trading
restrictions. PKGP was trading for $0.69 on September 30, 1997.
The Company has no significant commitments at this time which would
require it to expend capital and believes its current facilities and capital
equipment are adequate for the Company as presently structured.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U.S. TRANSPORTATION SYSTEMS, INC.
/s/ Michael Margolies
--------------------------------------
Michael Margolies,
Chief Executive Officer
/s/ Ronald P. Sorci
--------------------------------------
Ronald P. Sorci,
Treasurer and Chief Financial Officer
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