<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 June 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 August 12, 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
------- -------
1
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 934,612
Cash - restricted 182,879
Accounts receivable, net allowance for doubtful
accounts of $546,000 8,352,754
Notes receivable 1,334,523
Net investment in sales-type leases 772,646
Inventories 487,913
Prepaid and other assets 1,057,918
------------
TOTAL CURRENT ASSETS 13,123,245
------------
PROPERTY, PLANT AND EQUIPMENT:
Revenue equipment 12,185,804
Land & building 838,680
Other 1,752,751
-----------
Total (at cost) 14,777,235
Less: Accumulated depreciation (4,051,715)
------------
PROPERTY, PLANT AND EQUIPMENT- NET 10,725,520
------------
ASSETS HELD FOR SALE 209,033
------------
OTHER ASSETS:
Net investment in sales-type leases 1,434,917
Goodwill, net of accumulated amortization
of $614,621 1,909,214
Other intangible assets, net of accumulated
amortization of $264,531 1,054,131
Notes receivable 5,587,300
Marketable securities 903,125
Other assets 416,773
------------
TOTAL OTHER ASSETS 11,305,460
------------
TOTAL ASSETS $ 35,363,258
============
See notes to consolidated financial statements.
1
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash Overdraft $ 343,394
Notes payable 2,351,652
Line of credit 5,564,440
Accounts payable 1,189,463
Accrued liabilities 579,051
Due to related party 357,392
------------
TOTAL CURRENT LIABILITIES 10,385,392
------------
LONG-TERM OBLIGATIONS, NET OF CURRENT
MATURITIES:
Notes payable 5,487,190
Minority interest in subsidiary 569,705
Due to related party 536,088
------------
TOTAL LONG-TERM OBLIGATIONS, NET OF
CURRENT MATURITIES 6,592,983
------------
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 - 6,855,679 shares 68,557
Additional paid-in capital 29,308,848
Stock subscription receivable (31,785)
Deferred compensation (515,625)
Retained earnings (deficit) (12,245,112)
-------------
TOTAL STOCKHOLDERS' EQUITY 18,384,883
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,363,258
============
See notes to consolidated financial statements.
2
<PAGE>
U. S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
------------ ------------
REVENUES $ 17,490,340 $ 9,069,461
------------ ------------
EXPENSES:
Cost of goods sold 546,541 694,954
Operating expenses 11,298,091 4,261,267
Selling, general and administrative 3,533,686 1,775,071
Depreciation expense 1,007,817 472,555
Rent expense 754,865 519,792
Amortization of intangible assets 258,036 210,173
------------ ------------
TOTAL EXPENSES 17,399,036 7,933,812
------------ ------------
INCOME FROM OPERATIONS 91,304 1,135,649
------------ ------------
OTHER INCOME (EXPENSES):
Interest expense (504,840) (266,929)
Interest income 326,666 134,882
Gain / (loss) on sales of assets 24,657 55,828
Minority interest in subsidiary losses 28,748 0
Other 15,388 (18,583)
------------ ------------
TOTAL OTHER EXPENSES, net (109,381) (94,802)
------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
(CARRIED FORWARD) $ (18,077) $ 1,040,847
------------ ------------
See notes to consolidated financial statements.
3
<PAGE>
U. S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
(BROUGHT FORWARD) $ (18,077) $ 1,040,847
----------- -----------
DISCONTINUED OPERATIONS:
Gain on disposal of assets of discontinued
custom equipment manufacturing segment: 721,755 --
Gain on disposal of assets of discontinued
entertainment ticketing segment: 566,781 --
Adjustment of reserve for discontinued
operations -- (206,364)
----------- -----------
GAIN (LOSS) FROM DISCONTINUED OPERATIONS 1,288,536 (206,364)
----------- -----------
NET INCOME 1,270,459 834,483
Less: Preferred dividends -- 95,850
----------- -----------
NET INCOME applicable to common shareholders $ 1,270,459 $ 738,633
=========== ===========
EARNINGS PER COMMON SHARE:
Income (loss) from continuing operations $ (.00) $ .35
Gain (loss) from discontinued operations .19 (.07)
----------- -----------
EARNINGS PER SHARE $ .19 $ .28
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,828,595 2,951,414
=========== ===========
See notes to consolidated financial statements.
4
<PAGE>
U. S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
----------- -----------
REVENUES $ 9,742,898 $ 4,915,475
----------- -----------
EXPENSES:
Cost of goods sold 372,457 308,350
Operating expenses 6,126,058 2,330,574
Selling, general and administrative 1,800,496 917,339
Depreciation expense 559,207 283,052
Rent expense 394,020 260,124
Amortization of intangible assets 85,281 44,674
----------- -----------
TOTAL EXPENSES 9,337,519 4,144,113
----------- -----------
INCOME FROM OPERATIONS 405,379 771,362
----------- -----------
OTHER INCOME (EXPENSES):
Interest expense (351,227) (133,379)
Interest income 228,788 66,171
Gain / (loss) on sales of assets 24,657 5,401
Minority interest in subsidiary profit (23,595) --
Other (8,298) (10,200)
----------- -----------
TOTAL OTHER EXPENSES, net (129,675) (72,007)
----------- -----------
INCOME FROM CONTINUING OPERATIONS
(CARRIED FORWARD) $ 275,704 $ 699,355
----------- -----------
See notes to consolidated financial statements.
