<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to __________
Commission File No. 33-9640-LA
U.S. TRUCKING, INC.
--------------------------------------------
Name of Small Business Issuer in its Charter
Delaware 68-0133692
- ------------------------------- -----------------------------
State or Other Jurisdiction I.R.S. Employer Identification
of Incorporation or Organization Number
3125 Ashley Phosphate Road, Suite 128,
North Charleston, South Carolina 29418
----------------------------------------------------------
Address of Principal Executive Offices, Including Zip Code
Registrant's telephone number, including area code: (843) 767-9197
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ---
The Issuer's revenues for the most recent fiscal year were $21,815,844.
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
As of April 26, 1999 7,186,591 shares of the Registrant's Common Stock were
outstanding, and the aggregate market value of the shares held by
non-affiliates was approximately $12,576,392.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (Check One:) Yes-- No X
<PAGE>
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
U.S. Trucking, Inc. provides transportation and logistics services. We
transport full truckloads of both refrigerated and non-refrigerated
commodities over various distances on a nationwide basis. We also provide
roller-bed trailer service for Emery Air and transportation brokerage
services.
We are a preferred carrier for a number of Fortune 500 companies,
including (percentage of 1998 revenues in parentheses):
1. Consolidated Papers, Inc.(13.2%)
2. The Trane Company (a division of American Standard, Inc.) (5.2%)
3. Excel Corporation (a division of Cargill Incorporated) (5.0%)
4. Emery Worldwide (a division of CNF Transportation, Inc.) (2.2%)
5. Eaton Corporation (1.5%)
6. The Monfort division of ConAgra, Inc. (1.6%)
We are actively seeking other companies which are interested in outsourcing
their transportation service needs.
Our truckload division operates approximately 263 tractors (including
approximately 101 tractors which are owned by contractors) and 442 trailers
(including approximately 101 which are owned by contractors).
We intend to expand our business through internal growth and
acquisitions. The truckload industry is highly fragmented, which provides a
large number of acquisition opportunities. We are primarily interested in
medium to long haul truckload carriers, with annual revenues between $5-10
million, located close to the Company's current facilities. This should allow
us to consolidate our staffs to reduce common expenses. This is referred to
in our industry as the "Stack Up" concept.
U.S. Trucking, Inc., a Colorado corporation, was incorporated in Colorado
under the name Northern Dancer, Inc. in January 1987, for the purpose of
acquiring an operating company. It completed a small public offering in 1988.
In September 1998, it acquired U.S. Trucking-Nevada which is now a
wholly-owned subsidiary of the Company. U.S. Trucking-Nevada has two
operating subsidiaries which it acquired in early 1997 just after it was
incorporated. These are Gulf Northern and Mencor.
The Company's primary operating subsidiary, Gulf Northern, has operated
as a truckload carrier since it was formed in 1991. In an effort to increase
the size and scope of its business and to obtain access to expansion capital,
its management sold it to U.S. Trucking-Nevada in early 1997 in exchange for a
25% ownership interest in U.S. Trucking-Nevada. The remainder of U.S.
Trucking-Nevada was owned by U.S. Transportation Systems, Inc., at the time, a
publicly-traded transportation company. In exchange for its ownership
interest in U.S. Trucking-Nevada, Transportation Systems had contributed to
the company certain assets and liabilities of Jay and Jay Transportation, Inc.
and Translynx Express, Inc. Jay and Jay was a New York based short-haul
truckload carrier operating primarily in the Northeast. Translynx was offered
roller-bed truckload services primarily to UPS between Florida and Kentucky.
The Translynx business was discontinued in early 1998.
2
<PAGE>
<PAGE>
As it became clear that the expected benefits from affiliating with
Transportation Systems would not be forthcoming, Messrs. Huff and Pixler
arranged for Logistics Management, LLC to repurchase the majority position
held by Transportation Systems in May 1998.
THE TRUCKLOAD SEGMENT OF THE TRANSPORTATION INDUSTRY
The Company estimates that the for-hire truckload market segment of the
transportation industry accounted for more than $165 billion of revenue in
1997. The truckload transportation industry currently is undergoing changes
that affect both shippers and carriers. Shippers (the customers of trucking
companies) have been focusing their capital resources on their primary
businesses and are outsourcing their transportation and logistics
requirements. Shippers increasingly have been seeking to reduce the number of
authorized carriers they utilize and to establish service-based, long-term
relationships with smaller groups of preferred or "core carriers" who are
often able to provide a wide range of services. In order to compete with
shippers for preferred or core carrier status, a carrier must have sufficient
available equipment and drivers and other logistical capabilities to meet the
shippers' requirements. While the truckload transportation market remains
highly fragmented, there is an emerging trend among carriers toward
consolidation in order to become better positioned with customers as core
carriers. Carriers are also consolidating to take advantage of economies of
scale in purchasing equipment, in purchasing insurance, and in recruiting and
retaining drivers.
The truckload transportation market generally consists of a
service-sensitive segment and a price-sensitive segment. Shippers of high
value or time-sensitive goods tend to be more concerned with the service
capability of the carrier than simply obtaining the lowest priced
transportation. In many cases, carriers choose either to provide premium
service and charge rates consistent with that service or to compete primarily
on the basis of price. The truckload market is further segmented on the basis
of length of haul. In the long haul market, the average length of haul is
greater than 1,500 miles. In this segment, truckload carriers compete with
air freight on the basis of lower prices and with railroads on the basis of
time of delivery. In the medium-to-long haul segment, the average length of
haul ranges from 750 miles to 1,500 miles. The Company's average length of
haul is approximately 1,005 miles.
TRANSPORTATION BROKERAGE SERVICES
The Company offers transportation brokerage services through its
wholly-owned subsidiary Mencor. The Department of Transportation granted
Mencor a license in April 1994 which provides it with authority to engage as a
freight broker in interstate commerce. Mencor arranges return hauls for
common carriers and corporations transporting their own goods who have
completed their initial delivery. This enables the carrier to cover the cost
of returning to their home location. For this service we receive the
difference between the amount we pay with the returning shipper or carrier to
effect the move, and the amount we receive from the shipper.
INSURANCE
In 1998 the company developed a new line of business to take advantage of
the underwriting profit potential of its captive insurance program. The
company has offered its insurance program to selected independent third party
trucking companies, which purchase insurance coverage and pay a premium to the
company through Transportation Underwriters Agency, Inc.
3
<PAGE>
<PAGE>
OPERATING STRATEGY
The Company's operating strategy is to provide high quality
transportation and logistics services that position the Company as a preferred
supplier or "core carrier" to major shippers. The Company does not compete
primarily on a price basis. The Company seeks to effect this strategy by
providing reliable time-definite pick up and delivery services. An important
factor in the Company's ability to effect this strategy is the ready
availability of drivers. The Company seeks to address the chronic driver
shortage in the trucking industry through a variety of practices. See
"Drivers" below. Management believes its driver retention history is
significantly better than the industry average.
Management believes that the Company's operating strategy has positioned
it to capitalize on evolving trends in the transportation industry. Shippers
are reducing their number of approved carriers to a small group of core
carriers, and often outsourcing their transportation needs entirely to
logistics providers. The small carriers, without the capacity to adequately
service these shippers or offer logistics services will not benefit from this
trend. As a medium size carrier with the capability to also offer logistics
and warehousing services (which helps in obtaining business from companies
utilizing "just-in-time" distribution methods), the Company is well-suited to
capitalize on this trend.
ACQUISITION STRATEGY
The Company intends to actively seek acquisition candidates to expand its
business and to increase its market share. The Company plans to use what has
been described as the "Stack Up" concept. Stack Up refers to seeking
acquisitions of companies with facilities located in the same geographical
locations as the Company, whenever possible, allowing for faster consolidation
of staffs and faster reduction of duplicated costs. Management believes that
a Stack Up strategy is appropriate for the Company because the medium to
long-haul trucking industry is characterized by several large companies and
many small companies ("Mom and Pops") which are not able to achieve
competitive advantages related to size, yet are too small ($5 to $10 million
revenues) to attract the interest of the larger operators. The Mom and Pops
constitute a large and fragmented segment of the industry. These companies do
not have sufficient resources to serve as "core" carriers or to afford the
technology required to operate as efficiently and cost-effectively as their
larger competitors.
The Company believes that through careful selection of acquisition
candidates, certain small operators can be acquired on terms favorable to the
Company and that the operating results of these firms will improve as they are
integrated into the Company's logistical framework. The Company intends to
use a combination of cash, stock, debt and equity securities to facilitate its
acquisition and expansion plans. No assurance can be given that the Company
will be able to effect this strategy. The Company is currently holding
discussions relating to several potential acquisitions, but does not
anticipate making any acquisitions until adequate financing is in place.
ACQUISITION OF MID-CAL EXPRESS, INC.
The Company purchased substantially all of the assets of Mid-Cal Express,
Inc. effective as of December 30, 1998. Mid-Cal is a truckload carrier which
transports a range of commodities, including refrigerated food products,
manufactured goods, retail store merchandise, paper products, beverages, parts
4
<PAGE>
<PAGE>
and chemicals between the Western and Northeastern United States and the
provinces of Ontario and Quebec, Canada.
LETTER OF INTENT TO PURCHASE PROSTAR, INC.
The Company has a letter of intent to acquire Prostar, Inc., a freight
brokerage company with principal offices in Mt. Pleasant, South Carolina.
Prostar services numerous large grocery chains and produce growers by
arranging for transportation of their fresh produce loads. Prostar had
revenues of approximately $6.1 million in 1998.
MARKETING
The Company markets high quality, "just-in-time", temperature-sensitive
and dry freight truckload services in the truckload carrier market.
The Company's operations are nationwide, with an emphasis on the Midwest,
Southeast and Northeast United States. The Company believes that it has
established a presence in these regions and has developed a competitive
ability for the return shipment of goods, which reduces the amount of empty
truck miles and increases overall productivity and profitability.
Marketing personnel emphasize the Company's commitment to high levels of
service, flexibility, responsiveness, analytical planning and information
management in order to position the Company to serve customers' demands for
time definite pickup and delivery. The Company's marketing personnel seek to
strengthen the company's position with existing customers and establish it
with prospective customers.
Dan L. Pixler, the Company's President & CEO, is directly involved in
marketing the Company's services at the national account level and he also
supports local sales activity. The Company also has an eastern sales manager.
The Company's largest 15 customers are: Consolidated Papers, Inc., The
Trane Company, Excel Corporation, Cadbury Schweppes, United Parcel Service of
America, Inc., CVS Pharmacy, Tamco Distributors, Emery Air Freight,
Weyerhauser Company, The Monfort Division of ConAgra, Inc., Eaton Corporation,
Seneca Foods Corporation, OK Grocery, O at KA Milk Product, and Phelps Dodge.
Consolidated Papers, Inc. accounted for 13% of the Company's revenues during
the year ended December 31, 1998.
The Company maintains a strong commitment to expanding its relationships
with existing customers. Customer shipping patterns are monitored daily,
allowing the Company flexibility in responding rapidly to the varying service
demands of its customers. The Company has written motor carrier contracts
with approximately 90% of its customers. The contracts generally specify
lanes to be serviced (regions) and negotiated price agreements; they do not
have any provision regarding the volume to be carried. The loss of the
Company's largest customers could materially adversely affect the Company's
operating results.
OPERATIONS
Each of the Company's terminals is headed by a terminal manager. Some
locations include maintenance facilities and driver lounges, and all are
active in the recruiting of drivers and all provide local or regional customer
service and dispatch functions.
5
<PAGE>
<PAGE>
The Company utilizes various computer systems, which enable order taking,
driver tracking, billing and cash application procedures. The Company is in
the process of enhancing these systems by adding new servers, new personal
computers and new software, all of which will contribute to the Company's Year
2000 readiness. When completed this will enable the Company to track its
tractors and trailers more effectively, and to handle billing and maintenance.
The Company currently does not anticipate introducing satellite driver
communications in the near future, although the Company's new computer systems
will be compatible with, and able to accommodate, such a system.
TRACTORS AND TRAILERS
The Company operates a fleet of approximately 263 tractors, including 101
tractors that are owned by independent contractors, and 442 trailers,
including 101 trailers that are owned by independent contractors. Since the
closing in December 1998 of the financing with General Electric Capital
Corporation, the Company has traded 17 older tractors for 20 newer tractors.
