<PAGE>
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
September 8, 1998
------------------------------------------------
Date of Report (date of earliest event reported)
U. S. Trucking, Inc.
-----------------------------------------------------
Exact Name of Registrant as Specified in its Charter
Colorado 33-9640-LA 68-0133692
- --------------------------- --------------- ----------------------
State or Other Jurisdiction Commission File IRS Employer Identifi-
of Incorporation Number cation Number
10602 Timberwood Circle #9, Louisville, Kentucky 40223
---------------------------------------------------------
Address of Principal Executive Office, Including Zip Code
(502) 339-4000, Ext. 3006
--------------------------------------------------
Registrant's Telephone Number, Including Area Code
<PAGE>
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. The following
financial statements for U.S. Trucking, Inc. and its subsidiaries are filed
herewith:
INDEX PAGE
1) AUDITED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC.
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997)
TO DECEMBER 31, 1997 ............................................ F-1
Report of Independent Certified Public Accountants ............ F-2
Consolidated Balance Sheet as of December 31, 1997 ............ F-3
Consolidated Statement of Operations and Accumulated
Deficit for the period from inception (January 30, 1997)
to December 31, 1997 ......................................... F-5
Consolidated Statement of Stockholders' Equity for the
period from inception (January 30, 1997) to December 31,
1997 ......................................................... F-6
Consolidated Statement of Cash Flows for the period from
inception (January 30, 1997) to December 31, 1997 ............ F-7
Notes to the Consolidated Financial Statements ................ F-8
2) AUDITED FINANCIAL STATEMENTS OF GULF NORTHERN TRANSPORT, INC.
FOR THE THIRTY DAYS ENDED JANUARY 30, 1997 ...................... F-20
Report of Independent Certified Public Accountants ............ F-21
Balance Sheet as of January 30, 1997 .......................... F-22
Statement of Operations and Accumulated Deficit
for the period from January 1, 1997 to January 30, 1997 ...... F-24
Statement of Cash Flows for the period from January 1, 1997
to January 30, 1997 .......................................... F-25
Notes to Financial Statements ................................. F-27
3) AUDITED FINANCIAL STATEMENTS OF MENCOR, INC. FOR THE THIRTY
DAYS ENDED JANUARY 30, 1997 ..................................... F-36
Report of Independent Certified Public Accountants ............ F-37
Balance Sheet as of January 30, 1997 .......................... F-38
Statement of Earnings and Retained Earnings for the
period ending January 30, 1997 ............................... F-40
Statement of Cash Flows for the period ending January 30,
1997 ......................................................... F-41
Notes to Financial Statements ................................. F-42
2
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<PAGE>
4) AUDITED FINANCIAL STATEMENTS OF MID AMERICA TRANSPORTERS GROUP,
INC. AND SUBSIDIARY FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1995 ................................................... F-47
Report on Independent Certified Public Accountants ............ F-48
Consolidated Balance Sheets as of December 31, 1996 and 1995... F-49
Consolidated Statements of Operations and Retained Earnings
for the years ending December 31, 1996 and 1995 .............. F-51
Consolidated Statements of Cash Flows for the years ending
December 31, 1996 and 1995 ................................... F-52
Notes to the Consolidated Financial Statements ................ F-54
5) AUDITED FINANCIAL STATEMENTS OF MENCOR, INC. FOR THE
YEARS ENDED DECEMBER 31, 1996 AND 1995 .......................... F-64
Report on Independent Certified Public Accountants ............ F-65
Balance Sheet as of December 31, 1996 and 1995 ................ F-66
Statements of Earnings and Retained Earnings for the
periods ending December 31, 1996 and 1995 .................... F-68
Statements of Cash Flows for the periods ending December 31,
1996 and 1995 ................................................ F-69
Notes to Financial Statements ................................. F-71
6) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF U.S. TRUCKING,
INC. AND SUBSIDIARIES AS OF AS OF JUNE 30, 1998 ................. F-77
Accountants' Compilation Report ............................... F-78
Consolidated Balance Sheet as of June 30, 1998 - Unaudited .... F-79
Consolidated Statement of Operations and Accumulated
Deficit for the six months ended June 30, 1998 - Unaudited ... F-81
Consolidated Statement of Stockholders' Equity for the
six months ended June 30, 1998 - Unaudited ................... F-82
Consolidated Statement of Cash Flows for the six months
ended June 30, 1998 - Unaudited .............................. F-83
Notes to Consolidated Financial Statements - Unaudited ........ F-85
(b) PRO FORMA FINANCIAL INFORMATION. Unaudited Pro Forma Financial
Statements for U.S. Trucking, Inc. (formerly "Northern Dancer Corporation"),
U.S. Trucking, Inc. (a Nevada corporation) and its subsidiaries, as of June
30, 1998, and for the year ended December 31, 1997 and the six months ended
June 30, 1998, are filed herewith on pages F-97 to F-102.
3
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, hereunto duly authorized.
U.S. TRUCKING, INC.
Dated: November 3, 1998 By:/s/ W. Anthony Huff
W. Anthony Huff, Executive Vice
President
4
<PAGE>
<PAGE>
1) AUDITED FINANCIAL STATEMENTS OF
U.S. TRUCKING, INC. FOR THE PERIOD FROM INCEPTION
(JANUARY 30, 1997) TO DECEMBER 31, 1997
F-1
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<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
U.S. Trucking, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheet of U.S. Trucking,
Inc. and Subsidiaries as of December 31, 1997 and the related consolidated
statement of operations and accumulated deficit and cash flows for the period
from inception (January 30, 1997) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated balance sheet referred to above, presents
fairly, in all material respects, the consolidated financial position of U.S.
Trucking, Inc. and Subsidiaries as of December 31, 1997 and the results of its
operations and its cash flows for the period from inception (January 30, 1997)
to December 31, 1997 in conformity with generally accepted accounting
principles.
Garden City, New York
June 10, 1998
F-2
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
CURRENT ASSETS
Cash in banks (Note 14) $ 60,099
Restricted cash-reserves on deposit
with factor (Note 15) 184,210
Accounts receivable-net of allowance
for doubtful accounts of $88,000
as of December 31, 1997
(Notes 1H, 15 and 16) 2,321,180
Accounts receivable - other 60,000
Parts and supply inventory (Note 1D) 152,262
Prepaid expenses and other current assets 57,097
-----------
Total Current Assets 2,834,848
-----------
TRANSPORTATION AND OTHER EQUIPMENT - at
cost, less accumulated depreciation and
amortization of $1,334,899 as of December
31, 1997 (Notes 1E, 2, 4, 5 and 7) 6,818,517
-----------
OTHER ASSETS
Restricted cash-owner operators (Note 12) 2,894
Restricted cash-cash held as collateral
against letters of credit 10,000
Security deposits and other 12,653
Intangible assets - Net of accumulated
amortization of $120,552 as of December
31, 1997 (Notes 1I, 2 and 17) 681,853
-----------
Total other assets 707,400
-----------
TOTAL ASSETS $10,360,765
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-3
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-trade $ 756,675
Due to factor (Note 15) 1,355,291
Accrued expenses and other 665,592
Current portion - seller's notes 118,273
Current portion - note payable 13,962
Current portion - acquisition loan payable 366,086
Current portion of equipment notes payable 689,432
Current portion of obligations under capital
leases 479,093
-----------
Total Current Liabilities 4,444,404
-----------
OTHER LIABILITIES
Owner-operator escrow (Note 12) 17,100
Seller's notes (Notes 4 and 5) 17,333
Note payable - (Notes 4 and 13) 40,694
Acquisition loan payable Notes 4 and 5) 1,518,818
Equipment Notes Payable-net of
current portion (Note 4) 1,310,964
Obligations under capital leases
net of current portion (Note 6) 228,284
-----------
Total Other Liabilities 3,133,193
-----------
TOTAL LIABILITIES 7,577,597
-----------
COMMITMENTS AND CONTINGENCIES (Notes 6,
9 10 and 18)
STOCKHOLDERS' EQUITY
Common Stock (no par value- 2,500 shares auth-
orized, issued and outstanding (Note 2) 1,000
Additional paid in capital 4,313,368
Accumulated deficit (1,531,200)
-----------
Total Stockholders' Equity 2,783,168
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,360,765
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-4
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
Net Revenues $17,469,281
Operating expenses 16,434,514
-----------
Income from operations 1,034,767
Administrative expenses 1,999,692
-----------
Other income and (expenses)
Interest income 1,332
Interest expense (656,826)
Other income 101,762
Net (loss) on disposition of assets (12,543)
-----------
Total other income and (expenses) (566,275)
-----------
Net (loss) before taxes (1,531,200)
Income tax (benefit)provision (Notes 1H and 3) -0-
-----------
Net (loss) (1,531,200)
Retained Earnings - January 30, 1997 -0-
-----------
Accumulated deficit - December 31, 1997 $(1,531,200)
===========
Net loss per share $ (612.48)
===========
Weighted Average Number of Shares (Note 1B) 2,500
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-5
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Common Stock Paid in Accumulated
No Par Value Capital Deficit Total
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sale of 2,500 Shares of Common
Stock - No Par Value $1,000 $ 1,000
Acquisition of 100% Common Stock
of Gulf Northern Transport, Inc. $ 225,000 225,000
Acquisition of 100% Common Stock
of Mencor, Inc. 145,000 145,000
Acquisition of assets of Jay and
Jay Transportation, Inc. 2,394,860 2,394,860
Acquisition of assets of Translynx,
Inc. 100,546 100,546
Payment of expenses by shareholder 46,895 46,895
Advances from U.S. Transportation
Systems, Inc. 1,401,067 1,401,067
Net Loss for the period (1,531,200) (1,531,200)
------ ---------- ----------- ----------
Total $1,000 $4,313,368 $(1,531,200) $2,783,168
====== ========== =========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-6
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<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(1,531,200)
ADJUSTMENTS TO RECONCILE NET (LOSS)
TO NET CASH USED IN OPERATING ACTIVITIES
Depreciation & Amortization 1,455,451
Provision for doubtful accounts receivable 36,166
Loss on disposal of property and equipment 12,543
(Increase) Decrease-Assets
Restricted Cash (197,104)
Accounts Receivable (2,361,180)
Parts and supply inventory (152,262)
Prepaid expenses and other current assets (57,097)
Increase (Decrease)-Liabilities
Accounts payable 756,675
Accrued expenses and other current liabilities 2,020,883
-----------
Total Adjustments 1,514,075
Net cash used by operating activities (17,125)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of transportation and other equipment (8,153,416)
Security deposits (12,653)
Payment for purchase of subsidiaries in
excess of fair market value (664,389)
Payment for refinancing of acquisition debt (138,016)
Proceeds from additional paid in capital 4,313,368
-----------
Net cash used in investing activities (4,655,106)
-----------
Sub Total (4,672,231)
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-7
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
Balance Forward $(4,672,231)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt financing 3,561,025
Acquisition indebtedness 2,284,376
Note payable 54,656
Principal payments on long-term debt (877,926)
Principal payment of short-term note (12,500)
Principal payments on capital lease obligations (277,301)
-----------
Net Cash provided by financing activities 4,732,330
-----------
NET INCREASE IN CASH 60,099
CASH AT BEGINNING OF YEAR -0-
CASH AT END OF YEAR $ 60,099
===========
Supplemental Disclosure of Cash flow information:
Cash Paid during the year Interest expense $ 571,924
===========
Income taxes $ -0-
===========
On January 30, 1997, the Company acquired transportation and other equipment
totaling $8,153,416 as part of the acquisition of Gulf Northern Transport,
Inc. and Mencor, Inc. and the assets of Jay and Jay Transportation, Inc. The
Company in the acquisition of this equipment incurred long-term debt totaling
$3,561,025.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-8
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
U.S. Trucking, Inc. (USTI or "the Company") was incorporated in the State of
Nevada on March 3, 1997 although USTI's consolidated group was effectively
formed on January 30, 1997. From that date through December 31, 1997 the
Company operated through two wholly owned subsidiaries:
Gulf Northern Transport, Inc., (Gulf Northern) a
Wisconsin corporation, operates as an interstate
and intrastate motor carrier.
Mencor, Inc. operates as a broker for interstate
motor carriers. A broker serves the trucking
industry by providing return hauls for truckers
who have completed their initial delivery. By
providing this service, trucking companies and
independent contractors are able to cover the cost
of returning to their home location. As a broker,
Mencor is required to acquire a license which
provides the authority to engage in interstate
commerce. This license was acquired in April, 1994.
USTI was formed by U.S. Transportation Systems, Inc. (USTS) as a wholly owned
subsidiary. As part of the transaction to acquire Gulf Northern, 25% of
USTI's common stock was transferred to Gulf Northern's parent (Logistics
Management, LLC). The remaining 75% was conveyed to Logistics Management
during 1998.
The Company's corporate headquarters are located in Charleston, South Carolina
with terminals and drop stations located in various states.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net (Loss) per Share
Net earnings (loss) per share is computed on the basis of the weighted average
number of common shares outstanding during each period. Only the weighted
average number of shares of common stock outstanding is used to compute loss
per share in 1997, as there were no stock options, warrants, or other common
stock equivalents in this year.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
F-9
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
(D) - Parts and Supply Inventory
Inventory consists principally of parts and supplies used in maintaining its
motor carrier fleet, skids used in transporting goods, and small tools and are
stated at the lower-of-cost or market, determined on a first-in, first-out
basis.
(E) - Transportation and Other Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Accelerated methods of depreciation are followed for tax purposes and the
straight-line method is used for financial reporting purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(F) - Covenants Not to Compete
Covenants not to compete are amortized on a straight-line basis over the terms
of the agreements. The covenants cover the period from January 1994 to
December 1997 and were fully amortized by December 31, 1997.
(G) - Income Taxes
Taxes are provided on all revenue and expense items included in the
Consolidated Statements of Operations, regardless of the period in which such
items are recognized for income tax purposes, except for items representing a
permanent difference between pretax accounting income and taxable income.
(H) - Revenue Recognition
The Company recognizes revenues at the time freight is delivered to
recipients.
(I) - Organization Costs
Subsidiary companies, Gulf Northern and Mencor incurred organization costs
that are being amortized on a straight-line basis over five years.
(J) - Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-10
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
(K) - Basis of Presentation
The accompanying consolidated balance sheets and related statements of
operations and accumulated deficit and cash flows includes the accounts of
U.S. Trucking, Inc. and its wholly owned subsidiaries, Gulf Northern
Transport, Inc. and Mencor, Inc. as of December 31, 1997 and for the period
from inception (January 30, 1997) to December 31, 1997 gives effect to the
acquisition of Gulf Northern and Mencor effective January 30, 1997.
Intercompany transactions or balances as of and for the period ended December
31, 1997 have been eliminated.
NOTE 2 - Acquisition of Subsidiaries and other Assets
On January 30, 1997, the Company completed the following acquisitions:
Gulf Northern Transport, Inc. USTI purchased 100% of the common stock of
Gulf Northern Transport, Inc. from its stockholder (Logistics Management, LLC)
for cash of $225,000 and 25% of the Company's common stock (625 shares). The
acquisition was funded by an advance by USTI's parent, U.S. Transportation
Systems, Inc. and was subsequently capitalized and is included in paid in
capital. The transaction was valued at $790,999 and goodwill in the amount of
$565,999 was recognized in the transaction. The goodwill is being amortized
over six years.
Mencor, Inc. USTI purchased 100% of the common stock of Mencor, Inc. from
its stockholders for cash of $70,000 and 37,500 shares of the common stock of
U.S. Transportation Systems, Inc. which was valued at $2.00 per share. The
acquisition was funded by a cash and stock contribution to the Company by
USTS. The transaction was valued at $145,000. Goodwill in the amount of
$96,953 was recognized in the transaction and is being amortized over six
years.