5
<PAGE>
U. S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
----------- -----------
INCOME FROM CONTINUING OPERATIONS
(BROUGHT FORWARD) $ 275,704 $ 699,355
----------- -----------
DISCONTINUED OPERATIONS:
Adjustment of reserve for discontinued
operations -- (286,536)
----------- -----------
LOSS FROM DISCONTINUED OPERATIONS -- (286,536)
----------- -----------
NET INCOME 275,704 412,819
Less: Preferred dividends -- 95,850
----------- -----------
NET INCOME applicable to common shareholders $ 275,704 $ 316,969
=========== ===========
EARNINGS PER COMMON SHARE:
Income (loss) from continuing operations $ .04 $ .22
Gain (loss) from discontinued operations .00 (.09)
----------- -----------
EARNINGS PER SHARE $ .04 $ .13
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,828,595 3,111,746
=========== ===========
See notes to consolidated financial statements.
6
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED JUNE 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>
[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, 1995 $ (290,285) $ 658,504) $ 6,651,785) $ 11,278,257
- -------------------------- ------------ ------------ ------------ ------------
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>
7
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED JUNE 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
Stock options exercised 12,500 125 -- -- 21,750
Other 4,167 42 -- -- 8,292
Net income -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997 6,855,679 $ 68,557 180,000 $ 1,800,000 $ 29,308,848
============ ============ ============ ============ ============
</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 -- 29,464 -- 29,464
Common stock issued in connection with
Mencor acquisition -- -- -- 75,000
Stock options exercised -- -- -- 21,875
Other 6,000 -- -- 14,334
Net income -- -- 1,270,459 1,270,459
------------ ------------ ------------ ------------
Balance, June 30, 1997 $ (31,785) $ (515,625) $(12,245,112) $ 18,384,883
============ ============ ============ ============
</TABLE>
8
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations $ (18,077) $ 1,040,847
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,265,853 557,663
Amortization of deferred compensation 29,464 --
Minority interest in subsidiary losses (28,748) --
Gain on sales of assets (24,657) (55,828)
Change in assets and liabilities:
Accounts receivable (1,675,592) (1,046,064)
Inventories 242,822 56,714
Notes receivable (3,924) 39,174
Prepaid and other assets (93,496) (35,742)
Accounts payable (692,177) (328,965)
Accrued liabilities (353,769) (109,669)
----------- -----------
Net cash provided by (used in) continuing operations (1,352,301) 118,130
----------- -----------
Income (loss) from Discontinued Operations: 1,288,536 --
Adjustments:
Change in net assets and liabilities
of discontinued operations (2,238,049) (1,304,088)
Proceeds from sale of assets held for sale 100,000 --
Depreciation and amortization -- 279,660
----------- -----------
Net cash used in discontinued operations (849,513) (1,024,428)
----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (CARRIED FORWARD) $(2,201,814) $ (906,298)
----------- -----------
</TABLE>
9
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NET CASH USED IN OPERATING
ACTIVITIES (BROUGHT FORWARD) $(2,201,814) $ (906,298)
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures (157,106) (1,317,481)
Acquisition of intangible assets (126,016) (150,000)
Transfers to restricted cash (23,132) 18,575
Advances on notes receivable (379,912) --
Collection of notes receivable 740,882 13,847
Collection of leases receivable 153,172 156,183
Proceeds from sale of assets 185,606 10,500
Other 16,770 (95,614)
----------- -----------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 410,264 (1,363,990)
----------- -----------
FINANCING ACTIVITIES:
Cash overdraft (51,761) 1,056,578
Advances to related party -- 338,555
Proceeds from issuance of convertible debentures -- 256,728
Payment of preferred dividends -- (95,850)
Principal payments to related party (211,635) (251,934)
Principal payments on debt (3,769,285) (4,934,891)
Borrowings on debt 3,344,339 4,411,218
Proceeds from options and warrants 207,500
Proceeds from bridge loan 21,875 982,000
----------- -----------
NET CASH PROVIDED BY (USED IN)-
FINANCING ACTIVITIES (666,467) 1,969,904
----------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (2,458,017) (300,384)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,392,629 1,727,789
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 934,612 $ 1,427,405
=========== ===========
</TABLE>
10
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for: 1997 1996
---- ----
Interest $401,000 $281,000
======== ========
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.)