The Company has also traded 87 aged trailers for 63 new trailers which
includes 43 refrigerated trailers and 20 dry vans. The Company has also
recently added 65 tractors which are all 1996 or newer and 149 refrigerated
trailers. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- CAPITAL RESOURCES AND LIQUIDITY.")
The Company's policy is to purchase quality late-model tractors and
refrigerated and dry trailers that meet the Company's specifications. The
Company had financed its tractor and trailer purchases through several asset-
based finance agreements. The Company also contracts with owner-operators to
provide additional tractors and trailers. The Company has established
standard specifications for the purchase of equipment replacements. Each of
the Company's tractors is equipped with a sleeper cab to permit the drivers to
comply conveniently and cost effectively with the DOT hours of service
guidelines and to facilitate team operations when necessary.
The Company is developing a plan to replace it tractors every four years
and its trailers every seven years. The Company maintains warranties that
extend beyond the four year life of the tractors on all engines,
transmissions, drive axles and running gear.
The Company has established a maintenance program that tracks service
intervals, repairs, and component history and management believes that this
program will increase the number of miles achieved between engine overhauls.
Most of the Company's maintenance is performed at its Wisconsin Rapids,
Wisconsin and Savannah, New York terminals.
DRIVERS
All of the Company's drivers must meet specific guidelines relating
primarily to safety record, driving experience and personal evaluation,
including DOT mandated drug testing and personal background checks. The
Company recruits and retains drivers by offering competitive compensation
packages, purchasing quality tractors and equipping them with optimal comfort
and safety features (such as air-conditioning, power steering, engine brakes
and sleeper cabs), generating driver friendly freight, maintaining an open
door policy, paying bonuses, providing a stock ownership program, and
emphasizing training and retention programs. The Company maintains
experienced driver recruiters.
The Company requires that prospective drivers have a minimum of one year
of truck driving experience in order to be considered for a position with the
6
<PAGE>
<PAGE>
Company. In addition, new drivers are required to meet all DOT requirements.
Upon hiring a driver, the Company conducts an orientation program covering
such topics as the Company's business, policies, procedures, safety, benefits,
maintenance and operation of equipment.
Company drivers and independent contractors are paid a percentage of
loaded revenue, and/or cents per mile. Drivers can earn bonuses on a per mile
basis for safety, paperwork, compliance and number of miles driven each year.
All employees, including drivers, will be eligible to participate in the
Company's 401(k) plan and health and life insurance plans.
Although the Company currently has an adequate number of drivers, there
can be no assurance that the Company will not be affected by a shortage of
qualified drivers in the future. Significant driver turnover is a problem
with the Company and the industry as a whole. In addition, the trucking
industry is experiencing a diminished workforce of qualified drivers. As a
result, the Company must compete with other transportation service companies
for the available drivers. The Company anticipates that the intense
competition for qualified drivers in the trucking industry will continue.
In addition to its driver employees, the Company contracts with a select
group of independent contractors who own and operate their own tractors and
trailers. The Company's selection process for independent owner-operators is
substantially the same as the process for employees. Each owner-operator is
required to enter into an owner-operator lease agreement with the Company
which is cancelable by either party upon thirty days notice. The
owner-operators provide the Company with an additional source of drivers,
particularly during periods of peak demand for transportation services.
INSURANCE AND SAFETY
The Company's safety department is responsible for training and
supervising personnel to keep safety awareness at its highest level. The
Company has implemented an active safety and loss prevention program at its
corporate headquarters and all of its terminals. In July 1994, Gulf Northern
successfully completed a safety audit and compliance review by the Department
of Transportation, Federal Highway Administration and is operating with a
satisfactory rating. The emphasis on safety begins in the hiring and
continues in orientation, safety training, and drug testing. Newly hired
drivers, regardless of experience level, must participate in a training
program.
The Company's safety and loss prevention program is comprised of the
ongoing education, training and retraining of drivers regarding safe vehicle
operation, loading and unloading procedures, and accident reporting. It also
includes random drug testing. The program is overseen by the Company's
Director of Safety. It is Company policy to reward drivers who have satisfied
safety performance goals established by the Company. Safe-driver awards are
presented based upon the number of miles a Company driver or owner-operator
accumulates in service without a "chargeable accident" as defined by DOT
regulations. Awards are presented on an annual basis and consist of cash
payments.
The Company has implemented a written disciplinary system for its
employee drivers and owner-operators. Pursuant to this system, disciplinary
action ranges from written warnings to immediate termination depending on the
frequency and severity of the offense. The most serious offenses include
violations of local, state or federal regulations while on duty, unauthorized
use of Company equipment, willful or negligent damage of Company equipment or
7
<PAGE>
<PAGE>
property or injury to another person, carrying, possessing or being under the
influence of intoxicants or narcotics while on duty or on Company premises,
possession of firearms or other lethal weapons while on duty or while on
Company premises and other similar offenses. The Company's Director of Safety
continuously monitors driver performance and makes recommendations to the
Company's executive officers regarding employment and retention of drivers.
The Company is committed to securing appropriate insurance coverage at
cost-effective rates. The primary risks that arise in the trucking industry
consist of cargo loss and damage, personal injury, property damage and
workers' compensation claims. The Company maintains insurance that it
believes is adequate to cover its liabilities and risks.
The Company has set up captive insurance arrangements with an insurance
company pursuant to which the Company makes monthly payments into a loss
reserve fund in addition to the payments it makes to the insurance company.
The fund is then used to pay off claims for liability to third parties for
personal injuries and property damage up to $100,000 per occurrence and up to
an aggregate of $615,000. Any claims in excess of these limits are covered by
insurance up to $1 million per occurrence. To the extent that the annual
claims are less than the amount projected by the insurance company, the
Company receives back a portion of the reserve fund.
The Company also has an insurance policy which covers cargo loss and
damage up to $250,000 per occurrence, and an insurance policy which covers
workmen's compensation claims in amounts from $100,000 to $500,000, depending
on the state where the worker lives.
FUEL MANAGEMENT
Motor carrier service is dependent upon the availability of diesel fuel.
The Company manages fuel purchases by directing its drivers to certain truck
stops along designated routes that give the Company certain discounts in
return for volume purchases on a recurring basis. Through the use of
computerized monitoring devices imbedded in the engines of its tractors, the
Company monitors fuel usage, miles per gallon, cost per mile, and cost per
gallon. The Company has not experienced any difficulty in maintaining fuel
supplies sufficient to support its operations. Historically, the Company has
been able to pass on a portion of fuel price increases to its customers.
Nevertheless, shortages of fuel, increases in fuel prices or fuel tax rates or
rationing of petroleum products could have a material adverse effect on the
operations and profitability of the Company.
COMPETITION
The trucking industry is highly competitive and fragmented. The Company
competes primarily with other medium to long-haul, temperature-controlled and
dry truckload carriers; internal shipping conducted by existing and potential
customers and, to a lesser extent, railroads and air transportation. Although
the general effect of deregulation of the trucking industry during the 1980's
created substantial downward pressure on the industry's rate structure, the
Company believes that competition for the freight transported by the Company
is based primarily on quality of service (i.e., just-in-time performance) and,
to a lesser degree, on freight rates. There are a number of other trucking
companies which have substantially greater financial resources, operate more
equipment or carry a larger volume of freight than the Company. The Company
also competes with other motor carriers in hiring qualified drivers. The
Company's primary emphasis is service, especially to its core carrier
customers, rather than price alone. However, the industry in which the
8
<PAGE>
<PAGE>
Company operates is extremely price sensitive and the Company is responsive to
competitive price pressures.
REGULATION
The trucking industry is subject to regulatory oversight and legislative
changes which can affect the economics of the industry by requiring certain
operating practices or influencing the demand for, and the costs of providing,
services to shippers. The Department of Transportation of the United States
("DOT"), as well as various state agencies that have jurisdiction over the
Company, have broad powers, generally governing such matters as authority to
engage in motor carrier operations, rates and charges, certain mergers,
consolidations and acquisitions, and periodic financial reporting. The rates
and charges of the Company are not directly regulated by these authorities.
As primarily a contract carrier, the Company negotiates competitive rates
directly with customers as opposed to relying on schedule tariffs. State
agencies impose tax, license and bonding requirements.
The Motor Carrier Act of 1980 commenced a program to increase competition
among motor carriers and to diminish regulation in the industry. Following
this deregulation, applicants have more easily been able to obtain DOT
operating authority, and interstate motor carriers such as the Company have
been able to impose certain rate changes without DOT approval. The Motor
Carrier Act also removed many route and commodity restrictions on
transportation of freight. Gulf Northern has held specific commodity and
territory authority from the Illinois Commerce Commission since 1939. Gulf
Northern holds authority to carry general commodities throughout the 48
contiguous states, as both a common and contract carrier, and it holds various
intrastate authorities.
Under the Negotiated Rates Act of 1993, certain procedures must be
followed for resolving claims involving unfiled, negotiated transportation
rates. Generally, when a claim is made by a motor carrier of property (other
than a household goods carrier) for the collection of rates and charges in
addition to those originally billed and collected by the carrier, the person
against whom the claim is made may elect to satisfy the claim pursuant to
certain provisions specified in the Negotiated Rates Act. The Negotiated
Rates Act specifies the types of disputes to be resolved by the ICC and allows
for the nonpayment of the disputed additional compensation until the dispute
is resolved. The Company believes that it is in compliance in all material
respects with the provisions of the Negotiated Rates Act.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Such matters as weight and dimensions of equipment are
also subject to federal and state regulation. All of the Company's drivers
were required to obtain national commercial driver's licenses by April 1,
1992, pursuant to the regulations promulgated by the DOT. Also effective in
1989, DOT regulations imposed mandatory drug testing of drivers. The Company
has implemented a random drug-testing program in accordance with such
regulations. In addition, beginning January 1, 1995, the Company was required
to implement new alcohol and revised drug rules imposed by the DOT which
prohibit any alcohol or drug use prior to and during driving and while
performing safety-sensitive functions such as loading, unloading, inspecting,
waiting for dispatch, resting in a sleeper birth, and other specified times.
Beginning August 15, 1994, the Company was required to implement a certain
split sample urine collection procedure. The Company complies with all
applicable regulations imposed on its employees and owner-operators. The
DOT's national commercial driver's license, drug testing requirements and new
alcohol and drug-use regulations have not to date and are not expected to
9
<PAGE>
<PAGE>
adversely affect the availability to the Company of qualified drivers. See
"Business-Safety and Insurance."
The Company's operations are subject to federal, state and local laws and
regulations concerning the environment. The Company has not received any
notices from any regulatory authority relating to any violation of any
environmental law.
EMPLOYEES
The Company employs approximately 251 persons, of whom 190 are drivers and
61 are maintenance and administrative personnel. None of the Company's
employees is represented by a collective bargaining unit and the Company has
never experienced a work stoppage. The Company believes that its relations
with its employees is good.
ITEM 2. DESCRIPTION OF PROPERTY
All of the Company's offices and terminals are leased. The Company's
executive office is located in North Charleston, South Carolina, where
billing, collections, brokerage, banking and overall management of the Company
take place. The lease, which expires November 1, 1999, covers 5,000 square
feet of rental space and provides for monthly rent of $2,800. The Company
believes that this facility is adequate for its present needs.
The Company also maintains the following other office, terminal and
warehouse locations:
Location Description
-------- -----------
Los Angeles A 6,200 square foot terminal and office
leased for $4,500 per month
Wisconsin Rapids, Wisconsin A 3,000 square foot office, a
9,800 square foot warehouse, and a
four bay repair shop leased for
$6,500 per month (this facility is
owned by Messrs. Huff and Pixler)
Kansas City, Missouri A 900 square foot office and a two
bay repair shop leased for $3,150
per month
Savannah, New York A 2,000 square foot office and two
bay repair shop leased for $2,024
per month (this facility is owned by
Mr. Pixler)
Jacksonville, Florida A 375 square foot office and a
1,125 square foot warehouse leased
for $1,003 per month
ITEM 3. LEGAL PROCEEDINGS
The Company has been from time to time a party to litigation incidental
to its business, primarily involving claims for personal injury and property
damage incurred in the transportation of freight, and litigation relating to
transactions as to which its affiliates have been involved. The Company is not
10
<PAGE>
<PAGE>
party to any litigation which, individually or in the aggregate, management
believes will have a material adverse effect on the financial condition or
operations of the Company. The Company maintains insurance that it believes
is adequate to cover its liability risks. See "Business-Safety and
Insurance."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
PART II
ITEM 5. MARKET PRICES AND DIVIDENDS
The Company's Common Stock trades in the over-the-counter market, under
the symbol "USTK". There were no quotations for the Company's Common Stock
during the last three years until after the closing of the reverse acquisition
of U.S. Trucking-Nevada. Quotations resumed during September 1998. The
following table shows the high and low bid prices for the Company's Common
Stock for the periods indicated as reported by the OTC Bulletin Board. These
prices are believed to be inter-dealer quotations and do not include retail
mark-ups, mark-downs, or other fees or commissions, and may not represent
actual transactions.