Jay and Jay Transportation, Inc. USTI acquired certain assets (primarily
tractors and trailers) and liabilities from USTS which were valued at
$2,394,860. The transaction was accomplished by way of a permanent capital
contribution by USTS and the net value contributed was included in Paid in
capital. Jay and Jay's dispatch office and yard is located in Savannah, New
York. Office operations including accounting and management were moved to
Charleston, South Carolina. The transaction was recorded as an asset purchase
and no goodwill was recognized.
Translynx Express, Inc. The Company acquired certain assets and liabilities
from USTS that were valued at $100,546. The transaction was accomplished by
way of a permanent capital contribution by USTS and the net value contributed
is included in Paid in capital. Translynx's operating office is located in
Orlando, Florida. Office operations including accounting and
management were moved to Charleston, South Carolina. The transaction was
recorded as an asset purchase and no goodwill was recognized.
F-11
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 3 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109). No federal income taxes were provided for the period ended
December 31, 1997.
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in net deferred income taxes of
approximately -0- as of December 31, 1997. Deferred tax assets and liabilities
consist of the following:
Deferred tax assets-
Allowance for doubtful accounts $ 88,000
Amortization of Goodwill 63,000
----------
Net operating loss carryovers 2,327,000
2,478,000
Valuation allowance 1,723,000
----------
$ 755,000
==========
Deferred tax liabilities-
Depreciation of transportation
and other and equipment $ (755,000)
----------
$ (755,000)
==========
The valuation allowance provided in each of the years is based on management's
valuation of the likelihood of realization.
As required by SFAS 109, deferred taxes are provided based upon the tax rate
at which the items of income and expense are expected to be settled in the
Company's tax return.
The Company has acquired the net operating losses through January 30, 1997 of
$940,000 related to the operations of Gulf Northern Transport, Inc. These
losses will be available to offset future income for financial reporting
purposes expiring in 2012.
F-12
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 4 - Long-term Notes Payable
Long-term notes payable as of December 31,
1997 consists of the following:
Equipment loans secured by tractors and trailers
payable at $59,848 per month including interest
at rates ranging from 9-1/2% to 101/2% per annum
with the final installment due April, 2001 $1,998,438
Term loan in settlement with United
Acquisition II Corp.- $100,000 non
interest bearing, discounted at 8%
payable over 36 months beginning
April 1, 1998 54,613
Acquisition loan described in Note 5 1,884,904
Seller notes described in Note 5 135,606
----------
Total 4,073,561
Less: current maturities 1,185,795
----------
Long-term portion $2,279,215
==========
Aggregate annual scheduled maturities of long-term debt at December 31, 1997
are as follows:
1998 $1,185,795
1999 1,157,730
2000 964,918
2001 765,118
2002 -
----------
Total $4,073,561
==========
NOTE 5 - Acquisition Loan and Seller's Notes
On March 28, 1995, Gulf Northern was acquired by Mid America Transporters
Group, Inc. The purchase was financed by a loan in the amount of $3,000,000
from ITT Credit Corp. The proceeds of this loan (described as "the
acquisition loan") were used to refinance stockholder loans and certain other
bank and lease obligations. The loan which was subsequently sold to General
Electric Credit Corp., originally was payable in 60 monthly installments of
$66,360 at the rate of 11.75% interest per annum with its final maturity on
F-13
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
March 31, 2000. On May 25, 1997, the Company renegotiated the loan whereby
the monthly payments were reduced to $45,000 with a balloon payment of
$396,836 due on September 1, 2001. The interest rate remained at 11.75%.
Additional fees of $138,016 were incurred to restructure the loan which were
capitalized and are being amortized over the remaining life of the loan.
In addition to the acquisition loan, the agreement called for payments to the
three former stockholders (described as sellers notes) which included
promissory notes totaling $260,000 due in 36 monthly installments totaling
$8,017 at 7% due on March 1, 1998 secured by letters of credit and non
interest bearing obligations (discounted at 7% per annum) totaling $104,000
payable over a one year period commencing April 1, 1998.
NOTE 6 - Lease Commitments
The Company leases tractors and trailers under various capital leases with
interest rates ranging from 8.1% to 9.1%. Transportation and other equipment
includes the following amounts for the tractor and trailer leases which are
capitalized as of December 31, 1997:
Tractors and trailers $1,760,669
Less: accumulated depreciation
and amortization 841,381
----------
Total $ 919,288
==========
Lease amortization is included in depreciation expense. Future minimum
payments, by year and in the aggregate, under the capital leases are as
follows:
Years ended December 31, Amount
------------------------ ------
1998 $ 529,647
1999 241,568
2000 -
----------
Total minimum lease payments 772,211
Less: Amount representing interest 64,834
----------
Present value of minimum
lease payments 707,377
Less-Current maturities 479,093
----------
Long-term obligations under
capital leases $ 228,284
==========
F-14
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 7 - Transportation and Other Equipment
Transportation and other equipment consists of the following as of December
31, 1997:
Office equipment $ 79,300
Tractors, trailers and
garage equipment 8,072,847
Transportation equipment 1,269
-----------
8,153,416
Less: Accumulated
Depreciation 1,334,899
-----------
Total $ 6,818,517
===========
Depreciation expense amounted to $1,334,899 for the period ended December 31,
1997. $1,315,796 of depreciation was included in operating expenses and
$19,103 of depreciation was included in administrative expenses. The fair
market value of fixed assets approximates book value.
NOTE 8 - Related Party Transaction
On December 23, 1996, the Company sold its Wisconsin Rapids facility, which
included land, a building and improvements to its majority stockholders. The
stockholders leased the property back to the Company for five years commencing
January 1, 1997. See Note 10.
Management believes the sale was an arms length transaction based on estimated
values of the property on the date of sale.
NOTE 9 - Retirement Plan
The Company maintains a pension plan for eligible employees, which was
established under section 401(k) of the Internal Revenue Code. Under the terms
of the plan, the Company at the discretion of its Board of Directors may match
employee contributions up to 3% of employee compensation. Employee
contributions to the plan amounted to $50,153 for the period ended December
31, 1997. The Company's matching contributions amounted to $8,414 of which
$5,745 is included in operating expenses and $2,669 is included in
administrative expenses.
NOTE 10 - Commitments and Contingencies
Commencing on January 1, 1997, the Company agreed to rent its Wisconsin Rapids
facility from certain stockholders for $7,350 per month for a period of five
years under an operating lease.
F-15
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
Commencing October 15, 1997, the Company leased its South Carolina corporate
offices for $1,728 per month. The lease was subsequently re-negotiated
whereby the Company took additional office space in the same building at a
cost of $2,800 per month until June 30, 2002.
Minimum rental payments under such leases follows for the years ending
December 31:
1998 $140,600
1999 121,800
2000 121,800
2001 121,800
2002 33,600
--------
Total minimum payments required $539,600
========
Rent expense for the period ended December 31, 1997 amounted to $142,013 and
is included in general administrative expenses.
NOTE 11 - Noncompetition Agreements
As of January 3, 1994, one of the Company's subsidiaries entered into a
covenant not to compete agreement with its chief executive officer that
extends over four years. The agreement called for a prepayment of $115,000 in
December 1993, with an additional $46,000, including interest, payable in (18)
monthly installments of $2,556 commencing with the date of the agreement.
Expenses under this agreement amounted to $39,999 for the period ended
December 31, 1997.
NOTE 12 - Restricted Cash
The Company maintains cash accounts for owner-operators who perform services
for the Company. These funds are accumulated, with the owner-operators
consent, by withholding part of the payments due to them for services
performed. The funds are used to pay for repairs of equipment, which they own
directly.
Further, the Company has deposited funds with a financing company to cover
over the road fuel and other operating expenses for drivers in support of a
letter of credit.
As of December 31, 1997, the company had letters of credit outstanding
totaling $10,000, which guarantee various operating and insurance activities.
F-16
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 13 - Stock Acquisition Agreement-United Acquisition II Corp.
During 1996, the shareholders of Gulf Northern's parent company, Mid America
Transporters Group, Inc. entered into an agreement with United Acquisition II
Corp. (the acquirer) whereby they would transfer 100% of their common stock in
Mid America in exchange for common and preferred stock of the acquirer. In
addition, the acquirer agreed to contribute cash and notes totaling $500,000
into Mid America at closing.
In January 1997 however, the acquirer conceded that it was not able to
complete the transaction as agreed and withdrew from the contract. During the
period from the consummation of the contract, the acquirer deposited funds to
the Company in the amount of $145,000. The Company agreed to return a total
of $100,000 payable in 36 installments beginning April 1, 1998 on a
non-interest bearing basis.
NOTE 14 - Concentration of Credit Risk - Cash
The Company maintains its cash balances in two financial institutions, one
located in Wisconsin Rapids, Wisconsin and the other in Charleston, South
Carolina. At times, the balances may exceed federally insured limits of
$100,000. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash on deposit.
The fair market value of these financial instruments approximates cost.
NOTE 15 - Use of Factor
In April 1995, the Company entered into an agreement with a factor whereby the
factor would accept the Company's receivables with full recourse. Under the
agreement, the factor will advance up to 90% of those receivables submitted by
the Company. Interest on funds advanced is charged at an average annual
effective rate of 14.9% payable monthly.
In addition, the Company must maintain funds on deposit with its factor as a
reserve against uncollectible receivables. The amount of such funds on
deposit as of December 31, 1997 amounted to $184,210.
The uncollected balance of such receivables held by the factor amounted to
$1,689,400 as of December 31, 1997.
The fair market value of these balances approximate book value.
F-17
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 16 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to a customer, which accounted for net revenues in excess of
10% of the Company's total revenues for the period ended December 31, 1997.
Consolidated Paper, Inc. accounted for 16.0% of the Company's net revenues for
this period. Accounts receivable from this customer amounted to $176,449 as
of December 31, 1997.
Revenues from the Company's five and ten largest customers accounted for
approximately 38.9% and 46.8% respectively of total net revenues for the
period ended December 31, 1997.
The Company considers its relationship with those major customers to be
satisfactory and is committed to expanding its relationship with its other
customers.
The Company provides services to a number of customers in the meat packing and
distribution industry. Revenues from those customers accounted for
approximately 10.7% of total revenues for the period ended December 31, 1997.
Accounts receivable from those customers amounted to $211,361 as of December
31, 1997.
NOTE 17 - Intangible Assets
Intangible assets consist of the following items as of December 31, 1997:
Original Accumulated Net Book
Cost Amortization Value
--------- ------------ ---------
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
$ 662,952 $ 103,766 $ 559,186
Debt refinancing
Costs 138,016 16,237 121,779
Other intangibles 1,437 549 888
--------- ---------- ---------
Total $ 802,405 $ 120,552 $ 681,853
========= ========== =========
Amortization expense amounted to $120,552 for the period ended December 31,
1997.
F-18
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 18 - Subsequent Event
Effective June 24, 1998, the company underwent a change in its capital
structure whereby it is authorized to issue 50,000,000 shares of common stock
and 1,000,000 shares of preferred stock.
On May 26, 1998, the Company entered into an investment consulting agreement
with Joff Pollon & Associates for a period, with extensions, of up to two
years. The compensation payable to the consultants under this agreement
includes fees, reimbursable expenses and options to purchase up to 1,000,000
shares of the Company's common stock at $.01 per share and further fees and
bonuses as determined by the Board of Directors, and is contingent upon a
successful merger with a public company. The Company is presently involved
with a private placement offering which, if successful, would result in the
issuance of 1,000,000 shares of common stock and would raise approximately
$720,000 of net-equity capital for the Company.
F-19
<PAGE>
<PAGE>
2) AUDITED FINANCIAL STATEMENTS OF
GULF NORTHERN TRANSPORT, INC.
FOR THE THIRTY DAYS ENDED JANUARY 30, 1997
F-20
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholder
Gulf Northern Transport, Inc.
We have audited the accompanying balance sheet of Gulf Northern Transport,
Inc. as of January 30, 1997 and the related statement of operations and
accumulated deficit and cash flows for the period from January 1, 1997 to
January 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the balance sheet referred to above, presents fairly, in all
material respects, the financial position of Gulf Northern Transport, Inc. as
of January 30, 1997 and the results of its operations and its cash flows for
the period then ended in conformity with generally accepted accounting
principles.
Garden City, New York
June 10, 1998
F-21
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
BALANCE SHEET
JANUARY 30, 1997
ASSETS
CURRENT ASSETS
Cash in banks (Note 14) $ 41,270
Restricted cash-reserves on deposit
with factor (Note 15) 97,179
Accounts receivable-net of allowance for
for doubtful accounts of $40,000
(Notes 1H, 15 and 16) 1,047,761
Accounts receivable - affiliate (Note 18) 19,930
Accounts receivable - other 3,009
Parts and supply inventory (Note 1D) 139,472
Prepaid insurance 54,745
Prepaid expenses and other 40,929
----------
Total Current Assets 1,444,295
----------
PROPERTY, PLANT AND EQUIPMENT-at cost, less
accumulated depreciation and amortization of
$4,206,596 (Notes 1E, 2, 4, 5 and 7) 4,099,535
----------
OTHER ASSETS
Restricted cash-owner operators (Note 12) 1,760
Restricted cash-cash held as collateral
against letters of credit 10,000
Covenants not to compete-net of accumulated
amortization of $76,922 (Notes 1F and 11) 36,666
Security deposits and other 7,534
----------
Total other assets 55,960
----------
TOTAL ASSETS $5,599,790
==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-22
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
BALANCE SHEET
JANUARY 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-trade $ 266,118
Due to factor (Note 15) 804,601
Accrued expenses and other 698,825
Advances from affiliate (Note 19) 23,994
Note Payable - (Note 4) 70,000
Current portion - seller's notes 112,823
Current portion - acquisition loan payable 517,476
Current portion of equipment notes payable 152,439
Current portion of obligations under
capital leases 275,526
----------
Total Current Liabilities 2,921,802
----------
OTHER LIABILITIES
Owner operator escrow (Note 12) 29,672
Seller's notes (Notes 2 and 4) 127,772
Note payable - (Notes 4 and 17) 49,904
Acquisition loan payable (Notes 2 and 4) 1,617,561
Equipment Notes Payable-net of
current portion (Note 4) 483,978
Obligations under capital leases
net of current portion (Note 6) 710,093
----------
Total Other Liabilities 3,018,987
----------
TOTAL LIABILITIES 5,940,789
----------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 6, 9 10 and 17)
STOCKHOLDERS' EQUITY
Common Stock (no par value-10,000 shares auth-
orized, 1,000 issued and outstanding) (Note 2) 100,000
Additional paid in capital 25,000
Accumulated deficit ( 465,999)
----------
Total Stockholders' Equity ( 340,999)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,599,790
==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-23
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
PERIOD FROM JANUARY 1, 1997 TO JANUARY 30, 1997
Net Revenues $ 854,016
Operating expenses 695,904
Income from operations 158,112
Administrative expenses 198,564
-----------
( 40,452)
Other expenses
Interest expense ( 49,540)
-----------
Total other expenses ( 49,540)
-----------
Net loss before taxes ( 89,992)
Income tax provision (Notes 1H and 3) -0-
-----------
Net loss ( 89,992)
Accumulated Deficit - January 1 ( 376,007)
-----------
Accumulated deficit - January 30 $( 465,999)
===========
Net loss per share $( 89.99)
============
Weighted Average Number of Shares (Note 1B) 1,000
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-24
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1997 TO JANUARY 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ ( 89,992)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
Depreciation & Amortization 79,719
(Increase) Decrease-Assets
Restricted Cash 912
Accounts Receivable 261,769
Prepaid expenses and other current assets 6,170
Increase (Decrease)-Liabilities
Accounts payable 82,170
Accrued expenses and other liabilities ( 330,196)
----------
Total Adjustments 100,544
Net Cash Provided by Operations 10,552
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Security deposit ( 200)
----------
Net Cash Used in investing activities ( 200)
----------
Sub Total 10,352
----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-25
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
STATEMENT OF CASH FLOWS
(continued)
PERIOD FROM JANUARY 1, 1997 TO JANUARY 30, 1997
Balance Forward $ 10,352
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt ( 62,682)
Proceeds from short-term note 57,500
Principal payments on capital lease obligations ( 24,059)
-----------
Net Cash (used in) financing activities ( 29,241)
-----------
NET (DECREASE) IN CASH ( 18,889)
CASH AT BEGINNING OF YEAR 60,159
-----------
CASH AT END OF YEAR $ 41,270
===========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 49,840
===========
Income taxes $ -0-
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-26
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
Gulf Northern Transport, Inc. (Gulf Northern) a Wisconsin corporation,
operates as an interstate and intrastate motor carrier. (See Note 2). The
Company's corporate headquarters are located in Charleston, South Carolina
with terminals and drop stations located in various states.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Loss per Share
Net loss per share is computed on the basis of the weighted average number of
common shares outstanding during each period. Only the weighted average
number of shares of common stock outstanding is used to compute earnings or
loss per share for the period ended January 30, 1997 as there were no stock
options, warrants, or other common stock equivalents during this period.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Inventory
Inventory consists principally of parts and supplies used in maintaining its
motor carrier fleet, skids used in transporting goods, and small tools. The
items are stated at the lower of cost or market, determined on a first-in,
first-out basis.