During the six months ended June 30, 1996, the Company sold buses in
exchange for $96,547 of sales type financing lease receivables.
During the six months ended June 30, 1996, the Company acquired revenue
equipment utilizing long term debt of $3,400,999.
During the six months ended June 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 six months ended June 30, 1996, the Company issued 300
shares of convertible preferred stock for $256,728; these shares were converted
into 88,889 shares of common stock.
11
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES (CONTINUED)
During the six months ended June 30, 1996, the Company acquired 47,500
shares of its common stock for $89,970.
During the six months ended June 30, 1996, the Company declared $95,850
of preferred dividends.
During the six months ended June 30, 1996, the Company issued 18,333
shares of common stock valued at $82,500, 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 six months ended June 30, 1996, the Company issued 16,667
shares of common stock in connection with a covenant not to compete.
During the six months ended June 30, 1996, the Company issued 104,167
shares of common stock and forgave notes aggregating $252,500 in exchange for a
consulting agreement.
12
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 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 six months ended June 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 June 30, 1997 are not necessarily
indicative of the operating results for the full year.
[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 and.
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 $595,584.
During the six months ended June 30, 1996, the Company purchased
certain personal property, intangible assets and contract rights fron Krogel Air
Freight, Inc. and Krogel Freight Systems of Tampa, Inc. for $150,000 in cash and
16,667 shares of common stock. The acquisition was accounted for as a purchase.
During the six months ended June 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.
13
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
[3] DISCONTINUED OPERATIONS
On March 28, 1997 the Company sold ASI as a continuing operation 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. This transaction resulted in a gain on disposal of $721,755.
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 gain
on disposal of $566,781.
At June 30, 1997, Assets Held for Sale consisted of one motorcoach bus
with a carrying value of $55,953 and land and building in Phoenix, Arizona with
a carrying value, net of related debt, of $153,080. The carrying values of these
assets approximate estimated realizable value.
14
<PAGE>
U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended June 30, 1997 vs. Three Months Ended
March 31, 1997
The Company's revenue increased from $7,742,898 in the first quarter of
1997 to $9,742,898 in the second quarter of 1997, a 26% increase. The Company's
income from operations (before non-operating activities) increased from a loss
of $314,074 in the first quarter of 1977 to a profit of $405,378 in the second
quarter of 1997. This dramatic increase resulted from operating profits in
various divisions through increased sales, elimination of unprofitable routes,
reorganizing routes, computerization of operations, consolidation of duties and
locations and altering customer mix to increase margins.
Results of Operations - Six Months Ended June 30, 1997 vs. Six Months Ended June
30, 1996
The Company's revenues increased from $9,069,461 in the first six
months of 1996 to $17,490,340 in the first six months of 1997, a 93% increase.
This increase resulted primarily from the acquisition of BancPro Transportation,
Inc. in September 1996, which had revenues of $1,236,980 in the first six months
of 1997, and the acquisitions 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 subsidiary, USTI, had revenues of $7,889,028 in the
six months ended June 30, 1997.
The Company's income from continuing operations decreased from
$1,040,847 in 1996 to a loss of $18,077 in 1997. This resulted from several
factors:
USTI--Tractor-trailer operations incurred a loss of $264,261 in the
first six months of 1997. However, as a result of reorganizing and
aggressive route restructuring, this operation experienced a profit of
$ 94,379 in the second quarter of 1997 and anticipates continuing its
profitability throughout the balance of 1997.
Armstrong--Local pick-up and delivery operations incurred operating
losses of $438,838 in the first six months of 1997 after recording a
profit of $121,751 in the same six months in 1996. The Company has
computerized its operations, is consolidating redundant duties at
multiple locations, altered its customer mix to increase margins and
has dropped unprofitable routes. As a result of these actions, the
Company expects Armstrong to reach profitability by early September
1997.
ATAB--As a result of ATAB's present contract work with its sole
customer, Stewart & Stevenson ("S&S"), having significantly lower
profit margins than the previous contract (which was completed and not
renewed in October 1996), ATAB's income from operations decreased from
$664,466 in the six months ended June 30, 1996 to $51,763 for the same
period in 1997. ATAB's present contract work with S&S will
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U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
be completed during the early part of the third quarter in 1997 and, at present,
ATAB has no commitments for future work.
Liquidity and Capital Resources
The Company's working capital dramatically improved to $2,737,852 at
June 30, 1997, as compared to $748,856 at June 30, 1996. This increase came
primarily from the Company's reduction of equipment debt resulting in
significantly lower outstanding principal balances due to third party creditors.
This form of debt previously represented the majority of the Company's current
liability position.
Cash flow from operations was $1,223,836 for the six months ended June
30, 1997 before the application of funds to working capital components. The
company anticipates positive cash flow from continuing operations to continue 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 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. 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 $1.16 on June 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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