Quarter Ended High Bid Low Bid
-------------- -------- -------
September 30, 1998 $1.875 $0.002
December 31, 1998 $4.50 $0.75
As of April 1, 1999 the Company had 148 shareholders of record. This
does not include shareholders who hold stock in their accounts at
broker/dealers.
Holders of Common Stock are entitled to receive dividends declared by the
Company's Board of Directors. No dividends have been paid on the Company's
Common Stock and no dividends are anticipated to be paid in the foreseeable
future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results
of operations for the years ended December 31, 1998 and 1997 should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto contained elsewhere in this report.
GENERAL
The Company was established in January of 1997 by combining under U.S.
Trucking-Nevada the operations of Gulf Northern, a mid- to long-haul truckload
carrier, Mencor, a third party logistics (brokerage) company, selected assets
of another truckload company, and the customer base of a small specialized
truckload air freight company. The Company consolidated operations and
implemented manpower reductions and blending of all trucking operations under
Gulf Northern and all brokerage operations under Mencor.
11
<PAGE>
<PAGE>
The Company's operating results are primarily driven by the results of
the truckload business of its primary operating subsidiary, Gulf Northern
Transport, Inc. as well as the implementation of a Captive Insurance Program
for Auto-Liability for tractors and trailers. The Company reported a profit
in the year ended December 31, 1998, by significantly decreasing the operating
losses in its trucking division and by initially showing a profit in its Auto
Liability Captive Insurance Program.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The amounts discussed for the year ended December 31, 1998 include the
combined operations of Gulf Northern Transport, Inc. and Mencor, Inc.
The amounts for the year ended December 31, 1997 differ from that of 1998
based on the following factors:
On January 30, 1997, U.S. Trucking-Nevada completed the following
acquisitions:
1. Purchased 100% of the common stock of Gulf Northern Transport,
Inc. from its stockholder for cash and 25% of U.S. Trucking-
Nevada's common stock;
2. Purchased 100% of the common stock of Mencor, Inc. from its
stockholders for cash and 37,500 shares of the common stock
of U.S. Trucking-Nevada's parent company, U.S. Transportation
Systems, Inc.;
3. Purchased certain assets and liabilities of Jay & Jay
Transportation, Inc.;
4. Purchased certain assets and liabilities of Translynx Express,
Inc.
Simultaneous to the above transactions, U.S. Trucking-Nevada was sold by
its parent corporation, U.S. Transportation Systems, Inc. Accordingly, the
operations of the consolidated group began January 30, 1997. The financial
statements for 1997, therefore, include both the amounts included in the
consolidated financial statements for the period from inception to December
31, 1997 and the pre-acquisition amounts for Gulf Northern Transport, Inc. and
Mencor, Inc. for the period ended January 30, 1997. Further, the amounts for
the period ended December 31, 1997 are on a different accounting basis than
the period to January 30, 1997 and accordingly, the amortization of the
resulting goodwill recognized in the purchase transaction is not comparable to
that of the year ended 1998.
Revenues increased by 17.8% to $21.8 million in 1998 from $18.5 million
in 1997. The increase in revenues were primarily due to the fact that the
addition of the small package delivery division caused company driver and
independent contractor generated revenues to increase. Another factor, which
caused revenues to increase, was the addition of a captive insurance program
for auto-liability insurance provided to third-party trucking companies. A
division of the Company in which revenues decreased was the third party
brokerage which declined because of increased competition in the brokering of
medium to long haul loads in the truck carrier business. Company driver
generated revenue increased by 13.6% to $12.5 million in 1998 from $11.0
million in 1997. Independent contractor generated revenues increased by 24.3%
to $6.6 million in 1998 from 5.3 million in 1997. Third-party brokerage
12
<PAGE>
<PAGE>
decreased 13.1% to $1.86 million in 1998 from $2.14 million in 1997 and
insurance captive revenue increased to $810 thousand from zero in 1997.
Operating expenses for 1998 were $18.5 million, or 85% of revenue, as
compared to $17.0 million, or 92% of revenue, for 1997. This decrease as a
percentage of revenues was due primarily from lower fuel costs, company
driver payroll and repair and maintenance costs . Fuel expenses decreased
$323 thousand to $2.11 million (16.8% of revenues generated by company
drivers) in 1998 from $2.43 million ( 21.8% of revenues generated by company
drivers) for 1997.This decrease was the result from lower fuel prices in
general as well as additional use of bulk storage for diesel fuel at two of
our terminals in Wisconsin and New York. Company driver payroll decreased
$122 thousand to $3.07 million (25% of revenues generated by company drivers)
in 1998 from $3.2 million (28.5% of revenues generated by company drivers) in
1997. The reason for this decrease was better management of deadhead mileage
and the lower rate of pay required for drivers in the small package delivery
sector of our business. Repairs and Maintenance costs decreased $66 thousand
to 1.17 million (6.1% of revenues generated by the trucking segment ) in 1998
from 1.24 million ( 7.6% of revenues generated by the trucking segment ) in
1997. Lower repair and maintenance costs were the product of better management
in decreasing the outsourcing of major repairs and increased dedication to
preventive maintenance.
Salaries, wages, employee benefits and other administrative expenses for
the year ended 1998 were $2.92 million or 13.4% of revenue, compared to $2.15
million or 11.6% of revenue, for the year ended 1997. The increase was due to
the costs associated with the addition of the captive insurance program, a
slight increase in administrative payroll and additional increases in trucking
insurance expense in general. Expenses related to insurance captive such as
paid losses, reserved losses, reinsurance and administrative fees increased to
$556 thousand in 1998 from zero in 1997. Administrative payroll increased $80
thousand to $1.18 million (5.4 % of all revenues) in 1998 from $1.1 million
(5.9% of all revenues) in 1997. This decrease as a percentage of revenue is a
result of being able to add additional productivity over and above the hiring
of extra employees. All expenses related to insurance in the truckload
division increased $217 thousand to $1.07 million (4.9% of all revenues) in
1998 from $855 thousand (4.6% of all revenues) in 1997. This increase as a
percentage of revenues is a direct result of paying higher premiums as a
result of incurring larger claims in the worker's compensation and auto
liability lines of coverage.
Depreciation and amortization expenses for 1998 were $1.58 million, or
7.2% of revenue, as compared to $1.54 million or 8.3% of revenue, for 1997.
This increase reflects by a $60 thousand increase to depreciation taken on
capitalized repairs. Normal recurring depreciation and amortization remained
unchanged.
Interest expense for 1998 was $727 thousand or 3.3% of revenue, as
compared to $703 thousand or 3.8% of revenue, for the year ended 1997. The
decrease in interest as a percent of revenue is the result of (1) lower cost
of borrowing due to its restructuring of some equipment debt, (2)lower
interest expense on more recent portions of equipment loans, and (3) lower
factoring financing on faster paying customers.
Freight settlements paid to outside carriers decreased $182 thousand to
1.62 million (87.1% of brokerage generated revenues) for the year ended 1998
as compared to $1.8 million or 91.3% of revenues for the prior year. This
decrease resulted from fewer loads being brokered in 1997 because of increased
competition in the industry.
13
<PAGE>
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
On January 30, 1997, U.S. Trucking completed the following acquisitions:
1. Purchased 100% of the common stock of Gulf Northern Transport,
Inc. from its stockholders for cash and 25% of U.S. Trucking's
common stock;
2. Purchased 100% of the common stock of Mencor, Inc. from its stock
holders for cash and 37,500 shares of common stock of U.S.
Trucking's parent company, US. Transportation Systems, Inc.;
3. Purchased certain assets and liabilities of Jay & Jay
Transportation, Inc.;
4. Purchased certain assets and liabilities of Translynx Express,
Inc.
Simultaneous to the above transaction, U.S. Trucking was sold by its
parent corporation, U.S. Transportation Systems, Inc. Accordingly, the
operations of the consolidated group began on January 30, 1997. This
registration statement, therefore, includes both the amounts included in the
consolidated financial statements for the period from inception to December
31, 1997 and the pre-acquisition amounts for Gulf Northern Transport, Inc. and
Mencor, Inc. for the period ended January 30, 1997. Further, the amounts for
the period ended December 31, 1997 are on a different accounting basis than
the prior periods due to the purchase transactions recorded on January 30,
1997 and accordingly, the amortization of the resulting goodwill recognized in
the purchase transaction is not comparable to that of the prior period.
Revenues for the year ended 1997 were $18.5 million compared to net
revenues of $14.8 million for the year ended 1996. The increase in revenues
was primarily due to the fact that the 1996 results included only Gulf
Northern and Mencor while 1997 also included the business of the two divisions
of USTS which were combined with Gulf Northern and Mencor when the Company was
formed.
Operating expenses for 1997 were $17.0 million, or 92% of revenue, as
compared to $13.0 million, or 88% of revenue, for 1996 (an increase of 31%).
This increase was due primarily to the increase in business associated with
the operations added in early 1997, which yielded higher driver payroll,
increase in percentage paid to owner-operators, higher fuel costs and higher
maintenance costs as a percentage of revenue. Fuel expenses increased $766
thousand or 46% to $2.48 million from $1.72 million for fiscal 1996.
Salaries, wages, employee benefits and other administrative expenses for
the year ended 1997 were $2.15 million or 11.6% of revenue, compared to $2.03
million or 13.7% of revenue, for the year ended 1996. The increase was due to
the addition of the new businesses. The decrease of such costs as a
percentage of revenue was due to decreases in fixed costs, such as
administrative payroll, rents, communications expenses and health insurance
costs.
Depreciation and amortization expenses for 1997 were $1.54 million, or
7.8% of revenue, as compared to $977 thousand or 6.6% of revenue, for 1996.
This increase was due to additional equipment being added to the Company's
fleet, increased amortization costs due to the restructuring of certain loans
and increased depreciation due to certain capitalized repairs.
14
<PAGE>
<PAGE>
Interest expense for 1997 was $703 thousand or 3.8% of revenue, as
compared to $649 thousand or 4.4% of revenue, for the year ended 1996. The
decrease in interest as a percent of revenue is the result of (1) lower cost
of borrowing from its restructuring of some equipment debt, (2) interest
expense being lower on more recent portions of equipment loans, and (3) lower
factoring financing on faster paying customers.
Freight settlements paid to outside carriers decreased $207 thousand to
$1.8 million or 10.3% (to 91.3% of revenues) for the year ended 1997 as
compared to $2.0 million or 90.2% of revenues in 1997. This decrease resulted
from slightly fewer loads being brokered in 1997.
CAPITAL RESOURCES AND LIQUIDITY
As of December 31, 1998, the Company had a working capital deficit of
approximately $(1,912,731) compared to approximately $(1,609,556) at December
31, 1997.
The growth of the Company's business has required a significant
investment in new equipment. The Company's primary source of liquidity has
been funds provided by operations, long-term borrowings to finance equipment
purchases, the Company's previous factoring arrangement before December 22,
1998, its revolving line of credit after December 22, 1998, a private
offering of common stock in 1998 and capital contributions in 1997.
Net cash provided (used) by operating activities totaled $415,032 and
$(17,125) for the years ended December 31, 1998 and 1997, respectively.
Net capital expenditures for the purchase of revenue and office equipment
totaled $290,177 and $59,804 for the years ended December 31, 1998 and 1997,
respectively. In addition, the Company incurred costs of $291,556 associated
with the reverse merger with Northern Dancer Corporation in 1998. Also, it
received proceeds from the sale of common stock of $575,000 in 1998 and
received $1,304,755 from capital contributions in 1997. Overall net cash
provided (used) by investing activities totaled ($6,655) and $1,244,951 for
years ended December 31, 1998 and 1997, respectively. The Company anticipates
capital expenditures will be approximately $6.0 million for 1999, assuming
that the Company is able to raise the financing from private or public
offerings of common stock and convertible debt arrangements. The funds will
be used primarily to acquire new revenue equipment to expand the Company's
fleet, and to acquire additional facilities.