(E) - Property, Plant and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Accelerated methods of depreciation are followed for tax purposes and the
straight line method is used for financial reporting purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(F) - Covenants Not to Compete
Covenants not to compete are amortized on a straight line basis over the terms
of the agreements. The covenants cover the period from January, 1994 to
December, 1997.
F-27
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
(G) - Income Taxes
Taxes are provided on all revenue and expense items included in the
Consolidated Statements of Operations, regardless of the period in which such
items are recognized for income tax purposes, except for items representing a
permanent difference between pretax accounting income and taxable income.
(H) - Revenue Recognition
The Company recognizes revenues at the time freight is delivered to
recipients.
(I) - Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(J) - Basis of Presentation
The accompanying balance sheet and related statements of operations and
retained earnings and cash flows includes only the accounts of Gulf Northern
as of January 30, 1997. Prior to January 1, 1997, the company was a wholly
owned subsidiary of Mid America Transporters Group, Inc. and was included in
that consolidated group. Gulf Northern was sold to Logistics Management, LLC
effective January 1, 1997. On January 30, 1997, Gulf Northern was sold to
U.S. Trucking Company, Inc. and was included in that consolidated group. See
Note 2.
NOTE 2 - Acquisition by Mid America Transporter's Group
Effective January 1, 1995, Gulf Northern was acquired by Mid America
Transporters Group for a total purchase price of $2,683,500. This exceeded
the net asset value of Gulf Northern by approximately $1,182,000.
Accordingly, the basis of certain assets included in property, plant and
equipment were increased by that amount as required by purchase accounting and
is being amortized over five years.
The agreement includes payments to the former stockholders in the form of cash
of $2,232,000 which includes the payoff of shareholder loans described in Note
5A; promissory notes totaling $260,000 due in 36 monthly installments totaling
$8,017 at 7% due on March 1, 1998 secured by letters of credit in the amount
of $150,000; and non interest bearing obligations (discounted at 7% per annum)
totaling $104,000 payable over a one year period commencing April 1, 1998.
The purchase was financed by a loan in the amount of $3,000,000 from ITT
Credit Corp. which is payable in 60 monthly installments of $66,360 and is due
on March 31, 2000. The loan was subsequently sold to General Electric Credit
Corp and is secured by certain items of equipment. See Note 13 for
description of the loan modification agreement.
F-28
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 3 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109).
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in deferred income taxes of
approximately -0- as of January 30, 1997. Deferred tax assets and liabilities
consist of the following:
Deferred tax assets-
Allowance for doubtful accounts $ 13,600
Net operating loss carryover 158,000
---------
171,600
Valuation allowance 62,600
---------
$ 109,000
=========
Deferred tax liabilities-
Depreciation of property, plant
and equipment $(109,000)
---------
$(109,000)
=========
The valuation allowance provided in each of the years is based on management's
valuation of the likelihood of realization.
As required by SFAS 109, deferred taxes are provided based upon the tax rate
at which the items of income and expense are expected to be settled in the
Company's tax return.
The Company incurred a net operating loss of $910,000 available to offset
future income for financial reporting purposes expiring in 2012.
NOTE 4 - Long-term Notes Payable
Long-term notes payable consist of the following:
Equipment loans secured by ten tractors payable
at $15,824 per month including interest at 10% per
annum with the final installment due November, 2000 $ 636,417
Non interest bearing demand notes 70,000
Term loan in settlement with United Acquisition
II Corp.- $100,000 non interest bearing, discounted
at 8% payable over 36 months beginning April 1, 1998 49,904
Acquisition loan described in Note 5 2,135,037
F-29
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
Seller notes described in Note 2 240,595
----------
Total 3,131,953
Less: current maturities 852,738
----------
Long-term portion $2,279,215
==========
Aggregate annual scheduled maturities of long-term debt at January 30, 1997
are as follows:
January 30,
-----------
1998 $ 852,738
1999 920,804
2000 917,159
2001 441,252
----------
Total $3,131,953
==========
NOTE 5 - Debt Restructure
In addition to being used to finance the acquisition described in Note 2,
proceeds from the $3,000,000 acquisition loan were also used to refinance
stockholder loans and certain other bank and lease obligations. As the
classification of the acquisition loan is long term, those obligations
restructured were also classified as long term. The loan is payable in 60
monthly installments of $66,360 at the rate of 11.75% interest per annum with
its final maturity on March 31, 2000.
NOTE 6 - Lease Commitments
The Company leases tractors and trailers under various capital leases with
interest rates ranging from 8.1% to 9.1%. Property, plant and equipment
includes the following amounts for the tractor and trailer leases which are
capitalized:
Tractors and trailers $1,760,669
Less: accumulated amortization 611,433
----------
Total $1,149,236
==========
Lease amortization is included in depreciation expense.
F-30
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 6 - Lease Commitments (continued)
Future minimum payments, by year and in the aggregate, under the capital
leases are as follows:
Years ended January 30, Amount
----------------------- ----------
1998 $ 405,446
1999 489,233
2000 221,437
----------
Total minimum lease payments 1,116,116
Less: Amount representing interest 130,497
----------
Present value of minimum lease payments 985,619
Less-Current maturities 275,526
----------
Long-term obligations under capital leases $ 710,093
==========
NOTE 7 - Property, Plant and Equipment
Property, plant and equipment consists of the following as of January 30,
1997:
Office equipment $ 63,273
Tractors, trailers and garage equipment 8,238,378
Transportation equipment 4,480
----------
8,306,131
Less: Accumulated Depreciation 4,206,596
----------
Total property, plant and equipment $4,099,535
==========
Depreciation expense amounted to $76,386 for the period ended January 30,
1997. $75,582 of depreciation was included in operating expenses and $804 of
depreciation was included in administrative expenses. The fair market value
of fixed assets approximates book value.
NOTE 8 - Related Party Transaction
On December 23, 1996, the Company sold its Wisconsin Rapids facility which
included land, a building and improvements with a book value of $394,517 to
its majority stockholders for $346,141 resulting in a net loss of $48,376.
The transaction resulted in a gain of $231,000 for income tax purposes.
The stockholders leased the property back to the Company for five years
commencing January 1, 1997. See Note 10.
Management believes the sale was an arms length transaction based on estimated
values of the property on the date of sale.
F-31
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 9 - Retirement Plan
The Company matches employee contributions up to 3% of employee compensation.
Contributions to the plan amounted to $5,918 for the period ended January 30,
1997. 401K matching contributions of $1,283 are included in operating expense
and $365 and of the aforementioned contributions are included in
administrative expenses.
NOTE 10 - Commitments and Contingencies
Commencing on January 1, 1997, the Company agreed to rent its Wisconsin Rapids
facility from certain stockholders for $7,350 per month for a period of five
years under an operating lease.
Commencing October 15, 1997, the Company leased its South Carolina corporate
offices for $1,728 per month. The lease extends for a period of two years.
Minimum rental payments under such operating leases follows:
Year ending January 30,
1998 $ 94,248
1999 108,936
2000 102,888
2001 88,200
2002 80,850
--------
Total minimum payments required $475,122
========
NOTE 11 - Noncompetition Agreements
As of January 3, 1994, the Company entered into a covenant not to compete
agreement with its chief executive officer which extends over four years. The
agreement called for a prepayment of $115,000 in December, 1993, with an
additional $46,000, including interest, payable in (18) monthly installments
of $2,556 commencing with the date of the agreement. Expenses under this
agreement amounted to $3,333. See also Note 2 for a description of the
covenant not to compete related to the stock purchase agreement.
NOTE 12 - Restricted Cash
The Company maintains cash accounts for owner-operators who perform services
for the Company. These funds are accumulated, with the owner-operators
consent, by withholding part of the payments due to them for services
performed. The funds are used to pay for repairs of equipment that they own
directly.
Further, the Company has deposited funds with a financing company to cover
over the road fuel and other operating expenses for drivers in support of a
letter of credit.
As of January 30, 1997, the Company had letters of credit outstanding totaling
$10,000 which guarantee various operating and insurance activities.
F-32
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 13 - Loan Modification Agreement
In connection with the stock purchase agreement described in Note 2, the
purchase was financed by a loan in the amount of $3,000,000 payable in monthly
installments over five years. The original loan agreement required that the
Company hold the common stock of a "small capitalization" company with a
market value of at least $1,000,000. As of January 30, 1997, such stock was
not held by the Company.
On May 25, 1997, the Company agreed to a modification of the original loan
whereby current monthly payments were reduced from $66,360 per month to
$45,000 per month with a balloon payment of $396,836 due at August 31, 2001.
NOTE 14 - Concentration of Credit Risk - Cash
The Company maintains its cash balances in two financial institutions, one
located in Wisconsin Rapids, Wisconsin and the other in Charleston, South
Carolina. At times, the balances may exceed federally insured limits of
$100,000. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash on deposit.
The fair market value of these financial instruments approximates cost.
NOTE 15 - Use of Factor
In April, 1995, the Company entered into an agreement with a factor whereby
the factor would accept the Company's receivables with full recourse. Under
the agreement, the factor will advance up to 80% of those receivables
submitted by the Company. Interest on funds advanced is charged at an average
annual effective rate of 14.5% payable monthly.
In addition, the Company must maintain funds on deposit with its factor as a
reserve against uncollectible receivables. The amount of such funds on
deposit as of January 30, 1997 amounted to $97,179.
The uncollected balance of such receivables held by the factor amounted to
$804,601 as of January 30, 1997.
The fair market value of these balances approximate book value.
NOTE 16 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to two customers which accounted for net revenues in excess
of 10% of the Company's total revenues for the period ended January 30, 1997.
Consolidated Paper, Inc. and Excel Corporation accounted for 26.4% and 10.7%
of the Company's net revenues for the period ended January 30, 1997. Accounts
receivable from those customers amounted to $335,513 as of January 30, 1997.
Revenues from the Company's five and ten largest customers accounted for
approximately 57% and 69% respectively of total net revenues for the period
ended January 30, 1997.
F-33
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 16 - Economic Dependency (continued)
The Company considers its relationship with those major customers to be
satisfactory and is committed to expanding its relationship with its other
customers.
The Company provides services to a significant number of customers in the meat
packing and distribution industry. Revenues from those customers accounted
for approximately 14.6% of total revenues for the period ended January 30,
1997. Accounts receivable from those customers amounted to $178,700 as of
January 30, 1997.
NOTE 17 - Stock Acquisition Agreement - United Acquisition II
Corp.
On June 3, 1996, the shareholders of Mid America entered into an agreement
with United Acquisition II Corp. (the acquirer) whereby they would transfer
100% of their common stock in Mid America in exchange for 31,366 shares of
convertible preferred stock and 316,666 shares of common stock of the
acquirer. In addition, the acquirer agreed to contribute cash and notes
totaling $500,000 into Mid America at closing.
In January, 1997, the acquirer conceded that it was not able to complete the
transaction as agreed and withdrew from the contract. During the period from
the consummation of the contract, the acquirer deposited funds to the Company
in the amount of $145,000. The Company agreed to return a total of $100,000
payable in 36 installments beginning April 1, 1998 on a non interest bearing
basis.
NOTE 18 - Accounts Receivable - Affiliate
The Company provided freight services on behalf of its affiliate, Mencor, Inc.
amounting to $10,785 for the period ended January 30, 1997. The balance
receivable from this affiliate as of January 30, 1997 amounted to $19,930.
The fair market value of this receivable approximate book value.
NOTE 19 - Advances from Affiliate
The Company received advances from its affiliate, Mencor, Inc. during the
period ended January 30, 1997. Those advances amounted to $23,994 and
remained unpaid as of that date, are non interest bearing and are due on
demand. The fair market value of these advances approximates book value.
NOTE 20 - Subsequent Event - Acquisition Agreement with U.S.
Trucking, Inc.
On January 30, 1997, the Company entered into an agreement with U.S. Trucking,
Inc. (the acquirer) whereby U.S. Trucking would acquire 100% of the common
stock of the Company in exchange for 25% of it's common stock.
F-34
<PAGE>
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 20 - Subsequent Event - Acquisition Agreement with U.S.
Trucking, Inc. (continued)
As part of this agreement, the Company contracted with Dan Pixler (a former
stockholder of the Company) for him to provide services as president and
general manager for the five years commencing from January 30, 1997 to January
30, 2002 at an annual salary of $105,000 per year. Mr. Pixler will receive
annual options to purchase 12,500 shares of the common stock of the acquirer's
parent company, U.S. Transportation Systems, Inc. which will be exercisable
until December 31, 2002. Further, during the period of employment and for a
period of two years after his termination, Mr. Pixler agreed that he will not
participate in an entity which is directly competitive with the Company's
present operations.
F-35
<PAGE>
<PAGE>
3) AUDITED FINANCIAL STATEMENTS OF
MENCOR, INC.
FOR THE THIRTY DAYS ENDED JANUARY 30, 1997
F-36
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Mencor, Inc.
We have audited the accompanying balance sheet of Mencor, Inc. as of January
30, 1997 and the related statements of earnings and retained earnings and cash
flows for the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
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 evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Mencor, Inc. as of January
30, 1997 and the results of its operations and its cash flows for the period
then ended in conformity with generally accepted accounting principles.
Garden City, New York
June 8, 1998
F-37
<PAGE>
<PAGE>
MENCOR, INC.
BALANCE SHEET
January 30, 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 1C and 2) $ 40,497
Accounts receivable-net of allowance
for doubtful accounts of $11,834 (Notes 1F & 12) 189,605
Advances to affiliate (Note 7) 23,994
Refundable income taxes (Note 6) 860
Prepaid expenses 1,002
--------
Total Current Assets 255,958
--------
PROPERTY, PLANT AND EQUIPMENT - at cost, less
accumulated depreciation of $3,950 as of
January 30, 1997 (Notes 1D and 3) 7,300
--------
OTHER ASSETS
Intangible asset - Net of accumulated
amortization of $1,067 as of January
30, 1997 (Note 1H) 933
Security deposits 1,125
Deferred tax asset (Notes 1E and 6) 1,920
Organization costs - net of
accumulated amortization of $445 at January
30, 1997 (Note 1G) 444
--------
Total other assets 4,422
--------
TOTAL ASSETS $267,680
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-38
<PAGE>
<PAGE>
MENCOR, INC.