Net cash used in financing activities and net direct equipment financing
was $445,500 and $1,167,727 for the years ended December 31, 1998 and 1997,
respectively. During 1998, the Company received proceeds from long-term
financing of $4,296,705, paid down long-term debt as part of debt
restructuring a total of $3,838,415 and made principal payments on long-term
debt and capital lease obligations before restructuring a total of $903,790.
For 1997, the Company made principal payments on long-term debt and capital
obligations of $1,155,227. The reason for change in the net cash used from
financing activities from 1997 to 1998 was due to transactions entered with
General Electric Capital Corporation involving equipment financing on December
22, 1998 and the acquisition of Mid-Cal Express on December 30,1998. (See
Below)
At times, the Company enters into leasing agreements for short- or
long-term equipment needs. The Company currently has three leasing agreements
in place for tractors and trailers. The expenses are charged to operating
expense on a monthly basis as incurred.
15
<PAGE>
<PAGE>
The Company completed a working capital financing agreement with General
Electric Capital Corporation ("GE Capital") on December 21, 1998. The
transaction involves a revolving credit facility in an amount up to $5,000,000
which replaced the previous accounts receivable factoring facility. The term
of the agreement is for three years with interest charges on amounts borrowed
at the lender's index rate (commercial paper rate) plus 4.5%. As of December
31, 1998, $3.2 million was remaining on the line. Management believes that
this will be sufficient the cover normal working capital needs for internal
growth and limited acquisitions for 1999. In addition, management also
believes that this arrangement will significantly reduce working capital
financing costs by as much as 50% in comparison with previous factoring
arrangements. This revolving credit facility is personally guaranteed by
Anthony Huff and Dan Pixler.
The Company also completed two sale-leaseback agreements and a total
long-term debt restructuring agreement with General Electric Capital
Corporation on December 22, 1998. The first lease agreement involved the
trade-in of seventeen older road tractors for twenty newer ones .The amount
given on trade-in totaled $288,000 with the new lease after sale-leaseback
totaling $1,150,000. The term of the lease is for 48 months with monthly
payments of $22,500.The second lease agreement involved the trade-in of 87
older refrigerated and dry van trailers for 43 new refrigerated trailers and
20 new dry van trailers. The amount given on trade-in totaled $349,000 with
the new lease after sale-leaseback totaling $2,500,000. The term of this
lease is 72 months with monthly payments of $38,500.In addition to the
previous agreements G.E. Capital also refinanced all other long-term debt of
the Company including debt from other lenders. The total of the restructure
amounted to $3.2 million payable over 36 months with monthly payments of
$105,000. Management believes the savings in repairs and maintenance costs in
addition to fuel savings and equipment utilization will increase cash flows
$50,000 monthly while the Company's monthly debt service increased $15,000.
From an accrual basis perspective the new debt arrangements will increase
profitability by $30,000 monthly. The loan and the two leases are personally
guaranteed by Dan Pixler and Anthony Huff.
On December 30, 1998, the Company entered into an agreement to acquire
certain assets and assume certain liabilities of Mid-Cal Express, Inc. a
California based trucking company. The purchase price was $1,957,500, which
was paid by the issuance of 400,000 shares of common stock and the payment of
certain expenses to affect the purchase. As part of the agreement the Company
assumed debt on various notes totaling $4,039,740 encumbered by revenue
equipment with fair values of $4,918,741. The total monthly debt service of
these notes is $158,000 and the notes have interest rates ranging from 8.36%
to 11.9%. Management believes that this acquisition gives the Company the
western United States location it needs to better serve its current customers,
to obtain newer marquee customers and to make itself a nationwide carrier.
This acquisition should add approximately $11 million of net revenues annually
and should improve profitability throughout the Company by decreasing deadhead
(unloaded miles) and increasing equipment utilization. The Company needed
approximately $250,000 of additional capital to help fund the acquisition due
to inheriting certain obligations in relation to delinquent equipment
payments, fuel card usage and general accounts payable. Should the operations
in California become stagnate the results of the Company's operations could be
adversely affected. The Company may encounter operating conditions in new
markets that differ substantially from those previously experienced in the
eastern and mid western United States. There can be no assurance that this
strategy will be successful or not require a larger financial commitment than
anticipated in order for the Company to generate positive operating results.
16
<PAGE>
<PAGE>
YEAR 2000 COMPLIANCE
The Company is in the midst of implementing its plan to ensure year 2000
compliance of its computer hardware and software. The plan is centered around
the purchase of a new hardware system consisting of a Compaq proliant P2 300
300 MHz processor, 320 MB RAM, 2/9.1 GB mirror hard drive, and a Server Tower
which is installed in the Charleston, South Carolina, location. From the
system will be generated all functions of the Company's operating systems
including, but not limited to, the initiation of loads, dispatch, billing,
accounts payable and receivable, general ledger functions and preparation of
financial statements. All maintenance records for all of the trucks,
inventory records for all parts and supplies, claim records and accident
records as well as fuel and mileage for taxing bodies will be supplied.
Information from the Company's fuel provider, Comdata, will be downloaded into
the system over the Internet on a daily basis. The Company has received data
from Comdata with respect to their program for year 2000 compliance and is
satisfied that they will be in total compliance.
The new software system has been fully operational for the agent program
and brokerage business since November 1998, and the complete system is now
operating Company-wide. At present, the Company is working with its hardware
provider to have installed PC workstations for use with a Windows NT User
Network, MS Exchange 50 User Internal E-mail. Each workstation is a Compaq
Deskpro EP Pentium 333 Mhz. Protrip software from Computerized Management
Services of Sioux Falls, South Dakota, will be used. The Company is currently
also preparing and reviewing its database information on its current system
for transfer to the new system in an effort to streamline the flow of
information from one system to the other.
The Company may also be vulnerable to the failure of other companies to
be year 2000 compliant. The Company has commenced its assessment of whether
third parties with whom the Company has material relationships are year 2000
compliant. The Company is evaluating its vendors and suppliers to determine
if there would be a material effect on the Company's business if they do not
timely become year 2000 compliant. The same analysis is being made for
significant customers. The Company has not yet initiated formal contingency
planning processes to mitigate the risk to the Company if any vendors or
customers are not prepared for the year 2000, but the Company intends to
complete this process by June 30, 1999.
Although the Company expects its internal systems to be year 2000
compliant, the failure of any of its significant vendors or customers to
correct a material year 2000 problem could result in an interruption in
certain normal business activities and operations. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the year 2000 readiness of third parties which the Company
relies on, the Company is unable to determine at this time whether the
consequences of year 2000 failures will have a material adverse impact on the
Company's results of operations, but the Company believes that with the
implementation of its new computer system and completion of its assessment of
its vendors and customers, the possibility of significant interruptions of
normal operations should be reduced.
ITEM 7. FINANCIAL STATEMENTS
The Report of Independent Public Accountants appears at page F-1 and the
Financial Statements and Notes to Financial Statements appear at pages F-2
through F-33 hereof.
17
<PAGE>
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting
and financial disclosure required to be reported.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND OFFICERS
The Directors and Executive Officers of the Company are as follows:
NAME AGE POSITIONS HELD
---- --- --------------
Danny L. Pixler 50 President, CEO and Director
W. Anthony Huff 37 Executive Vice President and Chairman
of the Board
John Ragland 33 Chief Financial Officer
There is no family relationship between any Director or Executive Officer
of the Company.
The Company has audit and compensation committees which both consist of
Danny L. Pixler and W. Anthony Huff.
Set forth below are the names of all directors and executive officers of
the Company, all positions and offices with the Company held by each such
person, the period during which he has served as such, and the principal
occupations and employment of such persons during at least the last five
years:
DANNY L. PIXLER has served as the President, CEO and a director of the
Company since September 8, 1998, when the Company completed its acquisition of
U.S. Trucking-Nevada. He has served as President, Secretary and Treasurer of
U.S. Trucking-Nevada since February 1997, and as a Director since May 1998.
He served as Vice President and a director of Mencor from March 1994 until
July 1998 when he became President. He has served as President, CEO and
director of Gulf Northern since March 1995. From January 1993 until March
1994, he served as President of Joseph Land Group (a transportation company
with annual sales of approximately $130 million). From 1989 until 1993, he
served as President of Apple Lines, Inc., a truckload refrigerated carrier
with $16 million in revenues. From 1983 until 1989, he was employed by D.F.C.
Transportation, the transportation division of Dean Foods, Inc., where his
final position was Executive Vice President and General Manager responsible
for the company's truckload division with annual sales of $80 million.
W. ANTHONY HUFF has served as Executive Vice President and Chairman of
the Board of the Company since September 8, 1998. He has provided various
administrative services to U.S. Trucking-Nevada since February 1997 and has
served as Executive Vice President and a Director since May 1998. He has also
provided various services to Gulf Northern since March 1995 and he has served
as a Director since February 1996 and as Vice President since June 1998. Mr.
18
<PAGE>
<PAGE>
Huff has also served as Vice President and Assistant Secretary of Mencor since
June 1998. Mr. Huff manages the Company's offshore captive insurance programs
and investments. From approximately November 1995 until January 1997, he
served as President and a director of United Acquisition Corp. II, a company
formed to acquire companies in the trucking business. From February 1992
until December 1996, Mr. Huff served as President of the North American
Trucking Association, an association of independent truckers engaged in the
business of providing administrative and financial services to its members.
Mr. Huff spends approximately 60% of his time on the Company's business and
the remainder of his time consulting with various other companies.
Due to a large judgment awarded against Mr. Huff in 1994 resulting from
Mr. Huff's guaranty of a defaulted bank loan for a company of which he was a
shareholder, Mr. Huff filed for personal bankruptcy under Chapter 7 of the
U.S. Bankruptcy Code in 1994 (discharge granted in 1995). Mr. Huff was a
minority shareholder and provided services to the company (KHW Foods, Inc.)
relating to store location and development, but was not otherwise involved in
management of the company. In the bankruptcy proceeding Mr. Huff reaffirmed
all of his other personal debts.
JOHN RAGLAND has served as Chief Financial Officer of the Company since
September 8, 1998. He has served as the Controller of Gulf Northern since
June 1996, and as Secretary-Treasurer since June 1998. He has also served as
the Chief Financial Officer and Treasurer of U.S. Trucking-Nevada since May
1998. From May 1996 until October 1996, he served as Chief Financial Officer
of United Acquisition Corp. II, a company formed to acquire companies in the
trucking business. From August 1994 until June 1996 he was the Chief
Financial Officer of the North American Trucking Association, a trade group,
and he was also the Chief Financial Officer of All-Risk Services, an insurance
agency, during the same period. From 1991 to July 1994, he was a staff
accountant with Watkins, Buckles & Travis, Certified Public Accountants.
The Company's executive officers hold office until the next annual
meeting of the Directors of the Company. The Company has agreements with
Messrs. Pixler and Huff whereby the Company is required to use its best
efforts to elect and retain them as members of the Board of Directors as long
as they are guarantors as to any Company or affiliated debt. There are no
other arrangements or understandings between any director or executive officer
and any other person pursuant to which any of the above-named executive
officers or directors or nominees was selected as an officer or director or
nominee for director of the Company.
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth information regarding executive
compensation for the Company's President and Chief Executive Officer and each
other executive officer who received total annual salary and bonus in excess
of $100,000 for any of the years ended December 31, 1998, 1997 or 1996.
19
<PAGE>
<PAGE>
Summary Compensation Table
Long-term Compensation
Awards Payouts
------------------------
Securi-
Annual Compensation ties
--------------------- Re- Underly- All
Other strict- ing Other
Name and Annual ed Options/ LTIP Com-
Principal Compen- Stock SARs Pay- pensa-
Position Year Salary Bonus sation Award(s) (Number) outs tion
- ---------- ---- -------- ----- ------- -------- -------- ----- ------
Danny L. 1998 $105,000 -- $6,000(1) -- 100,000 -- --
Pixler, 1997 $105,000 -- $6,000(1) -- -- -- --
President 1996 $ 47,500 -- $ -- -- -- -- --
______________
(1) Represents $500 per month car allowance.