BALANCE SHEET
January 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable-trade $160,618
Accounts payable-affiliate (Note 8) 19,930
Advances from related party (Note 9) 33,970
Payroll taxes withheld and payable 518
Accrued expenses 2,039
Other taxes payable 1,462
Income taxes payable (Notes 1E and 6) 25
Current Portion of Equipment Notes Payable
(Notes 3 and 4) 1,164
--------
Total Current Liabilities 219,726
--------
COMMITMENTS AND CONTINGENCIES (Note 5)
OTHER LIABILITIES
Equipment Notes Payable-net of current maturities
(Notes 3 and 4) 527
--------
TOTAL LIABILITIES 220,253
--------
STOCKHOLDERS' EQUITY
Common Stock (no par value-1,000 shares authorized,
300 issued and outstanding (Note 1B) 6,604
Retained Earnings 40,823
--------
Total Stockholders' Equity 47,427
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $267,680
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-39
<PAGE>
<PAGE>
MENCOR, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
Period Ending January 30, 1997
Net Revenues $115,564
Freight settlements 102,649
--------
Income from operations 12,915
General and administrative expenses 13,983
--------
Net (loss) from operations (1,068)
Other income and expense -0-
--------
Loss before income taxes (1,068)
Income taxes (Notes 1E and 6) -0-
--------
Net (loss) (1,068)
Retained Earnings-Beginning of Period 41,891
--------
Retained Earnings-End of Period $ 40,823
========
Net (loss) per Share $ (3.56)
========
Weighted Average Number of Shares (Note 1B) 300
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-40
<PAGE>
<PAGE>
MENCOR, INC.
STATEMENT OF CASH FLOWS
Period Ending January 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) for the period $ (1,068)
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED IN OPERATING ACTIVITIES
(Increase) Decrease-Assets
Accounts Receivable-trade 38,502
Advances to affiliate 3,359
Increase (Decrease)-Liabilities
Accounts payable-trade (20,391)
Accounts payable-affiliate (5,951)
Payroll taxes withheld and payable (3,400)
Other taxes payable 1,462
--------
Total Adjustments 13,581
Net Cash provided by Operations 12,513
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments to related party (50,000)
--------
Net Cash (used in) financing activities (50,000)
--------
NET (DECREASE) IN CASH (37,487)
--------
CASH AT BEGINNING OF PERIOD 77,984
--------
CASH AT END OF PERIOD $ 40,497
========
Supplemental Disclosure of Cash flow information:
Cash paid during the year
Interest expense $ -0-
Income taxes $ -0-
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-41
<PAGE>
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Operations
Mencor, Inc. was incorporated in the State of Arkansas on July 6, 1994. The
Company operates as a broker for interstate motor carriers. An interstate
motor carrier broker serves the trucking industry by providing return hauls
for truckers who have completed their initial delivery. By providing this
service, trucking companies and independent operators are able to cover the
cost of returning to their home location. The Company's corporate
headquarters are located in Charleston, South Carolina. As a broker, the
Company is required to acquire a license which provides the authority to
engage in interstate commerce. This license was acquired in April, 1994.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Loss per Share
Net loss per share is computed on the basis of the weighted average number of
common and common equivalent shares outstanding during each period. Only the
weighted average number of shares of common stock outstanding is used to
compute income per share for the period ended January 30, 1997 as there are no
stock options, warrants, or other common stock equivalents in this period.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Property, Plant and Equipment
Depreciation and amortization are provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service
lives principally on an accelerated basis. Accelerated methods of
depreciation are followed for substantially all assets for both financial
reporting and tax purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(E) - Income Taxes
Income taxes are provided on all revenue and expense items included in the
statement of earnings, regardless of the period in which such items are
recognized for income tax purposes, except for items representing a permanent
difference between pretax accounting income and taxable income.
Non current deferred income taxes result from the use of accelerated methods
of depreciation for income tax purposes and from the establishment of an
allowance for doubtful accounts for financial reporting purposes.
(F) - Revenue Recognition
The Company recognizes revenues at the time the shipment is delivered to
recipients.
F-42
<PAGE>
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 1 - General and Summary of Significant Accounting Policies (continued)
(G) - Organization expense
As part of its initial incorporation, the company incurred organization costs
amounting to $889 which is being amortized on a straight-line basis over five
years.
(H) - Intangible Asset
As discussed in Note 1A, the Company acquired a license from the Interstate
Commerce Commission which is required to allow the Company to do business as
an interstate carrier broker. This license, which cost $2,000 is being
amortized on a straight-line basis over five years.
(I) - Concentration of Credit Risk
Virtually all of the Company's customers are in the long haul trucking
industry. Further, accounts receivable are uncollateralized and consist of
amounts due from that industry.
(J) - Offering Costs
During 1996, the Company incurred certain expenses related to an equity
offering in connection with its affiliate, Mid America Transporters Group,
Inc. and Subsidiary. The offering was unsuccessful and, accordingly, the
expense was amortized in full during 1996.
(K) - Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2 - Cash and Cash Equivalents
The Company maintains its cash balances in one financial institution located
in Charleston, South Carolina that at times, may exceed federally insured
limits. The Company has not experienced any losses in such account and
believed it is not exposed to any significant credit risk on cash and cash
equivalents.
F-43
<PAGE>
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 3 - Property, Plant and Equipment
Property, plant and equipment consists of the following as of January 30,
1997:
Office equipment $ 12,656
Furniture and fixtures 1,406
--------
11,250
Less: Accumulated Depreciation 3,950
--------
Total property, plant and equipment $ 7,300
========
No depreciation expense was recorded for the period ended January 30, 1997.
NOTE 4 - Notes Payable
During 1995, the Company acquired office equipment in the amount of $2,946
which was financed payable in 36 installments of $110 per month including
interest at 14% per annum due June, 1998.
Total principal $ 1,691
Less: current maturities 1,164
--------
Long-term portion $ 527
========
Aggregate annual maturities of long-term debt for the five years following
January 30, 1997 are as follows:
January 30, 1998 $ 1,164
January 30, 1999 527
--------
Total $ 1,691
========
NOTE 5 - Commitments and Contingencies
The Company leases office space for its operating facility in Charleston,
South Carolina. The current lease term commenced on May 1, 1995 and concludes
on April 30, 1997. Commitments under this lease agreement amounted to $2,757
for the period ended January 30, 1998.
Rent expense amounted to $919 for the period ended January 30, 1997 and is
included in general and administrative expenses.
F-44
<PAGE>
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 6 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109). The provision for income taxes was comprised of the following
components as of January 30, 1997:
Federal-current $( 160)
Federal-deferred ( -0-)
State-current ( 50)
State-deferred ( -0-)
-------
Total $( 210)
=======
The income tax provision reconciled to the tax computed at the statutory
Federal rate was:
Tax at Statutory Rate $( 417) ( 39)%
State income taxes 74 7
Effect of graduated brackets 133 12
Other ------- ---
$( 210) ( 20)%
Deferred tax assets and liabilities at January 30, 1997 consists of the
following:
Deferred tax assets
Allowance for doubtful accounts $11,834
Valuation Allowance (6,679)
-------
$ 5,155
=======
Deferred tax liabilities
Depreciation of property &
equipment $(5,155)
=======
The valuation allowance provided is based on management's valuation of the
likelihood of realization.
Net operating loss carryovers amounting to $1,068 for federal income tax
purposes are available through December 31, 2012.
NOTE 7 - Advances to Affiliate
The Company advanced funds and provided services to its affiliate, Gulf
Northern Transport, Inc. during the years prior to the period ended January
30, 1997. Gulf Northern is related to the Company through common ownership
and management. No revenues were generated by services provided during the
period ended January 30, 1997. The amount of such advances which remained
unpaid as of January 30, 1997 amounted to $23,994. These advances represent
allocations of rent and other administrative costs and freight settlements,
are non interest bearing and are due on demand. The fair market value of
these advances approximate book value.
F-45
<PAGE>
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 8 - Accounts Payable-Affiliate
The Company incurred expenses for freight settlements from its affiliate, Gulf
Northern Transport, Inc. which amounted to $10,785 for the period ended
January 30, 1997. The remaining balance payable to the affiliate for such
expenses as of January 30, 1997 amounted to $19,930.
NOTE 9 - Advances from Related Party
During 1996, a shareholder advanced funds totaling $123,397 to the Company.
Repayments through January 30, 1997 amounted to $89,427 with the remaining
balance remitted during February, 1997. The advances were payable on demand
with no stated interest.
NOTE 10 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to three customers which accounted for net revenues in
excess of 10% of the Company's total revenues for the period ended January 30,
1997. Tamco Distributors, Vista Corrugated and Continental Sprayers accounted
for 33.5%, 24.1% and 10.6% of the Company's net revenues for the period ended
January 30, 1997.
Accounts receivable from those customers amounted to $104,311 as of January
30, 1997.
Revenues from the Company's five and ten largest customers accounted for
approximately 83% and 91% respectively of total net revenues for the period
ended January 30, 1997.
NOTE 11 - Definitive stock sale to U.S. Trucking, Inc.
On January 30, 1997, the stockholders sold their interests in Mencor, Inc. to
U.S. Trucking, Inc. (the buyer) for $75,000. The transaction was in
conjunction with the sale of Gulf Northern Transport, Inc. Also in connection
with the sale, the Company agreed to continue the employment of Michael Menor
(a former shareholder of Mencor, Inc.) as the president of the Company for the
period from the date of enactment to January 30, 2000 at an annual salary of
$60,000 per year. Further, during the period of employment and a period of
two (2) years after his termination, Mr. Menor agreed that he will not
participate in an entity which directly performs truck brokerage services for
those customers currently serviced by the Company.
Also on the date of enactment, the buyer contracted with Roxanne Pixler, (a
former shareholder of Mencor, Inc.) for her to provide consulting services to
the Company. Pixler will receive 18,750 shares of U.S. Transportation
Systems, Inc. as compensation for her services. The contracted obligation
will commence from the date of enactment to December 31, 1998.
F-46
<PAGE>
<PAGE>
4) AUDITED FINANCIAL STATEMENTS OF
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
F-47
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Mid America Transporters Group, Inc.
and Subsidiary
We have audited the accompanying consolidated balance sheets of Mid America
Transporters Group, Inc. and Subsidiary as of December 31, 1996 and 1995 and
the related consolidated statements of operations and retained earnings 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 on 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 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 evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated balance sheets referred to above, present
fairly, in all material respects, the consolidated financial position of Mid
America Transporters Group, Inc. and Subsidiary as of December 31, 1996 and
1995 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
Garden City, New York
November 7, 1997
F-48
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS
Cash in banks (Note 14) $ 60,159 $ 311,842
Restricted cash-reserves on deposit
with factor (Note 15) 97,179 179,615
Accounts receivable-net of allowance
for doubtful accounts of $40,000
and $12,000 as of December 31, 1996
and 1995 respectively (Notes 1H, 15
and 16) 1,309,529 1,295,451
Accounts receivable - affiliate
(Note 18) 25,881 14,150
Accounts receivable - other 3,068 34,613
Parts and supply inventory (Note 1D) 139,472 112,464
Prepaid insurance 54,745 53,412
Prepaid expenses and other 41,089 49,106
---------- ----------
Total Current Assets 1,731,122 2,050,653
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - at
cost, less accumulated depreciation
and amortization of $4,130,210 and
$3,313,632 as of December 31, 1996
and 1995, respectively
(Notes 1E, 2, 4, 5 and 7) 4,175,921 4,697,569
---------- ----------
OTHER ASSETS
Restricted cash-owner operators
(Note 12) 2,672 46,332
Restricted cash-cash held as
collateral against letters of credit 10,000 88,000
Covenants not to compete-net of accum-
ulated amortization of $73,589 and
$33,590 as of December 31, 1996 and
1995, respectively (Notes 1F and 11) 39,999 79,998
Security deposits and other 7,334 6,260
Organization costs - net of accumul-
ated amortization of $5,000 and
$4,000 as of December 31, 1996
and 1995, respectively (Note 1I) - 1,000
---------- ----------
Total other assets 60,005 221,590
---------- ----------
TOTAL ASSETS $5,967,048 $6,969,812
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-49
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
---------- ----------
CURRENT LIABILITIES
Accounts payable-trade $ 207,941 $ 424,283
Due to factor (Note 15) 1,133,731 950,390
Accrued expenses and other 672,545 445,216
Advances from affiliate (Note 19) 27,353 17,910
Note Payable - (Note 4) 12,500 -
Current portion - seller's notes 112,823 84,393
Acquisition loan payable (Note 2) 569,329 551,445
Current portion of equipment notes
payable (Notes 2 and 4) 163,268 37,973
Current portion of obligations under
capital leases (Note 6) 299,585 263,907
---------- ----------
Total Current Liabilities 3,199,075 2,775,517
---------- ----------
OTHER LIABILITIES
Deferred taxes (Notes 2 and 3) - 388,000
Owner operator escrow (Note 12) 29,672 82,936
Seller's notes (Notes 2 and 4) 127,772 226,117
Note payable - (Notes 4 and 17) 49,904 -
Acquisition loan payable
(Notes 2 and 4) 1,617,561 2,141,947
Equipment Notes Payable-net of
current portion (Note 4) 483,978 319,564
Obligations under capital leases
net of current portion (Note 6) 710,093 998,816
---------- ----------
Total Other Liabilities 3,018,980 4,157,380
---------- ----------
TOTAL LIABILITIES 6,218,055 6,932,897
---------- ----------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 6, 9 10 and 17)
STOCKHOLDERS' EQUITY
Common Stock (no par value-10,000
shares authorized, 1,000 issued
and outstanding) (Note 2) 100,000 100,000
Additional paid in capital 25,000 -
Accumulated deficit ( 376,007) ( 63,085)
---------- ----------
Total Stockholders' Equity ( 251,007) 36,915
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,967,048 $6,969,812
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-50
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
YEARS ENDING DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
Net Revenues $12,620,435 $12,374,563
Operating expenses 10,966,125 10,505,303
----------- -----------
Income from operations 1,654,310 1,869,260
Administrative expenses 1,807,186 1,290,716
----------- -----------
Other income and expenses
Interest income 7,046 10,507
Interest expense ( 648,993) ( 665,515)
Other income 141,498 4,673
Net gain (loss) on disposition of
assets ( 47,597) 9,104
----------- -----------
Total other income
and (expenses) ( 548,046) ( 641,231)
----------- -----------
Net loss before taxes ( 700,922) ( 62,687)
Income tax (benefit)
provision (Notes 1H and 3) ( 388,000) 398
----------- -----------
Net loss ( 312,922) ( 63,085)
Accumulated Deficit - January 1 ( 63,085) -
----------- -----------
Accumulated deficit - December 31 $( 376,007) $( 63,085)
=========== ===========
Net loss per share $( 312.92) $( 63.09)
=========== ===========
Weighted Average Number of Shares
(Note 1B) 1,000 1,000
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-51
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDING DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Earnings (Loss) $ (312,922) $ ( 63,085)
ADJUSTMENTS TO RECONCILE NET
EARNINGS (LOSS) TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation & Amortization 956,717 794,756
Deferred income taxes (388,000) -
Loss(Gain) on disposal of property
and equipment 47,597 ( 9,104)
(Increase) Decrease-Assets
Restricted Cash 204,096 -
Accounts Receivable ( 22,264) (295,267)
Parts and supply inventory ( 27,008) ( 43,955)
Prepaid expenses and
other current assets 6,610 (255,111)
Increase (Decrease)-Liabilities
Accounts payable ( 33,001) 27,984
Accrued expenses and
other current liabilities 183,508 129,375
----------- -----------
Total Adjustments 928,255 348,678
Net Cash Provided by Operations 615,333 285,593
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (787,407) (567,372)
Proceeds from disposal of equipment 372,740 81,500
Proceeds from additional paid in
capital 25,000 -
----------- -----------
Net Cash Used in investing activities (389,667) (485,872)
----------- -----------
Sub Total 225,666 (200,279)
----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-52
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS (continued)
YEARS ENDING DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
Balance Forward $ 225,666 $( 200,279)
CASH FLOWS FROM
FINANCING ACTIVITIES
Principal payments on long-term debt (1,007,286) (4,707,108)
Proceeds from short-term note 12,500 -
Proceeds from long-term debt financing 770,482 5,527,017
Principal payments on capital lease
obligations (253,045) ( 307,788)
----------- -----------
Net Cash provided by (used in)
financing activities (477,349) 512,121
----------- -----------
NET INCREASE (DECREASE) IN CASH (251,683) 311,842
CASH AT BEGINNING OF YEAR 311,842 -
----------- -----------
CASH AT END OF YEAR $ 60,159 $ 311,842
=========== ===========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 650,158 $ 690,813
=========== ===========
Income taxes $ -0- $ 1,845
=========== ===========
Capital lease obligations totaling $508,800 for the year ended December 31,
1995 were incurred when the Company entered into leases for new tractors and
trailers.
Long-term debt totaling $720,578 was incurred by the Company during 1996 when
the Company acquired 10 tractors with a total cost of $745,578.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-53
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
Mid America Transporters Group, Inc. (Mid America or, "the Company") was
incorporated in the State of Arkansas on February 14, 1994. The Company,
through its wholly-owned subsidiary, Gulf Northern Transport, Inc., (Gulf
Northern) a Wisconsin corporation, operates as an interstate and intrastate
motor carrier. (See Note 2). The Company's corporate headquarters are
located in Charleston, South Carolina with terminals and drop stations located
in various states.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Earnings (Loss) per Share
Net earnings (loss) per share is computed on the basis of the weighted average
number of common shares outstanding during each period. Only the weighted
average number of shares of common stock outstanding is used to compute
earnings or loss per share in 1996 and 1995, as there were no stock options,
warrants, or other common stock equivalents in those years.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Inventory
Inventory consists principally of parts and supplies used in maintaining its
motor carrier fleet, skids used in transporting goods, and small tools and are
stated at the lower-of-cost or market, determined on a first-in, first-out
basis.
(E) - Property, Plant and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Accelerated methods of depreciation are followed for tax purposes and the
straight line method is used for financial reporting purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years. The
building is depreciated over a thirty year period. A provision has been made
for deferred income taxes relating to depreciation temporary differences. See
Note 2.
(F) - Covenants Not to Compete
Covenants not to compete are amortized on a straight line basis over the terms
of the agreements. The covenants cover the period from January, 1994 to
December, 1997.
F-54
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(G) - Income Taxes
Taxes are provided on all revenue and expense items included in the
Consolidated Statements of Operations, regardless of the period in which such
items are recognized for income tax purposes, except for items representing a
permanent difference between pretax accounting income and taxable income.
(H) - Revenue Recognition
The Company recognizes revenues at the time freight is delivered to
recipients.
(I) - Organization Costs
Gulf Northern incurred organization costs of $5,000 in 1992 which is being
amortized on a straight line basis over five years.
(J) - Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(K) - Basis of Presentation
The accompanying consolidated balance sheets and related statements of
operations and retained earnings and cash flows includes the accounts of Mid
America Transporters Group, Inc. and its wholly owned subsidiary, Gulf
Northern Transport, Inc. as of December 31, 1996 and 1995 and gives effect to
the acquisition of Gulf Northern by Mid America effective January 1, 1995
pursuant to an agreement dated March 28, 1995, and reflects the acquisition as
a purchase as more fully described in Note 2. There were no intercompany
transactions or balances as of and for the years ended December 31, 1996 and
1995.
NOTE 2 - Definitive Stock Purchase Agreement
Effective January 1, 1995 to an agreement dated March 28, 1995, Mid America
signed a definitive stock purchase agreement with Gulf Northern and its
individual shareholders. Under the terms of the agreement, Mid America
purchased all shares of Gulf Northern's common stock for a total purchase
price, as finally determined, of $2,683,500 which exceeded the net asset value
of Gulf Northern by approximately $1,182,000. The transaction has been
accounted for as a purchase effective on December 31, 1994. Note (1K).
As discussed in Note 1G and 3, prior to the implementation of this agreement,
the Company elected to be an S Corporation for tax purposes. Due to
differences in the computation of depreciation for book purposes as compared
to tax purposes, taxes were deferred in the amount of $388,000. On the date
of this agreement, the Company no longer qualified to file its tax returns as
an S Corporation, therefore, deferred taxes were established as an increase to
the acquisition cost.
F-55
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - Definitive Stock Purchase Agreement (continued)
As noted above, the acquisition has been accounted for as a purchase.
Purchase accounting requires that the cost of the acquisition be allocated to
the net assets acquired up to their fair market value. Accordingly, property,
plant and equipment was increased by $1,162,184 to $5,390,503 which is less
than its appraised value. No goodwill was recorded by this transaction. In
addition, the stockholder's equity section as reported prior to the purchase
is eliminated.
The agreement includes payments to the former stockholders in the form of cash
of $2,232,000 which includes the payoff of shareholder loans described in Note
5A; promissory notes totaling $260,000 due in 36 monthly installments totaling
$8,017 at 7% due on March 1, 1998 secured by letters of credit in the amount
of $150,000; and non interest bearing obligations (discounted at 7% per annum)
totaling $104,000 payable over a one year period commencing April 1, 1998.
The purchase was financed by a loan in the amount of $3,000,000 from ITT
Credit Corp. which is payable in 60 monthly installments of $66,360 and is due
on March 31, 2000. The loan was subsequently sold to General Electric Credit
Corp and is secured by certain items of equipment. See Note 13 for
description of the loan modification agreement.
NOTE 3 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109). At December 31, 1996 a recovery of prior years deferred taxes of
$388,000 was provided. No federal income taxes were provided for the year
ended December 31, 1995.
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in deferred income taxes of
approximately -0- and $388,000 as of December 31, 1996 and 1995, respectively.
Deferred tax assets and liabilities consist of the following:
1996 1995
--------- ---------
Deferred tax assets-
Allowance for doubtful accounts $ 15,600 $ 4,680
Net operating loss carryover 196,000 -
--------- ---------
211,600 4,680
Valuation allowance 16,600 -
--------- ---------
$ 195,000 $ 4,680
========= =========
Deferred tax liabilities-
Depreciation of property, plant
and equipment $(195,000) $(392,680)
--------- ---------
$(195,000) $(392,680)
========= =========
F-56
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 3 - Income Taxes (continued)
The valuation allowance provided in each of the years is based on management's
valuation of the likelihood of realization.
As required by SFAS 109, deferred taxes are provided based upon the tax rate
at which the items of income and expense are expected to be settled in the
Company's tax return.
The Company incurred a net operating loss of $503,000 available to offset
future income for financial reporting purposes expiring in 2011.
NOTE 4 - Long-term Notes Payable 1996 1995
---------- ----------
Long-term notes payable as of December 31,
1996 and 1995 consists of the following:
Equipment loans secured by ten tractors
payable at $15,824 per month including
interest at 10% per annum with the final
installment due November, 2000 $ 647,246 -
Mortgage note, Prime + .5%; (9.0% at
December 31, 1995 secured by real estate,
payable at $5,000 per month including
interest, due March 7, 1995. The bank
has committed to renew this note beyond
December 31, 1995. - 357,537
Demand note - Sebrite Agency, Inc. -
non interest bearing 12,500 -
Term loan in settlement with United
Acquisition II Corp.- $100,000 non
interest bearing, discounted at 8%
payable over 36 months beginning
April 1, 1998 49,904 -
Acquisition loan described in Note 5 2,186,890 2,693,392
Seller notes described in Note 2 240,595 310,510
---------- ----------
Total 3,137,135 3,361,439
Less: current maturities 857,920 673,811
---------- ----------
Long-term portion $2,279,215 $2,687,628
========== ==========
F-57
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 4 - Long-term Notes Payable (continued)
Aggregate annual scheduled maturities of long-term debt at December 31, 1996
are as follows:
1997 $ 857,920
1998 910,804
1999 917,159
2000 441,791
2001 9,461
----------
Total $3,137,135
==========
NOTE 5 - Debt Restructure
In addition to being used to finance the acquisition described in Note 2,
proceeds from the $3,000,000 acquisition loan were also used to refinance
stockholder loans and certain other bank and lease obligations. As the
classification of the acquisition loan is long term, those obligations
restructured were also classified as long term. The loan is payable in 60
monthly installments of $66,360 at the rate of 11.75% interest per annum with
its final maturity on March 31, 2000.
NOTE 6 - Lease Commitments
The Company leases tractors and trailers under various capital leases with
interest rates ranging from 8.1% to 9.1%. Property, plant and equipment
includes the following amounts for the tractor and trailer leases which are
capitalized as of December 31, 1996 and 1995:
Tractors and trailers $1,760,669 $1,760,669
Less: accumulated amortization 589,913 331,673
---------- ----------
Total $1,170,756 $1,428,996
========== ==========
F-58
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 6 - Lease Commitments (continued)
Lease amortization is included in depreciation expense. Future minimum
payments, by year and in the aggregate, under the capital leases are as
follows:
Years ended December 31, Amount
------------------------ ------
1997 $ 394,791
1998 522,657
1999 241,568
2000 -
----------
Total minimum lease payments 1,159,016
Less: Amount representing interest 149,338
----------
Present value of minimum
lease payments 1,009,678
Less-Current maturities 299,585
----------
Long-term obligations under
capital leases $ 710,093
==========
NOTE 7 - Property, Plant and Equipment
Property, plant and equipment consists of the following as of December 31:
1996 1995
---------- ----------
Land $ - $ 127,719
Building - 303,350
Office equipment 63,273 58,576
Tractors, trailers and
garage equipment 8,238,378 7,517,076
Transportation equipment 4,480 4,480
---------- ----------
8,306,131 8,011,201
Less: Accumulated
Depreciation 4,130,210 3,313,632
---------- ----------
Total property, plant
and equipment $4,175,921 $4,697,569
========== ==========
Depreciation expense amounted to $882,797 and $754,130 for the years ended
December 31, 1996 and 1995, respectively. $873,148 and $732,921 of
depreciation was included in operating expenses for 1996 and 1995,
respectively and $9,649 and $21,209 of depreciation was included in
administrative expenses for 1996 and 1995, respectively. The fair market
value of fixed assets approximates book value.
F-59
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 8 - Related Party Transaction
On December 23, 1996, the Company sold its Wisconsin Rapids facility which
included land, a building and improvements with a book value of $394,517 to
its majority stockholders for $346,141 resulting in a net loss of $48,376.
The loss is included in other income and expenses. The transaction resulted
in a gain of $231,000 for income tax purposes.
The stockholders leased the property back to the Company for five years
commencing January 1, 1997. See Note 10.
Management believes the sale was an arms length transaction based on estimated
values of the property on the date of sale.
Interest expense at December 31, 1995 includes $6,857 attributable to
stockholder loans. The loans were repaid during 1995.
NOTE 9 - Retirement Plan
The Company matches employee contributions up to 3% of employee compensation.
Contributions to the plan amounted to $65,123 and $41,264 for the years ended
December 31, 1996 and 1995, respectively. 401K matching contributions of
$23,100 and $29,710 are included in operating expenses for 1996 and 1995,
respectively and $8,589 and $21,209 of the aforementioned contributions are
included in administrative expenses for 1996 and 1995, respectively.
NOTE 10 - Commitments and Contingencies
Commencing on January 1, 1997, the Company agreed to rent its Wisconsin Rapids
facility from certain stockholders for $7,350 per month for a period of five
years under an operating lease.
Commencing October 15, 1997, the Company leased its South Carolina corporate
offices for $1,728 per month. The lease extends for a period of two years.
Minimum rental payments under such operating leases follows:
Year ending December 31,
1997 $ 92,520
1998 108,936
1999 104,616
2000 88,200
2001 88,200
--------
Total minimum payments required $482,472
========
F-60
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 11 - Noncompetition Agreements
As of January 3, 1994, the Company entered into a covenant not to compete
agreement with its chief executive officer which extends over four years. The
agreement called for a prepayment of $115,000 in December, 1993, with an
additional $46,000, including interest, payable in (18) monthly installments
of $2,556 commencing with the date of the agreement. Expenses under this
agreement amounted to $39,999 and $39,698 for 1996 and 1995, respectively.
See also Note 2 for a description of the covenant not to compete related to
the stock purchase agreement.
NOTE 12 - Restricted Cash
The Company maintains cash accounts for owner-operators who perform services
for the Company. These funds are accumulated, with the owner-operators
consent, by withholding part of the payments due to them for services
performed. The funds are used to pay for repairs of equipment that they own
directly.
Further, the Company has deposited funds with a financing company to cover
over the road fuel and other operating expenses for drivers in support of a
letter of credit.
As of December 31, 1996 and 1995, the Company had letters of credit
outstanding totaling $10,000 and $88,000 respectively which guarantee various
operating and insurance activities.
NOTE 13 - Loan Modification Agreement
In connection with the stock purchase agreement described in Note 2, the
purchase was financed by a loan in the amount of $3,000,000 payable in monthly
installments over five years. The original loan agreement required that the
Company hold the common stock of a "small capitalization" company with a
market value of at least $1,000,000. As of December 31, 1996 and 1995, such
stock was not held by the Company.
On May 25, 1997, the Company agreed to a modification of the original loan
whereby current monthly payments were reduced from $66,360 per month to
$45,000 per month with a balloon payment of $396,836 due at August 31, 2001.
NOTE 14 - Concentration of Credit Risk - Cash
The Company maintains its cash balances in two financial institutions, one
located in Wisconsin Rapids, Wisconsin and the other in Charleston, South
Carolina. At times, the balances may exceed federally insured limits of
$100,000. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash on deposit.
The fair market value of these financial instruments approximates cost.
F-61
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 15 - Use of Factor
In April, 1995, the Company entered into an agreement with a factor whereby
the factor would accept the Company's receivables with full recourse. Under
the agreement, the factor will advance up to 80% of those receivables
submitted by the Company. Interest on funds advanced is charged at an average
annual effective rate of 14.5% payable monthly.
In addition, the Company must maintain funds on deposit with its factor as a
reserve against uncollectible receivables. The amount of such funds on
deposit as of December 31, 1996 and 1995 amounted to $97,179 and $179,615
respectively.
The uncollected balance of such receivables held by the factor amounted to
$1,133,731 and $950,390 as of December 31, 1996 and 1995 respectively. The
fair market value of these balances approximate book value.
NOTE 16 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to three and four customers, respectively which accounted
for net revenues in excess of 10% of the Company's total revenues for the
years ended December 31, 1996 and 1995. Consolidated Paper, Inc.,
Land-0-Lakes, Inc., Excel Corporation and Trane Company accounted for 24.6%,
13.8%, and 10.7% of the Company's net revenues for the year ended December 31,
1996. Consolidated Paper, Inc., Land-O-Lakes, Inc., Excel Corporation and
Trane Company accounted for 17.8%, 13.5%, 10.7% and 10.2% of the Company's net
revenues for the year ended December 31, 1995. Accounts receivable from those
customers amounted to $486,873 and $358,319 as of December 31, 1996 and 1995
respectively.