Aggregated Option Exercises in Year Ended
December 31, 1998 and December 31, 1998 Option Values
Securities Under- Value of Unexer-
Shares lying Unexercised cised in-the
Acquired Options Money Options/
On at 12/31/98 at 12/31/98
Exercise Value Exercisable/ Exercisable/
Name (Number) Realized Unexercisable Unexercisable
---- -------- -------- ---------------- ----------------
Danny L. Pixler -0- $ -0- 100,000 / 0 $495,000 / 0
Options / Grants in Last Fiscal Year
Individual Grants
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/sh) Date
---- ------------ ------------ ----------- ----------
Danny L. Pixler 100,000 25% $.30 5/22/08
EMPLOYMENT AGREEMENTS
The Company has entered into a five year employment agreement with Danny
L. Pixler commencing September 9, 1998, which provides for an annual salary of
$105,000 (with annual increases of not less than 3%). The agreement also
provides that Mr. Pixler will receive a new car every three years and all
vehicle expenses incurred on Company business or an auto allowance not to
exceed $550 per month.
The Company has entered into a five year employment agreement with W.
Anthony Huff commencing September 9, 1998, which provides for an annual salary
of $52,000 (with annual increases of not less than 3%).
20
<PAGE>
<PAGE>
The Company has entered into a three year employment agreement with John
Ragland commencing September 9, 1998, which provides for an annual salary of
$75,000 (with annual increases of not less than 3%). The agreement also
provides that Mr. Ragland will be provided a company car and reimbursement of
his vehicle expenses incurred on Company business.
These employment agreements are terminable by the Company for certain
specified reasons, including disability, fraud, conviction of a felony and
substance abuse. They also contain covenants not to compete during the term
of the agreements.
STOCK OPTION PLAN
During September 1998, the Board of Directors adopted the Stock Option
Plan of U.S. Trucking-Nevada as the Company's Stock Option Plan (the "Plan"),
and the Company assumed the obligations represented by 550,000 options which
were already outstanding. These options had an exercise price of $.30. The
Plan authorizes the issuance of options to purchase up to 2,000,000 shares of
the Company's Common Stock.
The Plan allows the Board to grant stock options from time to time to
employees, officers, directors and consultants of the Company. The Board has
the power to determine at the time that the option is granted whether the
option will be an Incentive Stock Option (an option which qualifies under
Section 422 of the Internal Revenue Code of 1986) or an option which is not an
Incentive Stock Option. Vesting provisions are determined by the Board at the
time options are granted. The option price for any incentive stock option
will be no less than the fair market value of the Common Stock on the date the
option is granted, while other options may be granted at any exercise price.
Options granted under the Plan with an exercise price less than the fair
market value on the date of grant, will require the Company to record an
expense upon the grant of options equal to the difference between the market
value of the option shares and the exercise price of the options. Generally,
there will be no federal income tax consequences to the Company in connection
with Incentive Stock Options granted under the Plan. With regard to options
that are not Incentive Stock Options, the Company will ordinarily be entitled
to deductions for income tax purposes of the amount that option holders report
as ordinary income upon the exercise of such options, in the year such income
is reported.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,
The following table sets forth as of March 31, 1999 the stock ownership
of each person known by the Company to be the beneficial owner of five percent
or more of the Company's Common Stock, all Directors individually and all
Directors and Executive Officers of the Company as a group. Except as noted,
each person has sole voting and investment power with respect to the shares
shown.
Amount of
Name and Address of Beneficial
Beneficial owner Ownership Percentage of Class
- ------------------- ---------- -------------------
Logistics Management,
L.L.C. (1) 2,156,034 (2) 30.0%
10602 Timberwood Circle #9
Louisville, KY 40223
21
<PAGE>
<PAGE>
Danny L. Pixler 2,156,034 (3) 30.0%
Suite 216
3125 Ashley Phosphate Road
North Charleston, SC 29418
W. Anthony Huff 2,156,034 (4) 30.0%
10602 Timberwood Circle #9
Louisville, KY 40223
All Directors and Executive 2,156,034 (3) 30.0%
Officers as a Group (4)
(3 Persons)
________________
* Less than 1%.
(1) Logistics Management, L.L.C. is 50% owned by Roxann Pixler, the wife of
Danny L. Pixler, and 50% owned by Association Services, Inc., which is
100% owned by The W. Anthony Huff Irrevocable Trust.
(2) Does not include 900,000 shares of the Company's Series A Preferred
Stock held by Logistics Management, L.L.C., which represents 9,000,000
votes and which is exchangeable for up to 9,000,000 shares of the
Company's Common Stock when certain revenue targets are achieved. (See
"DESCRIPTION OF SECURITIES.")
(3) Represents a 100% beneficial interest in the shares held by Logistics
Management, L.L.C., as to which shares Mr. Pixler shares voting and
investment power.
(4) Represents a 100% beneficial interest in the shares held by Logistics
Management, L.L.C., as to which shares Mr. Huff shares voting and
investment powers. Mr. Huff is the primary beneficiary of the W.
Anthony Huff Irrevocable Trust.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF U.S. TRUCKING-NEVADA
On September 8, 1998, the Company completed the acquisition of 100% of
the outstanding common stock of U.S. Trucking, Inc., a Nevada corporation
("U.S. Trucking-Nevada") in exchange for 15,877,300 shares of the Company's
Common Stock. The shares were exchanged on the basis of one share of the
Company's common stock for one share of U.S. Trucking-Nevada common stock.
The stock issuances were made pursuant to an Agreement ("Agreement")
between the Company and U.S. Trucking-Nevada. The terms of the Agreement were
the result of negotiations between the managements of the Company and U.S.
Trucking-Nevada. However, the Board of Directors did not obtain any
independent "fairness" opinion or other evaluation regarding the terms of the
Agreement, due to the cost of obtaining such opinions or evaluations.
TRANSACTIONS INVOLVING THE COMPANY BEFORE ACQUISITION OF U.S. TRUCKING-NEVADA
During the fiscal year ended March 31, 1996 the Company loaned a total of
$85,000 to Dunn International, Inc. ("Dunn") in anticipation of a possible
merger with or acquisition of Dunn. Dunn was engaged in two lines of
business: (1) the sale of software packages for petrochemical plants and
22
<PAGE>
<PAGE>
refineries, and (2) providing maintenance and turnaround services for
petrochemical plants and refineries.
During August 1996 the Company agreed to convert the $85,000 of loans and
$5,883 of accrued interest into 57,941 shares of Dunn's common stock which
represented approximately 18% of Dunn's outstanding common stock as of March
31, 1997. During the year ended March 31, 1997, the Company loaned an
additional $40,725 to Dunn and during the year ended March 31, 1998, the
Company loaned an additional $37,500 to Dunn.
These additional loans were made in an attempt to protect the Company's
investment in Dunn. The Company never completed a merger or acquisition with
Dunn because after completing its due diligence, management was of the opinion
that a merger or acquisition would not be in the best interests of the Company
at the time.
Dunn was approximately 50% owned by a principal stockholder of the
Company and her husband who is the Chairman of the Board and CEO of Dunn.
TRANSACTIONS INVOLVING U.S. TRUCKING-NEVADA AND ITS SUBSIDIARIES
On the formation of U.S. Trucking-Nevada in March 1997, the corporation
issued 1875 shares of its common stock to U.S. Transportation Systems, Inc.
("USTS") in exchange for the assets and liabilities described below:
1. Certain assets (primarily tractors and trailers) and liabilities
(related to Jay and Jay Transportation, Inc.) were contributed to the
corporation by USTS. The net value of this contribution for accounting
purposes was $2,394,860.
2. Certain assets and liabilities(related to Translynx Express, Inc.)
were contributed to the corporation by USTS. The net value of these assets
and liabilities for accounting purposes was $100,546.
The corporation also purchased 100% of the common stock of Gulf Northern
from Logistic Management LLC for $225,000 in cash and 625 shares of the common
stock of U.S. Trucking-Nevada and assumed all of the outstanding debt.
The corporation also purchased 100% of the common stock of Mencor from
its stockholders (Roxanne Pixler, Mike Menor and Dan Pixler) for $70,000 in
cash and 37,500 shares of USTS common stock.
On December 23, 1996, Gulf-Northern sold its Wisconsin Rapids facility,
which included land, a building and improvements, to its majority stockholders
for $346,141. The stockholders leased the property back to the Company for
five years commencing January 1, 1997 for $7,350 per month. The majority
stockholders were Danny L. Pixler and The W. Anthony Huff Irrevocable Trust.
In March 1998, the Company leased three 1995 Volvo tractors from Danny L.
Pixler under a one year lease agreement that specifies monthly payments of
$4,047 and provides for annual renewals. Under the lease agreement, the
Company is required to pay for all expenses associated with the tractors
including maintenance, insurance, permits, licenses and other operating
expenses.
In September 1998, the Company leased six 1994 Kenworth tractors from a
company owned by Danny Pixler and Anthony Huff pursuant to a one year lease
agreement which provides for monthly payments of $7,380 and annual renewals.
Under the lease agreement, the Company is required to pay for all expenses
23
<PAGE>
<PAGE>
associated with the tractors including maintenance, insurance, permits,
licenses and other operating expenses.
In December 1998, Danny Pixler purchased the office and repair shop in
Savannah, New York, which the Company had previously been leasing. He
purchased the property for approximately $158,000, and he is leasing it to the
Company for approximately $2,024 per month which is equivalent to the amount
of his mortgage payment, taxes and insurance on the property.
During January 1999, three of the Company's shareholders entered into a
Stock Exchange Agreement with the Company whereby they agreed to exchange a
total of 9,990,000 shares of the Company's common stock for 999,000 shares of
the Company's Series A Preferred Stock. Each share of Series A Preferred
Stock will have ten votes and the shares will be voted together with the
common stock as a single class. (See "Description of Securities") Pursuant to
the Stock Exchange Agreement, each share of Series A Preferred Stock will be
exchangeable back into ten shares of common stock as follows: one-fifth of
the shares upon the Company reporting revenues of $31 million or more for any
fiscal year or shorter period in a report on Form 10-KSB, 10-K, 10-QSB, or
10-Q as filed with the Securities and Exchange Commission; an additional
one-fifth if revenues are at or above $41 million; an additional one-fifth if
revenues are at or above $51 million; an additional one-fifth if revenues are
at or above $61 million; and the balance if revenues are at or above $71
million. The shareholders who exchanged shares are Logistics Management, LLC
- - 9,000,000 shares; Joff Pollon - 250,000 shares; and Waterways Group -
740,000 shares. The Board of Directors of the Company believes that the above
transactions involving U.S. Trucking-Nevada and its subsidiaries have been on
terms no less favorable to the Company than those that could have been
obtained from unaffiliated parties.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1* Articles of Incorporation
3.2* Bylaws
3.3** Articles of Amendment to Articles of Incorporation effective
September 8, 1998
3.4** Articles of Amendment to Articles of Incorporation
dated January 20, 1999
10.1*** 1998 Stock Option Plan
10.2**** Share Exchange Agreement with U.S. Trucking, Inc.
10.3** Employment Agreement with Danny L. Pixler
10.4** Employment Agreement with Anthony Huff
10.5** Employment Agreement with John Ragland
24
<PAGE>
<PAGE>
10.6** Lease Agreement dated January 1, 1997, between Gulf Northern
Transport, Inc., Dan L. Pixler, and Sebrite Insurance Services,
Inc.
10.7** Lease Agreement dated March 5, 1998, between Gulf Northern
Transport, Inc. and Dan Pixler for three tractors
10.8** Lease Agreement dated September 23, 1998, between Gulf Northern
Transport, Inc. and Thomas Financial Services
10.9** Stock Exchange Agreements between U.S. Trucking and three
shareholders dated January 29, 1999.
10.10** Loan and Security Agreement dated as of December 22, 1998 between
General Electric Capital Corporation and U.S. Trucking, Inc., et
al.
10.11 Purchase and Sale Agreement by and among Mid-Cal Express, Inc.,
Prime Companies, Inc. and U.S. Trucking, Inc. (Incorporated
herein by reference to the Company's Form 8-K dated April 14,
1999)
21** Subsidiaries of the Registrant
23.2 Consent of Bianculli, Pascale & Co P.C. (filed herewith
electronically)
27 Financial Data Schedule (filed herewith electronically)
________________
* Incorporated by reference to the Company's Registration Statement on Form
S-18 (SEC File No. 33-9640-LA)
** Incorporated by reference to the Company's Registration Statement on
Form SB-2 (SEC File No.333-71875)
*** Incorporated herein by reference to the Company's Registration Statement
on Form S-8(SEC File No. 333-70353)
****Incorporated herein by reference to the Company's Form 8-K dated
September 8, 1998
(b) REPORTS ON FORM 8-K. A Report on Form 8-K/A was filed on November
3, 1998 providing financial statements for U.S. Trucking, Inc. and its
subsidiaries, which entities were acquired by the registrant as reported on
Form 8-K filed September 23, 1998.
25
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Page
Report of Independent Certified Public Accountants
- U.S. Trucking, Inc. and Subsidiaries F-1
Consolidated Balance Sheets of U.S. Trucking, Inc. and
Subsidiaries as of December 31, 1998 and 1997
- Assets F-2
- Liabilities and Stockholders' Equity F-3
Consolidated Statements of Operations and Accumulated
Deficit of U.S. Trucking, Inc. and Subsidiaries for
the year ended December 31, 1998 and for the period
from inception (January 30, 1997) to December 31, 1997 F-4
Consolidated Statement of Stockholders' Equity of U.S.
Trucking, Inc. and Subsidiaries
- For the year ended December 31, 1998 F-5
- For the period from inception (January 30,
1997) to December 31, 1997 F-6
Consolidated Statements of Cash Flows of U.S. Trucking,
Inc. and Subsidiaries for the year ended
December 31, 1998 and and for the period from
inception (January 30, 1997) to December 31, 1997 F-7 - F-9
Notes to the Consolidated Financial Statements F-10 - F-33
26
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
U.S. Trucking, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheets of U.S. Trucking,
Inc. and Subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations and accumulated deficit and cash flows
for year ended December 31, 1998 and 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 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 U.S.
Trucking, Inc. and Subsidiaries as of December 31, 1998 and 1997 and the
results of its operations and its cash flows for the year ended December 31,
1998 and the period from inception (January 30, 1997) to December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Bianculli Pascale & Co. P.C.
Garden City, New York
February 25, 1999
F-1
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
A S S E T S
CURRENT ASSETS
Cash in banks $ 22,976 $ 60,099
Restricted cash-reserves on deposit
with factor - 184,210
Accounts receivable-net of allowance
for doubtful accounts of $200,000
in 1998 and $88,000 in 1997 3,447,570 2,321,180
Accounts receivable - other 141,673 60,000
Parts and supply inventory 257,030 152,262
Prepaid expenses and other 162,036 57,097
----------- -----------
Total Current Assets 4,031,285 2,834,848
----------- -----------
TRANSPORTATION AND OTHER EQUIPMENT -
at cost, less accumulated depreciation
and amortization of $736,221 in 1998
and $1,334,899 in 1997 9,718,805 6,818,517
----------- -----------
OTHER ASSETS
Restricted cash-owner operators 2,320 2,894
Restricted cash-cash held as
collateral against letters of credit 10,000 10,000
Due from related party 100,000 -
Due from captive insurer 355,321 -
Security deposits 12,575 12,653
Intangible assets - net of accumulated
amortization of $273,243 in 1998
and $120,552 in 1997 2,082,055 681,853
Total other assets 2,562,271 707,400
----------- -----------
TOTAL ASSETS $16,312,361 $10,360,765
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-2
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
----------- -----------
CURRENT LIABILITIES
Accounts payable-trade $ 1,443,415 $ 756,675
Revolving loan payable 1,795,888 1,355,291
Accrued expenses and other 669,957 665,592
Current portion - long term debt 2,034,756 1,187,753
Current portion of obligations
under capital leases - 479,093
----------- -----------
Total Current Liabilities 5,944,016 4,444,404
----------- -----------
OTHER LIABILITIES
Owner operator escrow 55,874 17,100
Long term notes payable - net
of current portion 5,224,092 2,887,809
Obligations under capital leases
net of current portion - 228,284
----------- -----------
Total Other Liabilities 5,279,966 3,133,193
----------- -----------
TOTAL LIABILITIES 11,223,982 7,577,597
----------- -----------
COMMITMENTS AND
CONTINGENCIES (Notes 2, 6, 9 10 and 17)
STOCKHOLDERS' EQUITY
Preferred Stock (no par value-
10,000,000 shares authorized,
none issued or outstanding) - -
Common Stock (no par value-
75,000,000 shares authorized,
16,074,591 and 13,000,000 shares
issued and outstanding in 1998
and 1997, respectively) 2,796,000 1,000
Additional paid in capital 3,821,812 4,313,368
Accumulated deficit (1,409,433) (1,531,200)
Subscriptions Receivable ( 120,000) -
----------- -----------
Total Stockholders' Equity 5,088,379 2,783,168
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $16,312,361 $10,360,765
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-3
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD FROM
INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997
1998 1997
----------- -----------
Operating revenues $21,815,844 $17,469,281
Operating expenses 18,486,974 16,434,514
----------- -----------
Income from operations 3,328,870 1,034,767
Administrative expenses 2,924,746 1,999,692
----------- -----------
Income (loss) from operations 404,124 ( 964,925)
----------- -----------
Other income and expenses
Interest income 1,648 1,332
Interest expense ( 731,628) ( 656,826)
Other income 447,623 101,762
Net (loss) on disposition of assets - ( 12,543)
----------- -----------
Total other income
and (expenses) ( 282,357) ( 566,275)
----------- -----------
Net income (loss) before taxes 121,767 (1,531,200)
Provision for income taxes 47,600 -
Benefit of net operating
loss carryforward ( 47,600) -
----------- -----------
Net income (loss) 121,767 (1,531,200)
Accumulated deficit - beginning (1,531,200) -
----------- -----------
Accumulated deficit - ending $(1,409,433) $(1,531,200)
=========== ===========
Net income (loss) per common share $ .01 $( .12)
=========== ===========
Weighted average
number of common shares 13,818,272 13,000,000
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-4
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional
No Par Value Paid in Accumulated Subscriptions
Shares Amount Capital Deficit Receivable Total
---------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Opening balance - January 1,
1998 2,500 $ 1,000 $4,313,368 (1,531,200) $2,783,168
Stock dividend declared -
5,199 common shares issued
for each share outstanding 12,997,500 -
Issuance of Common Stock to
Transportation Services,
Inc. 133,333 20,000 (20,000) -
Issuance of Common Stock
to Joff Pollon under the
consulting agreement -
Note 19 1,000,000 180,000 (180,000) -
Subscription of Common
Stock to Joff Pollon -
Note 19 160,000 120,000 (120,000)
Issuance of Common Stock
and costs incurred
to acquire Northern
Dancer Corp. in accor-
dance with the share
exchange agreement -
Note 1 614,590 - (291,556) (291,556)
Proceeds from sale of
Common Stock 766,668 575,000 575,000
Issuance of Common Stock
- Mid-Cal Acquisition -
Note 3 400,000 1,900,000 1,900,000
Net Income for the year
ended December 31, 1998 121,767 121,767
---------- ---------- ---------- ----------- ---------- ----------
Closing balance - December
31, 1998 16,074,591 $2,796,000 $3,821,812 $(1,409,433) (120,000) $5,088,379
========== ========== ========== =========== ========== ==========
</TABLE>
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 Additional
No Par Value Paid in Accumulated
Shares Amount Capital Deficit Total
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sale of 2,500 Shares of
Common Stock - No Par
Value 2,500 $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
Capitalization of assets
of Jay and Jay Transportation,
Inc. by U.S. Transportation
Systems, Inc. 2,394,860 2,394,860
Capitalization of assets of
Translynx, Inc. by U.S.
Transportation Systems, Inc. 100,546 100,546
Payment of expenses by
shareholder 46,895 46,895
Capitalization of 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 2,500 $1,000 $4,313,368 $(1,531,200) $2,783,168
===== ====== ========== =========== ==========
</TABLE>
F-6
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR END DECEMBER 31, 1998 AND FOR THE PERIOD FROM
INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997
1998 1997
----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (Loss) $ 121,767 $(1,531,200)
ADJUSTMENTS TO RECONCILE NET
INCOME (LOSS) TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation & amortization 1,616,852 1,455,451
Provision for doubtful accounts 112,000 36,166
Loss on disposal of property
and equipment 12,543
(Increase) Decrease-Assets
Restricted cash 184,784 (197,104)
Accounts receivable (1,320,063) (2,361,180)
Parts and supply inventory ( 22,768) ( 152,262)
Prepaid expenses and
other assets ( 652,097) ( 57,097)
Due from captive insurer ( 355,321) -
Increase (Decrease)-Liabilities
Accounts payable - trade 686,740 756,675
Accrued expenses and
other current liabilities 43,138 2,020,883
----------- -----------
Total Adjustments 293,265 1,514,075
----------- -----------
Net cash provided (used) by
operating activities 415,032 ( 17,125)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of transportation and
other equipment (290,177) ( 59,804)
Security deposits 78 -
Net costs incurred in reverse
merger (291,556) -
Proceeds from sale of common stock
and additional paid in capital 575,000 1,304,755
----------- -----------
Net cash provided by (used in)
investing activities $( 6,655) $ 1,244,951
----------- -----------
Sub Total $ 408,377 $ 1,227,826
----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-7
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD FROM
INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997
1998 1997
----------- -----------
Balance Forward $ 408,377 $ 1,227,826
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from long-term
debt financing 4,296,705 -
Book value of debt restructured (3,838,415) -
Principal payments on long-term debt ( 660,744) ( 877,926)
Principal payment of short-term note - ( 12,500)
Principal payments on
capital lease obligations ( 243,046) ( 277,301)
----------- -----------
Net cash (used) in
financing activities ( 445,500) (1,167,727)
----------- -----------
NET INCREASE (DECREASE)
IN CASH ( 37,123) 60,099
CASH AT BEGINNING OF YEAR 60,099 -
----------- -----------
CASH AT END OF YEAR $ 22,976 $ 60,099
=========== ===========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 861,076 $ 571,924
=========== ===========
Income taxes $ -0- $ -0-
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-8
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD
FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997
Non Cash Investing and Financing Activities
In December, 1998, the company acquired assets and liabilities of Mid-Cal
Express:
Fair value of assets acquired $ 4,918,741
Goodwill recognized 1,078,600
Liabilities assumed 4,097,341
Value of common stock issued 1,900,000
In December, 1998, the company traded in some of its older transportation
vehicles for new ones as part of an overall restructuring of its rolling stock
and corresponding debt. The book value of the equipment traded in was
$914,651 and its trade-in value was $637,000, which amount was offset against
the cost of the new equipment.
Book value of equipment traded-in $ 914,651
Trade-in value ( 637,000)
Deferred loss on sale/leaseback 277,651
In September 1998 Joff Pollon subscribed to 160,000 shares of common stock.
The company recorded the transaction as a credit to common stock with a
corresponding subscription receivable, which is being reflected as a reduction
of stockholders' equity.
As of September 8, 1998 U.S. Trucking issued 614,590 shares of common stock in
connection with a reverse acquisition of Northern Dancer Corp.
During 1998, legal counsel determined that certain non-interest bearing
promissory notes arising from the acquisition of Gulf Northern totaling
$104,000 was not the responsibility of the company. Accordingly the current
balances of the notes were reclassified as a reduction of the goodwill
originally recorded.
On January 30, 1997, U.S. Trucking 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 & Jay Transportation, Inc. 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-9
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and 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
On September 8, 1998, U.S. Trucking, Inc., a Nevada corporation ("U.S.
Trucking-Nevada"), was acquired by Northern Dancer Corporation ("Northern
Dancer"), a nonoperating public shell corporation, through exchange of
approximately 96% of the issued and outstanding shares of Northern Dancer's
common stock for 100% of the outstanding shares of U.S. Trucking-Nevada's
common stock. Northern Dancer's legal name was changed to U.S. Trucking, Inc.
("U.S. Trucking" or the "Company"). The acquisition is considered to be a
capital transaction, in substance equivalent to the issuance of stock by U.S.
Trucking-Nevada for the net monetary assets of Northern Dancer, accompanied by
a recapitalization of U.S. Trucking-Nevada. Common stock and additional
paid-in capital at January 30, 1997, have been restated to reflect the
recapitalization for all periods presented.
The Company operates through two wholly-owned operating subsidiaries that were
acquired by U.S. Trucking-Nevada 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 licensed broker for
interstate motor carriers. A broker serves
the trucking industry by providing return
hauls for truckers who have completed their
initial delivery.
U.S. Trucking-Nevada 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 U.S. Trucking-Nevada's common stock was transferred to Gulf
Northern's parent (Logistics Management, LLC). The remaining 75% was conveyed
to Logistics Management, LLC 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.
F-10
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
(B) - 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, 1998 and 1997.
Significant intercompany transactions or balances as of and for the periods
ended December 31, 1998 and 1997 have been eliminated.
(C) - Net Income per Common Share
Basic net income per share is computed on the basis of the weighted average
number of common shares outstanding during each period. Subscription shares
are only included in diluted earnings per share.