Revenues from the Company's five and ten largest customers accounted for
approximately 57% and 69% respectively of total net revenues for the year
ended December 31, 1996. Revenues from the Company's five and ten largest
customers accounted for approximately 57% and 73% respectively of total net
revenues for the year ended December 31, 1995.
The Company considers its relationship with those major customers to be
satisfactory and is committed to expanding its relationship with its other
customers.
The Company provides services to a significant number of customers in the meat
packing and distribution industry. Revenues from those customers accounted
for approximately 16.3% of total revenues for the year ended December 31, 1996
and 30% of total revenues for the year ended December 31, 1995. Accounts
receivable from those customers amounted to $117,600 and $375,000 as of
December 31, 1996 and 1995 respectively.
F-62
<PAGE>
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 17 - Stock Acquisition Agreement - United Acquisition II Corp.
On June 3, 1996, the shareholders of Mid America entered into an agreement
with United Acquisition II Corp. (the acquirer) whereby they would transfer
100% of their common stock in Mid America in exchange for 31,366 shares of
convertible preferred stock and 316,666 shares of common stock of the
acquirer. In addition, the acquirer agreed to contribute cash and notes
totaling $500,000 into Mid America at closing.
In January, 1997, the acquirer conceded that it was not able to complete the
transaction as agreed and withdrew from the contract. During the period from
the consummation of the contract, the acquirer deposited funds to the Company
in the amount of $145,000. The Company agreed to return a total of $100,000
payable in 36 installments beginning April 1, 1998 on a non interest bearing
basis.
The settlement resulted in a gain to the company of $105,096 which is included
in other income.
NOTE 18 - Accounts Receivable - Affiliate
The Company provided freight services on behalf of its affiliate, Mencor, Inc.
amounting to $340,822 and $119,045 for the years ended December 31, 1996 and
1995 respectively. The balance receivable from this affiliate as of December
31, 1996 and 1995 amounted to $25,881 and $14,150. The fair market value of
this receivable approximate book value.
NOTE 19 - Advances from Affiliate
The Company received advances from its affiliate, Mencor, Inc. during 1996 and
1995. Those advances which amounted to $27,353 and $17,910 remained unpaid as
of December 31, 1996 and 1995, are non interest bearing and are due on demand.
The fair market value of these advances approximates book value.
NOTE 20 - Subsequent Event - Acquisition Agreement with U.S. Trucking, Inc.
On January 30, 1997, the Company entered into an agreement with U.S. Trucking,
Inc. (the acquirer) whereby U.S. Trucking would acquire 100% of the common
stock of the Company in exchange for 25% of it's common stock.
As part of this agreement, the Company contracted with Dan Pixler (a former
stockholder of the Company) for him to provide services as president and
general manager for the five years commencing from January 30, 1997 to January
30, 2002 at an annual salary of $105,000 per year. Mr. Pixler will receive
annual options to purchase 12,500 shares of the common stock of the acquirer's
parent company, U.S. Transportation Systems, Inc. which will be exercisable
until December 31, 2002. Further, during the period of employment and for a
period of two years after his termination, Mr. Pixler agreed that he will not
participate in an entity which is directly competitive with the Company's
present operations.
F-63
<PAGE>
<PAGE>
5) AUDITED FINANCIAL STATEMENTS OF
MENCOR, INC.
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
F-64
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Mencor, Inc.
We have audited the accompanying balance sheets of Mencor, Inc. as of December
31, 1996 and 1995 and the related statements of earnings and retained earnings
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 on 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 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 evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Mencor, Inc. as of December
31, 1996 and 1995 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Farmingdale, New York
November 3, 1997
F-65
<PAGE>
<PAGE>
MENCOR, INC.
BALANCE SHEETS
December 31,
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents
(Notes 1C and 2) $ 77,984 $ 34,726
Accounts receivable-net of allowance
for doubtful accounts of $11,834 as
of December 31, 1996 and 1995
(Notes 1F & 12) 228,107 218,219
Advances to affiliate (Note 7) 27,353 17,910
Refundable income taxes (Note 6) 860
Prepaid expenses 1,002 1,078
---------- ----------
Total Current Assets 335,306 271,933
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - at
cost, less accumulated depreciation
of $3,950 and $2,025 as of December
31, 1996 and 1995, respectively
(Notes 1D and 3) 7,300 6,552
---------- ----------
OTHER ASSETS
Intangible asset - Net of accumulated
amortization of $1,067 and $667 as of
December 31, 1996 and 1995,
respectively. (Note 1H) 933 1,333
Security deposits 1,125 1,125
Deferred tax asset (Notes 1E and 6) 1,920 1,000
Organization costs - net of
accumulated amortization of $445 and
$267 at December 31, 1996 and 1995,
respectively (Note 1G) 444 622
---------- ----------
Total other assets 4,422 4,080
---------- ----------
TOTAL ASSETS $ 347,028 $ 282,565
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-66
<PAGE>
<PAGE>
MENCOR, INC.
BALANCE SHEETS
December 31,
1996 1995
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable-trade $ 181,009 $ 197,015
Accounts payable-affiliate (Note 8) 25,881 14,150
Advances from related party (Note 9) 83,970
Payroll taxes withheld and payable 3,918
Accrued expenses 2,039
Income taxes payable (Notes 1E and 6) 25 14,840
Current Portion of Equipment
Notes Payable (Notes 3 and 4) 1,071 878
---------- ----------
Total Current Liabilities 297,913 226,883
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
OTHER LIABILITIES
Equipment Notes Payable-net of
current maturities (Notes 3 and 4) 620 1,691
---------- ----------
TOTAL LIABILITIES 298,533 228,574
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock (no par value-1,000
shares authorized, 300 issued and
outstanding (Note 1B) 6,604 6,604
Retained Earnings 41,891 47,387
---------- ----------
Total Stockholders' Equity 48,495 53,991
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 347,028 $ 282,565
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-67
<PAGE>
<PAGE>
MENCOR, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
Periods Ending December 31,
1996 1995
----------- ----------
Net Revenues $ 2,226,900 $1,486,293
Freight settlements 2,007,651 1,294,550
----------- ----------
Income from operations 219,249 191,743
General and administrative expenses 225,685 167,598
----------- ----------
Net income (loss) from operations ( 6,436) 24,145
Other expense
Interest expense ( 1,815) ( 279)
----------- ----------
Earnings (loss) before income taxes ( 8,251) 23,866
Income taxes (Notes 1E and 6) 2,755 ( 6,035)
----------- ----------
Net earnings (loss) ( 5,496) 17,831
Retained Earnings-Beginning of Year 47,387 29,556
----------- ----------
Retained Earnings-End of Year $ 41,891 $ 47,387
=========== ==========
Net income (loss) per Share $( 18.32) $ 57.94
=========== ==========
Weighted Average
Number of Shares 300 300
(Note 1B)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-68
<PAGE>
<PAGE>
MENCOR, INC.
STATEMENTS OF CASH FLOWS
Periods Ending December 31,
1996 1995
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $( 5,496) $ 17,831
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED IN OPERATING ACTIVITIES
Depreciation & amortization 5,850 1,911
Allowance for doubtful accounts 7,610
Deferred tax benefit ( 920) ( 1,000)
(Increase) Decrease-Assets
Accounts Receivable-trade ( 9,888) (109,343)
Advances to affiliate ( 9,443) ( 17,910)
Refundable income taxes ( 860)
Prepaid expenses 76 22
Increase (Decrease)-Liabilities
Accounts payable-trade ( 16,006) 11,569
Accounts payable-affiliate 11,731 14,150
Payroll taxes withheld and payable 3,918
Accrued expenses 2,039
Income taxes payable ( 14,815) 7,035
----------- ----------
Total Adjustments ( 28,318) ( 85,956)
Net Cash Provided (used) by Operations ( 33,814) ( 68,125)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Offering costs ( 3,346)
Purchases of equipment ( 2,674) ( 620)
Security deposits ( 1,125)
----------- ----------
Net Cash Used in Investing Activities ( 6,020) ( 1,745)
----------- ----------
Subtotal $ ( 39,834) $ ( 69,870)
----------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-69
<PAGE>
<PAGE>
MENCOR, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
Periods Ending December 31,
1996 1995
----------- ----------
Balance brought forward $ ( 39,834) $ ( 69,870)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related party 123,397
Repayments to related party ( 39,427)
Principal payments on equipment loan ( 878) ( 377)
----------- ----------
Net Cash provides by (used in)
financing activities 83,092 ( 377)
----------- ----------
NET INCREASE (DECREASE) IN CASH 43,258 ( 70,247)
----------- ----------
CASH AT BEGINNING OF PERIOD 34,726 104,973
----------- ----------
CASH AT END OF PERIOD $ 77,984 $ 34,726
=========== ==========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 1,815 $ 279
Income taxes $ 14,840 $ -0-
The Company purchased office equipment during the year ended December 31,
1995. The purchase price of the equipment amounted to $2,946 and was financed
through the vendor. See Note 4.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-70
<PAGE>
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Operations
Mencor, Inc. was incorporated in the State of Arkansas on July 6, 1994. The
Company operates as a broker for interstate motor carriers. An interstate
motor carrier broker serves the trucking industry by providing return hauls
for truckers who have completed their initial delivery. By providing this
service, trucking companies and independent operators are able to cover the
cost of returning to their home location. The Company's corporate
headquarters are located in Charleston, South Carolina. As a broker, the
Company is required to acquire a license which provides the authority to
engage in interstate commerce. This license was acquired in April, 1994.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Earnings (Loss) per Share
Net earnings per share is computed on the basis of the weighted average number
of common and common equivalent shares outstanding during each period. Only
the weighted average number of shares of common stock outstanding is used to
compute income per share in 1996 and 1995 as there are no stock options,
warrants, or other common stock equivalents in these years.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Property, Plant and Equipment
Depreciation and amortization are provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service
lives principally on an accelerated basis. Accelerated methods of
depreciation are followed for substantially all assets for both financial
reporting and tax purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(E) - Income Taxes
Income taxes are provided on all revenue and expense items included in the
statement of earnings, regardless of the period in which such items are
recognized for income tax purposes, except for items representing a permanent
difference between pretax accounting income and taxable income.
Non current deferred income taxes result from the use of accelerated methods
of depreciation for income tax purposes and from the establishment of an
allowance for doubtful accounts for financial reporting purposes.
F-71
<PAGE>
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1 - General and Summary of Significant Accounting Policies (continued)
(F) - Revenue Recognition
The Company recognizes revenues at the time the shipment is delivered to
recipients.
(G) - Organization expense
As part of its initial incorporation, the company incurred organization costs
amounting to $889 which is being amortized on a straight-line basis over five
years.
(H) - Intangible Asset
As discussed in Note 1A, the Company acquired a license from the Interstate
Commerce Commission which is required to allow the Company to do business as
an interstate carrier broker. This license, which cost $2,000 is being
amortized on a straight-line basis over five years.
(I) - Concentration of Credit Risk
Virtually all of the Company's customers are in the long haul trucking
industry. Further, accounts receivable are uncollateralized and consist of
amounts due from that industry.
(J) - Offering Costs
During 1996, the Company incurred certain expenses related to an equity
offering in connection with its affiliate, Mid America Transporters Group,
Inc. and Subsidiary. The offering was unsuccessful and, accordingly, the
expense was amortized in full during 1996.
(K) - Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2 - Cash and Cash Equivalents
The Company maintains its cash balances in one financial institution located
in Charleston, South Carolina which at times, may exceed federally insured
limits. The Company has not experienced any losses in such account and
believed it is not exposed to any significant credit risk on cash and cash
equivalents.
F-72
<PAGE>
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 3 - Property, Plant and Equipment
Property, plant and equipment consists of the following as of December 31,:
1996 1995
-------- --------
Office equipment $ 12,656 $ 7,171
Furniture and fixtures 1,406 1,406
-------- --------
11,250 8,577
Less: Accumulated Depreciation 3,950 2,025
-------- --------
Total property, plant and equipment $ 7,300 $ 6,552
======== ========
Depreciation expense amounted to $1,925 and $1,333 for the years ended
December 31, 1996 and 1995, respectively and is included in general and
administrative expenses.
NOTE 4 - Notes Payable
During 1995, the Company acquired office equipment in the amount of $2,946
which was financed payable in 36 installments of $110 per month including
interest at 14% per annum due June, 1998.
Total principal $ 1,691
Less: current maturities 1,071
--------
Long-term portion $ 620
========
Aggregate annual maturities of long-term debt for the five years following
December 31, 1996 are as follows:
1997 $ 1,071
1998 620
--------
Total $ 1,691
========
NOTE 5 - Commitments and Contingencies
The Company leases office space for its operating facility in Charleston,
South Carolina. The current lease term commenced on May 1, 1995 and concludes
on April 30, 1997. Commitments under this lease agreement amounted to $3,675
in 1997.
Rent expense amounted to $6,000 and $9,440 for the periods ended December 31,
1996 and 1995, respectively and is included in general and administrative
expenses.
F-73
<PAGE>
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 6 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109). The provision for income taxes was comprised of the following
components as of December 31. 1996 and 1995:
1996 1995
-------- --------
Federal-current $( 860) $ 5,276
Federal-deferred ( 1,586) (1,000)
State-current 25 1,759
State-deferred ( 334) -0-
-------- --------
Total $( 2,755) $ 6,035
======== ========
The income tax provision reconciled to the tax computed at the statutory
Federal rate was:
1996 1995
---------------- ----------------
Tax at Statutory Rate $( 3,218) (39)% $ 9,308 39 %
State income taxes 1,759 7
Benefit of graduated brackets 463 6 ( 5,728) (24)
Other 696 3
-------- -- -------- --
$( 2,755) (33)% $ 6,035 25 %
======== == ======== ==
Deferred tax assets and liabilities at December 31, 1996 and 1995 consist of
the following:
1996 1995
-------- --------
Deferred tax assets
Allowance for doubtful accounts $ 11,834 $ 11,834
Deferred tax liabilities
Depreciation of property & equipment ( 5,155) ( 6,545)
-------- --------
Net Total $ 6,679 $ 5,289
======== ========
Net operating loss carryovers amounting to $5,733 for state income tax
purposes are available through December 31, 2011.
F-74
<PAGE>
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 7 - Advances to Affiliate
The Company advanced funds and provided services to its affiliate, Gulf
Northern Transport, Inc. during 1996 and 1995. Gulf Northern is related to
the Company through common ownership and management. Total revenues generated
by services provided during 1996 and 1995, respectively amounted to $6,465 and
$2,601. The amount of such advances which remained unpaid as of December 31,
1996 and 1995 amounted to $27,353 and $17,910, respectively. These advances
represent allocations of rent and other administrative costs and freight
settlements, are non interest bearing and are due on demand. The fair market
value of these advances approximate book value.
NOTE 8 - Accounts Payable-Affiliate
The Company incurred expenses for freight settlements from its affiliate, Gulf
Northern Transport, Inc. which amounted to $340,822 and $119,045 for the years
ended December 31, 1996 and 1995. The remaining balance payable to the
affiliate for such expenses as of December 31, 1996 and 1995 amounted to
$25,881 and $14,150, respectively.
NOTE 9 - Advances from Related Party
During August and September 1996, a shareholder advanced funds totaling
$123,397 to the Company. Repayments during the year amounted to $39,427 with
the remaining balance remitted by February, 1997. The advances were payable
on demand with no stated interest.