(D) - 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.
(E) - 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) - 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-11
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
(G) - Goodwill
Goodwill is amortized on a straight line basis over periods ranging from six
to fifteen years.
(H) - 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.
(I) - Revenue Recognition
U.S. Trucking recognizes revenue at the time freight is delivered to
recipients. Liability insurance revenue is recognized on a written premium
basis.
(J) - Organization Costs
Subsidiary companies, Gulf Northern and Mencor incurred organization costs
that are being amortized on a straight-line basis over five years.
(K) - 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-12
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 2 - Earnings (loss) Per Common Share
Basic earnings (loss) per common share was calculated using the weighted
average number of shares outstanding for the periods presented, after giving
effect to the 5,199 to 1 stock dividend declared in June, 1998. The number of
shares outstanding for 1997 was restated to give effect to the stock dividend.
The shares of stock subscribed by Joff Pollon were excluded from the basic
earnings per share calculation, however were treated similar to warrants in
the diluted earnings per share. The resulting weighted average number of
common shares outstanding was 13,818,272 in 1998 and 13,000,000 in 1997.
Subscribed stock, after application of the treasury stock method, resulted in
114,198 incremental shares. The overall effect on basic earnings per share
assuming the issuance of the incremental shares was insignificant.
NOTE 3 - Acquisition of Subsidiaries and other Assets and Liabilities
Gulf Northern Transport, Inc. - U.S. Trucking-Nevada 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 US
Trucking-Nevada's parent, U.S. Transportation Systems, Inc. which was
subsequently capitalized and included in additional 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. - U.S. Trucking-Nevada 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.
F-13
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 3 - Acquisition of Subsidiaries and other Assets and Liabilities
(continued)
Jay and Jay Transportation, Inc. - On January 30, 1997 U.S. Trucking-Nevada
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. - On January 30, 1997 U.S. Trucking-Nevada 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.
Mid-Cal Express, Inc. - Effective December 30, 1998, U.S. Trucking acquired
certain assets and liabilities of Mid-Cal Express, Inc., a California based
transportation company. The purchase price was $1,957,500, which was paid by
the issuance of 400,000 shares of common stock of the company valued at $4.75
per share and the payment of certain expenses to affect the acquisition. The
purchase price was allocated to the assets and liabilities acquired at their
fair market values and $1,078,600 of goodwill was recognized. The goodwill is
being amortized over fifteen years on a straight line basis. No goodwill was
expensed in 1998.
As part of the acquisition agreement, U.S. Trucking assumed the debt on
various notes totaling $4,039,740 encumbering the above described equipment.
The interest rates on these notes varied from 8.36% to 11.9% with maturities
through June, 2003.
F-14
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 3 - Acquisition of Subsidiaries and other Assets and Liabilities
(continued)
An allocation of the purchase price for each of the transactions follow:
Gulf
Northern Jay and Jay Translynx Total
Transport Mencor Transportation Express all
Inc. Inc. Inc. Inc. Companies
---------- -------- -------------- -------- -----------
Assets
Cash and
restricted
cash $ 138,449 $ 40,497 $ - $ - $ 178,946
Accounts
Receivable 1,047,761 189,605 351,301 194,920 1,783,587
Inventory 139,472 - 24,500 - 163,972
Transportation
Equipment 4,099,535 7,300 3,994,588 - 8,101,423
Goodwill 565,999 96,953 - - 662,952
Other assets 174,573 30,898 2,000 - 207,471
---------- -------- ---------- -------- -----------
Total $6,165,789 $365,253 $4,372,389 $194,920 $11,098,351
========== ======== ========== ======== ===========
Liabilities
Assumed and Equity
Liabilities
assumed $5,940,789 $220,253 $1,977,529 $ 94,374 $ 8,232,945
Additional
paid in
capital 225,000 145,000 2,394,860 100,546 2,865,406
---------- -------- ---------- -------- -----------
Total $6,165,789 $365,253 $4,372,389 $194,920 $11,098,351
========== ======== ========== ======== ===========
Fair value was the basis of valuing the net assets acquired. Fair value was
determined by independent appraisals by third parties for transportation
equipment.
F-15
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 3 - Aquisition of Subsidiaries and other Assets and Liabilities
(continued)
Combined Company
Pro Forma Combined Condensed Statement of Income
For the year ended December 31, 1998
(Unaudited)
Historical Historical Pro forma Pro forma
U.S. Trucking Mid-Cal Express Adjustments Combined
------------- --------------- ----------- -----------
Operating revenues $21,815,844 $17,883,034 $(8,883,034) $30,815,844
Operating expenses 18,486,974 16,273,560 10,175,985 24,584,549
----------- ----------- ----------- -----------
Income from
operations 3,328,870 1,609,474 1,292,951 6,231,295
Administrative
expenses 2,924,746 3,926,842 1,006,417 5,845,171
----------- ----------- ----------- -----------
Income (loss) from
operations 404,124 (2,317,368) 2,299,368 386,124
----------- ----------- ----------- -----------
Other income
and expenses
Interest income 1,648 2,071 929 4,648
Interest expense (731,628) (703,785) 203,785 (1,231,628)
Other income 447,623 118,100 24,300 590,023
Net (loss) on
disposition of
assets - (19,528) (19,528)
----------- ----------- ----------- -----------
Total other income
and (expenses) (282,357) (603,142) 229,014 (656,485)
----------- ----------- ----------- -----------
Net income
(loss) before taxes 121,767 (2,920,510) 2,528,382 (270,361)
Provision for
income taxes 47,600 (6,795) - 40,805
Benefit of net
operating loss
carryforward (47,600) - 6,795 (40,805)
----------- ----------- ----------- -----------
Net income (loss) $ 121,767 $(2,927,305) $ 2,535,177 $ 270,361
=========== =========== =========== ===========
Net income (loss)
per common share $ .01 $ (.02)
=========== ===========
Weighted average
number of common
shares 13,818,272 14,254,778
=========== ===========
F-16
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 4 - Income Taxes
U.S. Trucking accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards 109, Accounting for Income
Taxes. No current or deferred income taxes were provided for the period ended
December 31, 1997. At December 31, 1998, the income tax provision was
composed of the following components:
Current - Federal $( 87,400)
State ( 14,000)
---------
Total Current (101,400)
Deferred - Federal 127,300
State 21,700
---------
Total Deferred 149,000
Total $ 47,600
=========
The income tax provision reconciled to the tax computed at the statutory
Federal rate is as follows:
Tax at Statutory Rate $ 41,400 34.0%
Benefit of graduated Rates (10,500) ( 8.7)
State income tax net of
federal tax benefit 5,100 4.2
Non deductible expenses
and other 11,600 9.6
-------- ----
Total $ 47,600 39.1%
======== ====
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in a net deferred income tax provision
of approximately $149,000 for the year ended December 31, 1998.
F-17
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 4 - Income Taxes (continued)
Deferred tax assets and liabilities consist of the following as of December
31:
1998 1997
---------- ----------
Deferred tax assets-
Allowance for doubtful accounts $ 200,000 $ 88,000
Amortization of Goodwill 139,300 63,000
Net operating loss carryovers 1,997,200 2,327,000
---------- ----------
2,336,500 2,478,000
Valuation allowance 1,562,000 1,723,000
---------- ----------
$ 774,500 $ 755,000
========== ==========
Deferred tax liabilities-
Depreciation of transportation
and other and equipment $ 774,500 $ 755,000
---------- ----------
$ 774,500 $ 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.
U.S. Trucking has net operating losses through December 31, 1998 of
$1,997,200. These losses will be available to offset future income for
financial reporting purposes expiring in 2012.
F-18
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 5 - Long-term Notes Payable
1998 1997
---------- -----------
Consolidation loan described in Note 6 $3,219,108 $ -
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 - 2,000,396
Equipment loans related to the Mid-Cal
Express acquisition described in Note 2 4,039,740 -
Term loan in settlement with United
Acquisition II Corp. described in Note 13 - 54,656
Acquisition loan described in Note 5 - 1,884,904
Seller notes described in Note 5 - 135,606
---------- ----------
Total 7,258,848 4,075,562
Less: current maturities 2,034,756 1,187,753
---------- ----------
Long-term portion $5,224,092 $2,887,809
========== ==========
The carrying value of the Company's borrowings approximate their fair values.
Aggregate annual scheduled maturities of long-term debt at December 31, 1998
are as follows:
1999 $2,034,756
2000 2,579,894
2001 2,100,707
2002 362,968
2003 180,523
----------
Total $7,258,848
==========
F-19
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 6 - Acquisition Loan and Sellers' Notes
On December 22, 1998, U.S. Trucking entered into an agreement with GECC
whereby the acquisition debt, obligations under capital leases, and the
equipment loans were consolidated into a $5,000,000 three year revolving
credit line. The line bears interest at the rate of 4.5% over GECC's
commercial paper rate which was 5.1% at December 31, 1998. The average rate
through December 31, 1998 was 9.6%. Amounts borrowed under the agreement are
collateralized by a security interest in all of the company's present and
future tangible and intangible assets. There is also a letter of credit
sub-facility of $250,000 which was unused at December 31, 1998.
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., (GECC) and 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. Legal counsel
subsequently determined that U.S. Trucking is not responsible for this debt as
the liability remains with Mid America. Accordingly, it has been reclassified
as a credit against the goodwill recognized in the acquisition from Mid
America.
F-20
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 7 - Lease Commitments
U.S. Trucking leased tractors and trailers under various capital lease
agreements as of December 31, 1997. The net book value of the assets included
in these leases amounted to $919,288. Total minimum lease payments were
$772,211 with a present value of $707,377 as of December 31, 1997. During
1998, these underlying assets were refinanced as part of the consolidation
loan described in Note 6. Accordingly, there were no capital lease
obligations as of December 31, 1998.
NOTE 8 - Transportation and Other Equipment
Transportation and other equipment consists of the following as of December
31, 1998:
1998 1997
---------- ----------
Office equipment $ 201,833 $ 79,300
Tractors, trailers and
garage equipment 10,251,924 8,072,847
Transportation equipment 1,269 1,269
----------- ----------
10,455,026 8,153,416
Less: Accumulated depreciation 736,221 1,334,899
----------- ----------
Total $ 9,718,805 $6,818,517
=========== ==========
Depreciation expense amounted to $1,464,161 and $1,334,899 for the period
ended December 31, 1998 and 1997, respectively. $1,351,900 of depreciation
was included in operating expenses and $98,630 of depreciation was included in
administrative expenses. The fair market value of fixed assets approximates
book value.
F-21
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 9 - Related Party Transactions
U.S. Trucking leases ten tractors from three of its officers under net lease
agreements that specify monthly payments of $11,976 per month. See Note 11.
Transportation Services Company, Inc., a related entity, provides insurance
broker services to U.S. Trucking and earns a commission based upon the amount
of business it places for U.S. Trucking. U.S. Trucking also provides
consulting services to Transportation Services Company, Inc. pursuant to a
consulting agreement entered into on December 29, 1998. During 1998, U.S.
Trucking earned $228,000 of consulting income from Transportation Services
Company, Inc., which is included in "Other Income" in the accompanying
financial statements.
NOTE 10 - Retirement Plan
U.S. Trucking 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 $42,986 and $50,153 for the period ended
December 31, 1998 and 1997, respectively. The Company did not match employee
contributions during the periods ended December 31, 1998 and 1997.
F-22
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 11 - Commitments and Contingencies
Commencing on January 1, 1997, U.S. Trucking 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, U.S. Trucking 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
total cost of $2,800 per month until June 30, 2002.
Commencing March, 1998 U.S. Trucking leased ten tractors from three of its
officers under net lease agreements that specify monthly payments of $11,976
and extend with renewal options until March, 2003.
During 1998, U.S. Trucking leased tractors and trailers from various lenders
under net lease agreements with total monthly payments of $67,709 with various
expiration dates through July 31, 2002.
Minimum rental payments under such leases follows for the years ending
December 31:
1999 $ 996,660
2000 996,660
2001 695,010
2002 209,905
2003 15,588
----------
Total minimum payments required $2,913,823
==========
Rent expense for the period ended December 31, 1998 and 1997 amounted to
$194,655 and $142,013 respectively and is included in administrative expenses.
F-23
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 12 - Captive Insurance Program
Effective December 31, 1997 U.S. Trucking-Nevada entered into an offshore
insurance program agreement with a Bermudan insurance company (insurance
company) for the company's auto liability insurance, including rolling stock,
on a retrospective rating basis. The company purchased 1 share of non-voting
preferred stock of the insurance company for a purchase price of $1,000. The
insurance company is allowed to redeem the preferred stock for $1,000 on March
1, 2004. U.S. Trucking-Nevada was issued a "Deductible Reimbursement Insurance
Policy" which was reinsured with other insurance carriers "the treaty". The
agreement, the policy and the treaty together constitute the company's single
insurance "program". Under the terms of this program, the company pays
insurance premiums on a written premium underwriting basis.
Commencing on May 31, 2001, and annually thereafter on each succeeding year
through May 31, 2004, U.S. Trucking-Nevada will be eligible to receive a
dividend from the insurance company based upon a predetermined formula. The
formula is intended to dividend to the company the excess of investment income
and premiums paid over losses and expenses and fees incurred, less loss and
premium reserves. Pursuant to this section of the insurance program agreement,
the company recorded in the accompanying financial statements $355,321 of
amounts due from captive insurer which is reflected in other income. This
amount represents the "program-to date profit" at December 31, 1998, less a
valuation reserve.
U.S. Trucking-Nevada has agreed to indemnify and hold harmless the insurance
company against the cumulative sum of investment income, underwriting losses,
expenses and fees (the program-to-date profit) minus the cumulative amount of
dividends paid, being less than zero at any point in time.
A deposit of $100,000 was required at the initiation of the program and was
made through a related company who in turn purchased a Certificate of Deposit.
The deposit is reflected on the balance sheet under non-current assets-Due
from Related Party.
F-24
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 12 - Captive Insurance Program (continued)
U.S. Trucking decided in 1998 to develop a new line of business in order to
expand upon its current transportation business and take advantage of the
underwriting profit potential of the captive insurance program. U.S. Trucking
offered their program to selected independent third party trucking companies
who purchase insurance coverage and pay a premium to the company through
Transportation Underwriters Agency, Inc. U.S. Trucking records the net
premiums billed to third parties as liability insurance revenue, which is
included in net revenue and its premium costs and expenses to operate the
third party program as insurance expense-captive, which is included in
operating expenses in the accompanying financial statements. Liability
insurance revenues amounted to $810,856 and premiums, cost and expenses
incurred, amounted to $555,535.
NOTE 13 - Restricted Cash Accounts Owner Operators and Collateral
Against Letters of Credit
U.S. Trucking 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, U.S. Trucking 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, 1998, the company had letters of credit
outstanding totaling $10,000, which guarantee various operating and insurance
activities.
F-25
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 14 - 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 at the 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 Gulf
Northern in the amount of $145,000. Mid America and Gulf Northern agreed to
return a total of $100,000 payable in 36 installments beginning April 1, 1998
on a non-interest bearing basis. Legal counsel subsequently determined that
U.S. Trucking is not responsible for this debt as the liability remained with
Mid America. Accordingly, it has been reclassified as a credit against the
goodwill recognized in the acquisition from Mid America.
NOTE 15 - Concentration of Credit Risk - Cash
U.S. Trucking 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-26
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 16 - Accounts Receivable Financing/Revolving Loan Agreement
On December 22, 1998, U.S. Trucking entered into a revolving loan agreement
with GE Capital Corp. The revolving loan agreement allows borrowings of up to
$5,000,000 and has a term of 3 years. Amounts advanced under the loan
agreement are based upon 85% of the borrowing base of eligible accounts
receivable and 65% of unbilled freight that has been delivered. Interest on
amounts borrowed bear interest at the lender's index rate (commercial paper
rate) plus 4.5%.
The loan agreement contains several financial covenants including restrictions
on incurring or assuming debt other than what was in existence, sales of
assets, payments of certain fees, and restrictions on entering into any
lending or borrowing arrangements. At December 31, 1998 there was $1,795,888
of revolving debt outstanding. Interest expense recorded on the revolving
loan agreement amounted to $4,300. In 1998, the weighted average interest
rate was 9.6%.
From April 1995, to December 1998, U.S. Trucking had an agreement with a
factor whereby the factor would accept the company's receivables with full
recourse. Under the agreement, the factor advanced up to 90% of those
receivables submitted by the company. Interest on funds advanced was charged
at an average annual effective rate of 14.9% payable monthly.
In addition, U.S. Trucking was required to 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
$1,737,168 as of December 31, 1997. The fair market value of these balances
approximated book value.
F-27
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 17 - Economic Dependency
U.S. Trucking'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 periods ended December 31, 1998
and 1997. One customer accounted for 12.9% and 16.0% of the company's net
revenues for these respective periods. Accounts receivable from this customer
amounted to $242,925 and $176,449 as of December 31, 1998 and 1997
respectively.
Revenues from the U.S. Trucking's five and ten largest customers accounted for
approximately 30.0% and 38.4% respectively of total net revenues for the
period ended December 31, 1998. Accounts receivable as of December 31, 1998
from those customers amounted to $693,018 and $912,803 respectively.
Revenues from U.S. Trucking'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. Accounts Receivable as of December 31, 1997
from those customers amounted to $530,957 and $732,348 respectively.
U.S. Trucking provides services to a number of customers in the meat packing
and distribution industry. Revenues from those customers accounted for
approximately 6.5% of total revenues for the year ended December 31, 1998 and
10.7% of total revenues for the period ended December 31, 1997. Accounts
receivable from those customers amounted to $142,832 and $211,361 as December
31, 1998 and 1997 respectively.
F-28
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 18 - Intangible Assets
Intangible assets consist of the following items as of December 31, 1998:
Original Accumulated Net Book
Cost Amortization Value
---------- ------------ ----------
Goodwill $1,585,853 $216,365 $1,369,488
Debt refinancing
costs 490,357 55,662 434,695
Deferred trade-in 277,651 277,651
Other intangibles 1,437 1,216 221
---------- -------- ----------
Total $2,355,298 $273,243 $2,082,055
========== ======== ==========
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
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 $152,691 and $120,552 for the year ended
December 31, 1998 and 1997, respectively, and is included in administrative
expenses.
F-29
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 19 - Stock Transactions and Changes in Capital Structure
Effective June 26, 1998, U.S. Trucking-Nevada 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 share of common stock held.
On May 26, 1998, U.S. Trucking-Nevada 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. The common
stock was valued at $.01 per share and the consultants are eligible to receive
further fees and bonuses as determined by the Board of Directors. Pursuant to
this agreement and prior to the reverse merger, 1,000,000 shares of stock were
issued and valued at $180,000. Further, Pollon subscribed to purchase an
additional 160,000 shares of common stock for $120,000 which was unpaid as of
December 31, 1998.
NOTE 20 - Stock Option Plan
During 1998, U.S. Trucking-Nevada 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 U.S. Trucking-Nevada 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. All options granted during
1998 were exercisable at not less than the fair market value of the stock on
the date of the grant. Accordingly, no compensation cost has been recognized
for the plan.
F-30
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 20 - Stock Option Plan (continued)
The Committee approved the issuance of options to purchase 575,000 shares of
the common stock of the Company to various employees for and an exercise price
of .30 per share for a total exercise price of $172,600.
NOTE 21 - Industry Segment Information
U.S. Trucking has three major business segments: long-haul trucking,
interstate truck brokerage and liability insurance for the long haul trucking
industry. During the fourth quarter of 1998, the company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131).
The adoption of SFAS 131 requires the presentation of descriptive information
about reportable segments which is consistent with that made available to the
management of U.S. Trucking to assess performance. As a result of this
change, the company now reports segment performance on an after-tax basis and
separately reports information on its truck brokerage operation. In addition,
during 1998, the company added the liability insurance business and reports
that segment's performance similarly. In determining the net income of each
segment of the company, 100% of the interest expense is allocated to long-haul
trucking and effective tax rates are determined for each business segment.
F-31
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 21 - Industry Segment Information (continued)
<TABLE>
<CAPTION>
Long-haul Truck Liability
Trucking Brokerage Insurance Intersegment Total
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1998
Sales $19,210,994 $1,857,168 $1,749,263 $(1,001,581) $21,815,844
Operating income 2,834,462 239,087 355,321 (100,000) 3,328,870
Net interest (729,980) (729,980)
Pretax income
(loss) (3,712) (38,696) 355,321 (191,146) 121,767
Net income (loss) (3,712) (38,696) 355,321 (191,146) 121,767
Assets 15,064,076 224,823 1,023,462 16,312,361
Depreciation &
Amortization 1,614,108 2,744 - - 1,616,852
Additions to long-
lived assets 5,220,001 - - - 5,220,001
1997
Sales $15,817,598 $1,853,540 $ - $ (201,857) $17,469,281
Operating
Income (loss) (969,118) 4,193 - - (964,925)
Net interest (655,494) - - - (655,494)
Pretax income
(loss) (1,535,393) 4,193 - - (1,531,200)
Net income (loss) (1,535,393) 4,193 - - (1,531,200)
Assets 9,994,560 366,205 - - 10,360,765
Depreciation &
Amortization 1,452,703 2,748 - - 1,455,451
Additions to long-
lived assets 8,153,416 - - - 8,153,416
</TABLE>
F-32
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 22 - Equipment Financing and Sale/Leaseback Transaction
On December 21, 1998 U.S. Trucking entered in to a "sale/leaseback"
transaction with a major equipment financing company as part of an overall
program to upgrade its fleet of transportation equipment. As part of the
transaction, the company traded in equipment with a book value of $914,651 for
$637,000 of credit against the new equipment. The transaction resulted in a
book loss of $277,651. For accounting purposes, this loss has been
reclassified as an intangible asset and is being amortized over the life of
the new equipment leased. The average lease term is 33 months.
NOTE 23 - Fair Value of Financial Instruments
Estimated fair values of U.S. Trucking's financial instruments are as follows:
1998 1997
---------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- ---------- ----------
Cash and short-term $ 22,976 $ 22,976 $ 244,309 $ 244,309
investments
Long-term debt 7,258,848 7,258,848 4,075,562 4,075,562
The carrying amount approximates fair value of cash and short-term
instruments. The fair value of long-term debt is based on current rates at
which U.S. Trucking could borrow funds with similar remaining maturities.
NOTE 24 - Year 2000 Compliance
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
Year 2000 as 1900 or some other date, resulting in possible errors when
information using year 2000 dates is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 issue may be
experienced before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure which could affect an entities ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 issue affecting U.S. Trucking including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
Generally, costs associated with the Year 2000 issue are being expensed as
incurred.
F-33
<PAGE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
U.S. TRUCKING, INC.
Dated: April 27, 1999 By /s/ Danny Pixler, President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
U.S. TRUCKING, INC.
By:/s/ Danny L. Pixler
Danny L. Pixler, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Danny L. Pixler President (Chief Executive April 27, 1999
Danny L. Pixler Officer) and Director
/s/ W. Anthony Huff Executive Vice President April 27, 1999
W. Anthony Huff and Director
/s/ John Ragland Chief Financial and April 27, 1999
John Ragland Accounting Officer
<PAGE>
<PAGE>
U.S. TRUCKING, INC.
FORM 10-K UNDER THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION LOCATION
23.2 Consent of Bianculli, Filed herewith electronically
Pascale & Co. P.C.
27 Financial Data Schedule Filed herewith electronically
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 25, 1999, included in this Form 10-K, into the
Company's previously filed S-8 Registration Statement File No. 333-70353.
/s/ Bianculli, Pascale & Co., P.C.
Bianculli, Pascale & Co., P.C.
Garden City, New York 11530
April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages F-1 through F-33 of
the Company's Form 10-KSB for the fiscal year ended December 31, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 22,976
<SECURITIES> 0
<RECEIVABLES> 3,589,243
<ALLOWANCES> 257,030
<INVENTORY> 0
<CURRENT-ASSETS> 4,031,285
<PP&E> 10,455,026
<DEPRECIATION> 736,221
<TOTAL-ASSETS> 16,312,361
<CURRENT-LIABILITIES> 5,944,016
<BONDS> 0
0
0
<COMMON> 2,796,000
<OTHER-SE> 2,291,869
<TOTAL-LIABILITY-AND-EQUITY> 16,312,361
<SALES> 21,815,844
<TOTAL-REVENUES> 21,815,844
<CGS> 0
<TOTAL-COSTS> 18,486,974
<OTHER-EXPENSES> 2,924,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 731,628
<INCOME-PRETAX> 121,767
<INCOME-TAX> 0
<INCOME-CONTINUING> 121,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,767
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