NOTE 10 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to three and two customers respectively which accounted for
net revenues in excess of 10% of the Company's total revenues for the years
ended December 31, 1996 and 1995 respectively. Tamco Distributors, OK Grocery
and McCrory Stores accounted for 24.8%, 17.1% and 13.8% of the Company's net
revenues for the year ended December 31, 1996. Tamco Distributors and OK
Grocery accounted for 30.1% and 22.8% of the Company's net revenues for the
year ended December 31, 1995.
Accounts receivable from those customers amounted to $82,926 and $94,594 as of
December 31, 1996 and 1995 respectively.
Revenues from the Company's five and ten largest customers accounted for
approximately 66% and 81% respectively of total net revenues for the year
ended December 31, 1996. Revenues from the Company's five and ten largest
customers accounted for approximately 71% and 87% respectively of total net
revenues for the year ended December 31, 1995.
F-75
<PAGE>
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 11 - Subsequent Event
On January 30, 1997, the stockholders sold their interests in Mencor, Inc. to
U.S. Trucking, Inc. (the buyer) for $75,000. The transaction was in
conjunction with the sale of Gulf Northern Transport, Inc. Also in connection
with the sale, the Company agreed to continue the employment of Michael Menor
(a former shareholder of Mencor, Inc.) as the president of the Company for the
period from the date of enactment to January 30, 2000 at an annual salary of
$60,000 per year. Further, during the period of employment and a period of
two (2) years after his termination, Mr. Menor agreed that he will not
participate in an entity which directly performs truck brokerage services for
those customers currently serviced by the Company.
Also on the date of enactment, the buyer contracted with Roxanne Pixler, (a
former shareholder of Mencor, Inc.) for her to provide consulting services to
the Company. Pixler will receive 18,750 shares of U.S. Transportation
Systems, Inc. as compensation for her services. The contracted obligation
will commence from the date of enactment to December 31, 1998.
F-76
<PAGE>
<PAGE>
6) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
U.S. TRUCKING, INC. AND SUBSIDIARIES
AS OF JUNE 30, 1998
F-77
<PAGE>
<PAGE>
ACCOUNTANTS' COMPILATION REPORT
The Stockholders
U.S. Trucking, Inc.
and Subsidiaries
We have compiled the accompanying consolidated balance sheet of U.S. Trucking,
Inc. and Subsidiaries as of June 30, 1998 and the related consolidated
statement of operations and accumulated deficit and cash flows for the six
months then ended, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not
express an opinion or any other form of assurance on them.
Garden City, New York
August 18, 1998
F-78
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
See Accountants' Compilation Report
ASSETS
CURRENT ASSETS
Cash in banks (Note 14) $ 18,341
Restricted cash-reserves on deposit
with factor (Note 15) 251,210
Restricted cash-insurance premiums
(Note 11) 150,000
Accounts receivable-net of allowance
for doubtful accounts of $88,000
(Notes 1H, 15 and 16) 2,295,678
Accounts receivable - other 7,432
Parts and supply inventory (Note 1D) 162,002
Prepaid expenses and other current assets 189,286
-----------
Total Current Assets 3,073,949
-----------
TRANSPORTATION AND OTHER EQUIPMENT - at
cost, less accumulated depreciation
and amortization of $2,053,724
(Notes 1E, 2, 4, 5 and 7) 6,207,979
-----------
OTHER ASSETS
Restricted cash-owner operators
(Note 12) 6,494
Restricted cash-cash held as collateral
against letters of credit (Note 12) 10,000
Security deposits and other 12,603
Intangible assets - net of accumulated
amortization of $207,020 (Notes 1I, 2
and 17) 650,659
-----------
Total other assets 679,756
-----------
TOTAL ASSETS $ 9,961,684
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-79
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
See Accountants' Compilation Report
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-trade $ 592,915
Due to factor (Note 15) 1,440,068
Accrued expenses and other 709,268
Sellers' notes (Notes 4 and 5) 104,000
Current portion - note payable 34,342
Current portion - acquisition loan payable 369,449
Current portion - equipment notes payable 723,922
Current portion - obligations under
capital leases 374,131
-----------
Total Current Liabilities 4,348,095
-----------
OTHER LIABILITIES
Owner-operator escrow (Note 12) 25,000
Note payable - net of current portion
(Notes 4 and 13) 29,458
Acquisition loan payable - net of current
portion (Notes 4 and 5) 1,346,999
Equipment Notes Payable - net of
current portion (Note 4) 1,048,802
Obligations under capital leases - net of
current portion (Note 6) 172,340
-----------
Total Other Liabilities 2,622,599
-----------
TOTAL LIABILITIES 6,970,694
-----------
COMMITMENTS AND CONTINGENCIES (Notes 6, 9 10 and 18)
STOCKHOLDERS' EQUITY
Common Stock - .001 par value-50,000,000 shares
authorized, 13,000,000 shares issued and
outstanding (Notes 1 and 18) 1,000
Preferred Stock - .001 par value-1,000 shares
authorized but unissued (Notes 1 and 18) -
Additional paid in capital 4,328,368
Accumulated deficit (1,338,378)
Total Stockholders' Equity 2,990,990
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,961,684
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-80
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
See Accountants' Compilation Report
Net Revenues $10,543,383
Operating expenses 8,503,586
-----------
Income from operations 2,039,797
Administrative expenses 1,574,257
-----------
465,540
Other income and (expense)
Interest income 1,199
Interest expense ( 315,077)
Other income 41,160
----------
Total other income and (expenses) ( 272,718)
-----------
Net Income before taxes 192,822
Provision for Income taxes (Notes 1H and 3) ( 83,500)
Tax benefit of net operating loss carryovers 83,500
-----------
Net Income 192,822
Accumulated deficit - December 31, 1997 (1,531,200)
-----------
Accumulated deficit - June 30, 1998 $(1,338,378)
===========
Earnings per common and common equivalent share $ .01
===========
Weighted average number of shares (Note 1B) 13,000,000
===========
Earnings per common share assuming full dilution $ .01
===========
Weighted average number of shares-full dilution 15,500,000
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-81
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
<TABLE>
<CAPTION>
Common Stock Paid in Accumulated
No Par Value Capital Deficit Total
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Opening balance - January 1, 1998 $ 1,000 $4,313,368 (1,531,200) $2,783,168
Fair value of options awarded
under stock-based compensation
plan 15,000 15,000
Net Income for the six months
ended June 30, 1998 192,822 192,822
---------- ---------- ----------- ----------
Closing balance - June 30, 1998 $ 1,000 $4,328,368 $(1,338,378) $2,990,990
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-82
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
See Accountants' Compilation Report
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 192,822
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH USED IN OPERATING ACTIVITIES
Depreciation & Amortization 805,293
Expense related to stock-based compensation plan 15,000
(Increase) Decrease-Assets
Restricted Cash ( 220,600)
Accounts Receivable 78,070
Parts and supply inventory ( 9,740)
Prepaid expenses and other current assets ( 132,189)
Increase (Decrease)-Liabilities
Accounts payable and due to factor ( 78,983)
Accrued expenses and
other current liabilities 51,576
-----------
Total Adjustments 508,427
Net cash provided by operating activities 701,249
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Reduction in security deposit 50
Purchase of transportation and other equipment ( 108,287)
Payment for refinancing of acquisition debt ( 55,274)
-----------
Net cash used in investing activities ( 163,511)
-----------
Sub Total $ 537,738
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-83
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
See Accountants' Compilation Report
Balance Forward $ 537,738
CASH FLOWS FROM FINANCING ACTIVITIES
Discount on note payable 9,144
Principal payments on long-term debt ( 427,734)
Principal payments on capital lease obligations ( 160,906)
-----------
Net Cash used in financing activities ( 579,496)
-----------
NET DECREASE IN CASH ( 41,758)
CASH AT BEGINNING OF YEAR - January 1, 1998 60,099
-----------
CASH AT END OF PERIOD - June 30, 1998 $ 18,341
===========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 305,123
===========
Income taxes $ -0-
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-84
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
U.S. Trucking, Inc. (USTI or "the Company") was incorporated in the State of
Nevada on December 24, 1996. The Company operates through two wholly owned
subsidiaries which were acquired on January 30, 1997:
Gulf Northern Transport, Inc., (Gulf Northern) a
Wisconsin corporation, operates as an interstate
and intrastate motor carrier.
Mencor, Inc. operates as a broker for interstate
motor carriers. A broker serves the trucking
industry by providing return hauls for truckers
who have completed their initial delivery. By
providing this service, trucking companies and
independent contractors are able to cover the cost
of returning to their home location. As a broker,
Mencor is required to acquire a license which
provides the authority to engage in interstate
commerce. This license was acquired in April, 1994.
USTI was formed by U.S. Transportation Systems, Inc. (USTS) as a wholly owned
subsidiary. As part of the transaction to acquire Gulf Northern, 25% of
USTI's common stock was transferred to Gulf Northern's parent (Logistics
Management, LLC). The remaining 75% was conveyed to Logistics Management
during 1998.
The Company's corporate headquarters are located in Charleston, South Carolina
with terminals and drop stations located in various states.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Income per Share
Net earnings per share is computed on the basis of the weighted average number
of common shares outstanding during each period. In addition to the weighted
average number of shares of common stock outstanding, stock options as
described in Notes 18 and 19 are included in the computation of diluted
earnings per share for the six months ended June 30, 1998.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Parts and Supply Inventory
Inventory consists principally of parts and supplies used in maintaining its
motor carrier fleet, skids used in transporting goods, and small tools and are
stated at the lower-of-cost or market, determined on a first-in, first-out
basis.
F-85
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
(E) - Transportation and Other Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Accelerated methods of depreciation are followed for tax purposes and the
straight-line method is used for financial reporting purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(F) - Goodwill
On January 30, 1997, the Company acquired the common stock of Gulf Northern
Transport, Inc. and Mencor, Inc. (See Note 2). The acquisition resulted in
the recognition of goodwill that is being amortized on a straight-line basis
over six years.
(G) - Income Taxes
Taxes are provided on all revenue and expense items included in the
Consolidated Statements of Operations, regardless of the period in which such
items are recognized for income tax purposes, except for items representing a
permanent difference between pretax accounting income and taxable income.
(H) - Revenue Recognition
The Company recognizes revenue at the time freight is delivered to recipients.
(I) - Organization Costs
Subsidiary companies, Gulf Northern and Mencor incurred organization costs
that are being amortized on a straight-line basis over five years.
(J) - Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(K) - Basis of Presentation
The accompanying consolidated balance sheets and related statements of
operations and accumulated deficit and cash flows includes the accounts of
U.S. Trucking, Inc. and its wholly owned subsidiaries, Gulf Northern
Transport, Inc. and Mencor, Inc. as of March 31, 1998 and for the three months
then ended. Intercompany transactions or balances as of and for the period
ended March 31, 1998 have been eliminated.
F-86
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
NOTE 2 - Acquisition of Subsidiaries and other Assets
On January 30, 1997, the Company completed the following acquisitions:
Gulf Northern Transport, Inc. - USTI purchased 100% of the common stock of
Gulf Northern Transport, Inc. from its stockholder (Logistics Management, LLC)
for cash of $225,000 and 25% of the Company's common stock (625 shares). The
acquisition was funded by an advance by USTI's parent, U.S. Transportation
Systems, Inc. and was subsequently capitalized and is included in paid in
capital. The transaction was valued at $790,999 and goodwill in the amount of
$565,999 was recognized in the transaction. The goodwill is being amortized
over six years.
Mencor, Inc. - USTI purchased 100% of the common stock of Mencor, Inc. from
its stockholders for cash of $70,000 and 37,500 shares of the common stock of
U.S. Transportation Systems, Inc. which was valued at $2.00 per share. The
acquisition was funded by a cash and stock contribution to the Company by
USTS. The transaction was valued at $145,000. Goodwill in the amount of
$96,953 was recognized in the transaction and is being amortized over six
years.
The amortization expense is included in administrative expenses.
Jay and Jay Transportation, Inc. - USTI acquired certain assets (primarily
tractors and trailers) and liabilities from USTS which were valued at
$2,394,860. The transaction was accomplished by way of a permanent capital
contribution by USTS and the net value contributed was included in Additional
paid in capital. Jay and Jay's dispatch office and yard is located in
Savannah, New York. Office operations including accounting and management
were moved to Charleston, South Carolina. The transaction was recorded as an
asset purchase and no goodwill was recognized.
Translynx Express, Inc. - The Company acquired certain assets and liabilities
from USTS that were valued at $100,546. The transaction was accomplished by
way of a permanent capital contribution by USTS and the net value contributed
is included in Additional paid in capital. Translynx's operating office is
located in Orlando, Florida. Office operations including accounting and
management were moved to Charleston, South Carolina. The transaction was
recorded as an asset purchase and no goodwill was recognized.
F-87
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
NOTE 3 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109). At June 30, 1998, the income tax provision was composed of the
following components:
Current - Federal $ 39,800
State 7,350
--------
Total Current 47,150
Deferred - Federal 30,600
State 5,750
--------
Total Deferred 36,350
Total $ 83,500
========
The income tax provision reconciled to the tax computed at the statutory
Federal rate was:
Tax at Statutory Rate $ 70,660 34.0%
State income tax net of
federal tax benefit 8,725 4.2
Non deductible expenses 4,215 2.0
Other items ( 100) ( 0.0)
-------- ----
Total $ 83,500 40.2%
======== ====
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in net deferred income taxes of
approximately $36,350 for the six months ended June 30, 1998. Deferred tax
assets and liabilities consist of the following:
Deferred tax assets-
Allowance for doubtful accounts $ 88,000
Amortization of Goodwill 107,200
Net operating loss carryovers 2,194,000
----------
2,389,200
Valuation allowance 1,689,200
----------
$ 700,000
==========
Deferred tax liabilities-
Depreciation of transportation
and other and equipment $ (700,000)
----------
$ (700,000)
==========
F-88
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
NOTE 3 - Income Taxes (continued)
The valuation allowance provided in each of the years is based on management's
valuation of the likelihood of realization.
As required by SFAS 109, deferred taxes are provided based upon the tax rate
at which the items of income and expense are expected to be settled in the
Company's tax return.
The Company has acquired the net operating losses through January 30, 1997 of
$940,000 related to the operations of Gulf Northern Transport, Inc. In
addition, the Company incurred losses of $1,387,000 during the period through
December 31, 1997. These losses will be available to offset future income for
financial reporting purposes expiring in 2012.
NOTE 4 - Long-term Notes Payable
Long-term notes payable as of June 30,
1998 consist of the following:
Equipment loans secured by tractors and trailers
payable at $59,848 per month including interest
at rates ranging from 9-1/2% to 10-1/2% per annum
with the final installment due April, 2001 $1,772,724
Term loan in settlement with United
Acquisition II Corp.- $100,000 non
interest bearing, discounted at 8%
payable over 36 months beginning
April 1, 1998 63,800
Acquisition loan described in Note 5 1,716,448
Seller notes described in Note 5 104,000
----------
Total 3,656,972
Less: current maturities 1,231,713
----------
Long-term portion $2,425,259
==========
The carrying value of the Company's borrowings approximate their fair values.
F-89
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
NOTE 4 - Long-term Notes Payable (continued)
Aggregate annual scheduled maturities of long-term debt at June 30, 1998 are
as follows:
1999 $1,231,713
2000 1,170,174
2001 780,187
2002 474,898
----------
Total $3,656,972
==========
NOTE 5 - Acquisition Loan and Sellers' Notes
On March 28, 1995, Gulf Northern was acquired by Mid America Transporters
Group, Inc. The purchase was financed by a loan in the amount of $3,000,000
from ITT Credit Corp. The proceeds of this loan (described as "the
acquisition loan") were used to refinance stockholder loans and certain other
bank and lease obligations. The loan which was subsequently sold to General
Electric Credit Corp., originally was payable in 60 monthly installments of
$66,360 at the rate of 11.75% interest per annum with its final maturity on
March 31, 2000. On May 25, 1997, the Company renegotiated the loan whereby
the monthly payments were reduced to $45,000 with a balloon payment of
$396,836 due on September 1, 2001. The interest rate remained at 11.75%.
Additional fees of $138,016 were incurred to restructure the loan which were
capitalized and are being amortized over the remaining life of the loan.
In addition to the acquisition loan, the agreement called for payments to the
three former stockholders (described as sellers' notes) which included
promissory notes totaling $260,000 due in 36 monthly installments totaling
$8,017 at 7% due on March 1, 1998 secured by letters of credit and non
interest bearing obligations (discounted at 7% per annum) totaling $104,000
payable over a one year period commencing April 1, 1998. To date no payments
have been made on the non interest bearing obligations and the Company is in
the process of renegotiating this portion of the debt.
NOTE 6 - Lease Commitments
The Company leases tractors and trailers under various capital leases with
interest rates ranging from 8.1% to 9.1%. Transportation and other equipment
includes the following amounts for the tractor and trailer leases which are
capitalized as of June 30, 1998:
Tractors and trailers $1,760,669
Less: accumulated depreciation
and amortization 1,017,447
----------
Total $ 743,222
==========
F-90
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
NOTE 6 - Leas Commitments (continued)
Lease amortization is included in depreciation expense. Future minimum
payments, by year and in the aggregate, under the capital leases are as
follows:
Years ended June 30, Amount
-------------------- ------
1999 $ 405,279
2000 173,450
----------
Total minimum lease payments 578,729
Less: Amount representing interest 32,258
----------
Present value of minimum
lease payments 546,471
Less-Current maturities 374,131
----------
Long-term obligations under
capital leases $ 172,340
==========
NOTE 7 - Transportation and Other Equipment
Transportation and other equipment consists of the following as of June 30,
1998:
Office equipment $ 120,120
Tractors, trailers and
garage equipment 8,140,314
Transportation equipment 1,269
-----------
8,261,703
Less: Accumulated depreciation 2,053,724
-----------
Total $ 6,207,979
===========
Depreciation expense amounted to $718,825 for the six months ended June 30,
1998. $707,968 of depreciation was included in operating expenses and $10,857
of depreciation was included in administrative expenses. The fair market
value of fixed assets approximates book value.
F-91
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
NOTE 8 - Related Party Transactions
On December 23, 1996, the Company sold its Wisconsin Rapids facility, which
included land, a building and improvements to its majority stockholders. The
stockholders leased the property back to the Company for five years commencing
January 1, 1997. See Note 10.
Management believes the sale was an arms length transaction based on estimated
values of the property on the date of sale.
Further, the Company leases four tractors from two of its officers under net
lease agreements that specify monthly payments of $5,196 per month. See note
10.
NOTE 9 - Retirement Plan
The Company maintains a pension plan for eligible employees, which was
established under section 401(k) of the Internal Revenue Code. Under the terms
of the plan, the Company at the discretion of its Board of Directors may match
employee contributions up to 3% of employee compensation. Employee
contributions to the plan amounted to $18,182 for the six months ended June
30, 1998. The Company did not match employee contributions during the period.
NOTE 10 - Commitments and Contingencies
Commencing on January 1, 1997, the Company agreed to rent its Wisconsin Rapids
facility from certain stockholders for $7,350 per month for a period of five
years under an operating lease.
Commencing October 15, 1997, the Company leased its South Carolina corporate
offices for $1,728 per month. The lease was subsequently re-negotiated
whereby the Company took additional office space in the same building at a
cost of $2,800 per month until June 30, 2002.
In March, 1998 the Company leased four tractors from two of its officers under
net lease agreements that specify monthly payments of $5,196 and extend with
renewal options until March, 2003.
Minimum rental payments under such leases follows for the years ending June
30:
1999 $184,152
2000 184,152
2001 184,152
2002 140,052
2003 46,764
--------
Total minimum payments required $739,272
========
F-92
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
NOTE 10 - Commitments and Contingencies (continued)
Rent expense for the six months ended June 30, 1998 amounted to $78,506 and is
included in administrative expenses.
NOTE 11 - Restricted Cash - Insurance Premiums
Effective January 1, 1998 the Company entered into a captive insurance program
agreement with an insurance company for the Company's auto liability insurance
coverage which covers rolling stock. As of June 30, 1998, the claims reserve
exceeded actual claims by $203,120. In addition, the Company deposited funds
in the amount of $150,000 to cover future premiums.
NOTE 12 - Restricted Cash - Owner Operator Escrow Accounts
The Company maintains cash accounts for owner-operators who perform services
for the Company. These funds are accumulated, with the owner-operators
consent, by withholding part of the payments due to them for services
performed. The funds are used to pay for repairs of equipment, which they own
directly.
Further, the Company has deposited funds with a financing company to cover
over the road fuel and other operating expenses for drivers in support of a
letter of credit.
As of June 30, 1998, the company had letters of credit outstanding totaling
$10,000, which guarantee various operating and insurance activities.
NOTE 13 - Stock Acquisition Agreement-United Acquisition II Corp.
During 1996, the shareholders of Gulf Northern's parent company, Mid America
Transporters Group, Inc. entered into an agreement with United Acquisition II
Corp. (the acquirer) whereby they would transfer 100% of their common stock in
Mid America in exchange for common and preferred stock of the acquirer. In
addition, the acquirer agreed to contribute cash and notes totaling $500,000
into Mid America at closing.
In January 1997 however, the acquirer conceded that it was not able to
complete the transaction as agreed and withdrew from the contract. During the
period from the consummation of the contract, the acquirer deposited funds to
the Company in the amount of $145,000. The Company agreed to return a total
of $100,000 payable in 36 installments beginning April 1, 1998 on a non-
interest bearing basis. To date no payments have been made on these non
interest bearing obligations and the Company is in the process of
renegotiating this debt.
NOTE 14 - Concentration of Credit Risk - Cash
The Company maintains its cash balances in two financial institutions, one
located in Wisconsin Rapids, Wisconsin and the other in Charleston, South
Carolina. At times, the balances may exceed federally insured limits of
$100,000. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash on deposit.
The fair market value of these financial instruments approximates cost.
F-93
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
NOTE 15 - Use of Factor
In April 1995, the Company entered into an agreement with a factor whereby the
factor would accept the Company's receivables with full recourse. Under the
agreement, the factor will advance up to 90% of those receivables submitted by
the Company. Interest on funds advanced is charged at an average annual
effective rate of 14.9% payable monthly.
In addition, the Company must maintain funds on deposit with its factor as a
reserve against uncollectible receivables. The amount of such funds on
deposit as of June 30, 1998 amounted to $251,210.
The uncollected balance of such receivables held by the factor amounted to
$1,440,068 as of June 30, 1998.
The fair market value of these balances approximate book value.
NOTE 16 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to a customer, which accounted for net revenues in excess of
10% of the Company's total revenues for the six months ended June 30, 1998.
Consolidated Paper, Inc. accounted for 12.8% of the Company's net revenues for
this period. Accounts receivable from this customer amounted to $128,354 as
of June 30, 1998.
Revenues from the Company's five and ten largest customers accounted for
approximately 32.0% and 41.0% respectively of total net revenues for the
period ended June 30, 1998. Accounts receivable as of June 30, 1998 from
those customers amounted to $567,274 and $766,590 respectively.
The Company considers its relationship with those major customers to be
satisfactory and is committed to expanding its relationship with its other
customers.
The Company provides services to a number of customers in the meat packing and
distribution industry. Revenues from those customers accounted for
approximately 7.2% of total revenues for the six months ended June 30, 1998.
Accounts receivable from those customers amounted to $131,391 as of June 30,
1998.
F-94
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
NOTE 17 - Intangible Assets
Intangible assets consist of the following items as of June 30, 1998:
Original Accumulated Net Book
Cost Amortization Value
--------- ------------ ---------
Goodwill $ 662,952 $ 169,534 $ 493,418
Debt refinancing
costs 193,290 36,558 156,732
Other intangibles 1,437 928 509
--------- ---------- ---------
Total $ 857,679 $ 207,020 $ 650,659
========= ========== =========
Amortization expense amounted to $86,995 for the six months ended June 30,
1998 and is included in administrative expenses.
NOTE 18 - Stock Dividend and Change in Capital Structure
Effective June 26, 1998, the company underwent a change in its capital
structure whereby it is authorized to issue 50,000,000 shares of common stock
and 1,000 shares of preferred stock. In connection with this change in the
capital structure of the Company, a stock dividend was declared by the Board
of Directors whereby, 5,199 shares of the Company's common stock was
distributed to the stockholders for each one of common stock held.
On May 26, 1998, the Company entered into an investment consulting agreement
with Joff Pollon & Associates for a period, with extensions, of up to two
years. The compensation payable to the consultants under this agreement
includes fees, reimbursable expenses and options to purchase up to 1,000,000
post dividend shares of the Company's common stock at $.01 per share and
further fees and bonuses as determined by the Board of Directors, and is
contingent upon a successful merger with a public company.
NOTE 19 - Stock Options Plan
During 1998, the Company implemented a stock option plan that is accounted for
under Statement of Financial Accounting Standards, SFAS 123, Accounting for
Stock-Based Compensation. Under SFAS 123, the compensation cost of the
issuance of stock options is measured at the grant date based on the fair
value of the award. Compensation is then is recognized over the service
period that is generally the vesting period.
The plan allows the Company to grant options to employees for up to a total of
2,000,000 shares of common stock. Options outstanding become exercisable at
the discretion of the Stock Option Committee which administers the plan and
expire 10 years after the grant date. The options are exercisable at not less
than the fair market value of the Company's stock on the date of the grant.
Accordingly, no compensation cost has been recognized for the plan.
F-95
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
NOTE 19 - Stock Options Plan (continued)
The Committee approved the issuance of options to purchase 1,240,000 shares of
the common stock of the Company to various employees for prices ranging from
.14 to .30 per share for a total exercise price of $233,600. In addition, non
qualifying options to purchase 260,000 shares at a price of .30 per share for
a total exercise price of $78,000 were issued to various individuals. The
fair market value of the options based on the minimum value method was
estimated to be .01 per share and amounted to approximately $15,000. This
cost is included in general and administrative costs.
NOTE 20 - Subsequent Event - Definitive Share Exchange Agreement
On September 4, 1998, the stockholders of Northern Dancer Corporation, a
Colorado corporation signed a letter of intent with USTI, whereby USTI would
acquire Northern Dancer in a reverse acquisition. Under the terms of the
letter of intent, USTI would exchange 100% of its common stock for
approximately 96.27% of the common stock of Northern Dancer Corp.
F-96
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
PRO FORMA COMBINED FINANCIAL STATEMENTS - UNAUDITED
The following unaudited pro forma financial statements are derived from the
historical financial statements of U.S. Trucking, Inc. and its subsidiaries,
and U.S. Trucking, Inc. (formerly named "Northern Dancer Corporation") and
give pro forma effect to their combination on September 8, 1998. These pro
forma statements should be read in conjunction with those historical financial
statements and related notes. The pro forma financial statements do not
purport to be indicative of the results that would actually have been obtained
if the combination had been in effect on the dates indicated, or that may be
obtained in the future.
F-97
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS
CURRENT ASSETS
Cash in banks $ 56,630
Restricted cash-reserves on deposit
with factor 251,210
Restricted cash-insurance premiums 150,000
Accounts receivable-net of allowance
for doubtful accounts of $88,000
as of December 31, 1997 2,295,678
Accounts receivable - other 7,432
Parts and supply inventory 162,002
Prepaid expenses and other current assets 189,286
-----------
Total Current Assets 3,112,238
-----------
TRANSPORTATION AND OTHER EQUIPMENT - at
cost, less accumulated depreciation
and amortization of $2,054,789
as of June 30, 1998 6,208,549
-----------
OTHER ASSETS
Restricted cash-owner operators 6,494
Restricted cash-cash held as
collateral against letters of credit 10,000
Security deposits and other 12,603
Intangible assets Net of accumulated
amortization of $207,020 as of
June 30, 1998 650,659
-----------
Total other assets 679,756
-----------
TOTAL ASSETS $10,000,543
===========
F-98
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED BALANCE SHEET
JUNE 3O, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-trade $ 594,331
Due to factor 1,440,068
Accrued expenses and other 709,268
Current portion - seller's notes 104,000
Current portion - note payable 34,342
Current portion - acquisition loan payable 369,449
Current portion of equipment notes payable 723,922
Current portion of obligations under
capital leases 374,131
-----------
Total Current Liabilities 4,349,511
-----------
OTHER LIABILITIES
Owner-operator escrow 25,000
Note payable 29,458
Acquisition loan payable 1,346,999
Equipment Notes Payable-net of current portion 1,048,802
Obligations under capital leases
net of current portion 172,340
-----------
Total Other Liabilities 2,622,599
-----------
TOTAL LIABILITIES 6,972,110
-----------
STOCKHOLDERS' EQUITY
Common Stock (no par value 16,492,000
shares authorized, issued and outstanding 399,409
Additional paid in capital 4,419,428
Accumulated deficit (1,790,404)
-----------
Total Stockholders' Equity 3,028,433
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,000,543
===========
F-99
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
AND
ACCUMULATED DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1998
Net Revenues $10,543,383
Operating expenses 8,503,586
-----------
Income from operations 2,039,797
Administrative expenses 1,582,294
-----------
Subtotal 457,503
Other income and (expenses)
Interest income 2,846
Interest expense ( 315,077)
Other income 41,160
Total other income and (expense) ( 271,071)
-----------
Net Income before taxes 186,432
Income tax provision 83,500
-----------
Tax benefit of net operating loss carryovers ( 83,500)
-----------
Net income 186,432
Accumulated deficit - January 1, 1998 (1,976,836)
-----------
Accumulated deficit - June 30, 1998 (1,790,404)
Net income per share $ .01
===========
Weighted Average Number of Shares 16,492,000
===========
F-100
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
AND
ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1997
Net Revenues $18,428,076
Operating expenses 17,222,282
-----------
Income from operations 1,205,794
Administrative expenses 2,263,751
-----------
Subtotal ( 1,057,957)
Other income and (expenses)
Interest income 5,929
Interest expense ( 706,366)
Other income 101,762
Net (loss) on disposition of assets ( 25,515)
-----------
Total other income and (expense) ( 624,190)
-----------
Net (loss) before taxes ( 1,682,147)
Income tax provision -0-
-----------
Net (loss) ( 1,682,147)
Accumulated deficit - January 1, 1997 ( 294,689)
-----------
Accumulated deficit - December 31, 1997 ( 1,976,836)
-----------
Net loss per share $( .10)
===========
Weighted Average Number of Shares 16,492,000
===========
F-101
<PAGE>
<PAGE>
U.S. TRUCKING, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS - UNAUDITED
NOTE A - BASIS OF PRESENTATION
On September 8, 1998, U.S. Trucking, Inc. ("USTK") was acquired by Northern
Dancer Corporation ("NDC"), a nonoperating public shell corporation, through
exchange of 100% of the issued and outstanding shares of USTK's common stock
for approximately 96% of the then issued and outstanding shares of NDC's
common stock. NDC's legal name was changed to U.S. Trucking, Inc. The
acquisition is considered to be a capital transaction, in substance equivalent
to the issuance of stock by USTK for the net monetary assets of NDC,
accompanied by a recapitalization of USTK. The accompanying pro forma
combined balance sheet has been presented as if the acquisition occurred on
January 1, 1997, and the accompanying pro forma combined statements of
operations for the year ended December 31, 1997 and the six months ended June
30, 1998, have been prepared as if the acquisition was consummated on January
1, 1997.
F-102
