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As filed with the Securities and Exchange Commission February 29, 2000.
SEC Registration No. 333-71875
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
AMENDMENT NO. 2 TO
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
U.S. TRUCKING, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 4213 68-0133692
- ------------------------- ---------------------------- -------------------
(State or Other Jurisdic- (Primary Standard Industrial (IRS Employer Iden-
tion of Incorporation) Classification Code Number) tification Number)
550 Long Point Road, Suite C, Mt. Pleasant, South Carolina 29464
(843) 972-2055
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(Address and Telephone Number of Principal
Executive Offices and Principal Place of Business)
Danny L. Pixler, President
550 Long Point Road, Suite C, Mt. Pleasant, South Carolina 29464
(843) 972-2055
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(Name, Address and Telephone Number of Agent for Service)
Copies to:
Jon D. Sawyer, Esq.
Krys Boyle Freedman & Sawyer, P.C.
600 Seventeenth Street, Suite 2700 South Tower, Denver, Colorado 80202
(303) 893-2300
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH AMOUNT MAXIMUM MAXIMUM
CLASS OF SECUR- TO BE OFFERING AGGREGATE AMOUNT OF
ITIES TO BE REGIS- PRICE OFFERING REGISTRATION
REGISTERED TERED PER UNIT(1) PRICE FEE
- ----------------------------------------------------------------------------
Common Stock 5,772,230 (3) $4.65625 $26,876,946 $7,471.79 (4)
No Par Value Shares
(2)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 by reference to the average of the closing bid and ask
prices of the Registrant's Common Stock on September 8, 1999, as reported on
the OTC Bulletin Board.
(2) To be offered by selling shareholders.
(3) In accordance with Rule 416 under the Securities Act of 1933, this
registration statement also covers an indeterminable number of shares of
common stock, no par value, as may become issuable upon conversion of the
Series B Convertible Preferred Stock and the exercise of common stock purchase
warrants to prevent dilution resulting from stock splits, stock dividends, and
similar transactions in accordance with the terms of the Series B Convertible
Preferred Stock and the common stock purchase warrants.
(4) Because $1,824.38 was paid with the initial filing of this registration
statement, an additional $5,647.41 is being paid in connection with this
filing.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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PROSPECTUS SUBJECT TO COMPLETION DATED FEBRUARY 29, 2000
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The information in this prospectus is not complete and may be
changed. The securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securi-
ties and the selling shareholders are not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
U.S. TRUCKING, INC.
5,772,230 shares of common stock
2,505,531 shares of common stock are being offered by certain
selling shareholders. We will not receive any of the proceeds
from the sale of the shares by the selling shareholders.
The common stock is traded in the over-the-counter market
and is quoted on the OTC Bulletin Board (Symbol: USTK). On
___________, 2000, the closing bid and ask prices of the Common
Stock were $_____ and $_______.
This investment involves a high degree of risk. You should
purchase shares only if you can afford a complete loss. See
"Risk Factors" starting on page 5 for a discussion of these risks.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
_________, 2000
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TABLE OF CONTENTS
PAGE
Prospectus Summary .......................................... 3
Risk Factors ................................................ 5
Market Prices and Dividends ................................. 7
Management's Discussion and Analysis ........................ 8
Business .................................................... 17
Management .................................................. 27
Security Ownership of Management, Principal Shareholders
and Selling Shareholders .................................. 31
Transactions With Management and Others ..................... 34
Description of Securities ................................... 35
Plan of Distribution ........................................ 40
Legal Matters ............................................... 41
Experts ..................................................... 41
Additional Information ...................................... 41
Index to Financial Statements ............................... F-1
2
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PROSPECTUS SUMMARY
U.S. TRUCKING, INC.
U.S. Trucking, Inc. provides transportation and freight brokerage
services. We transport full truckloads of both refrigerated and non-
refrigerated commodities over various distances, primarily east of the Rocky
Mountains.
Our offices are located at 550 Long Point Road, Suite C, Mt. Pleasant,
South Carolina 29464. Our telephone number is (843) 972-2055.
OFFERING SUMMARY
Securities Offered: 2,505,531 shares of common stock offered by
selling shareholders
Other shares being ________ common shares are being registered
registered for possible conversion of debentures and
preferred stock and for the possible exercises
of warrants.
Common Stock Presently
Outstanding: 9,629,461 Shares
FINANCIAL SUMMARY
This financial summary does not include all of the information in the
financial statements. You should read the financial summary along with the
financial statements and the notes to the financial statements which are
included in this prospectus.
Balance Sheet Data:
As of As of
December 31, September 30,
1998 1999
(Audited) (Unaudited)
------------ ------------
Current Assets $ 4,031,285 $12,738,190
Fixed Assets 9,718,805 7,945,768
Other Assets 2,562,271 6,961,560
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Total Assets $16,312,361 $27,645,518
Current Liabilities $ 5,944,016 $11,672,717
Other Liabilities 5,279,966 5,111,328
Stockholders' Equity 5,088,379 10,861,473
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$16,312,361 $27,645,818
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Income Statement Data:
Eleven Month Nine Months
Period Ended Year Ended Ended
December 31, December 31, September 30,
1997 1998 1999
(Audited) (Audited) (Unaudited)
------------ ------------ ------------
Net Revenues $17,469,281 $21,815,844 $29,828,018
Income from Operations $ (964,925) $ (404,124) $ 835,230
Net Income (Loss) $(1,531,200) $ 121,767 $ 683,726
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RISK FACTORS
Investing in the Shares is very risky. You should be able to bear a
complete loss of your investment. You should carefully consider the following
factors:
WE HAVE ONLY EARNED A SMALL AMOUNT OF INCOME DURING OUR LAST ONE YEAR AND
NINE MONTHS, AND IF WE ARE UNABLE TO INCREASE OUR LEVEL OF PROFITS THE VALUE
OF YOUR SHARES WILL DECLINE. We have never earned sufficient profits to pay
dividends to our shareholders. U.S. Trucking - Nevada incurred a net loss of
($294,602) on revenues of $14,847,335 during the year ended December 31, 1996,
and a net loss of ($1,531,200) on revenues of $17,469,281 during the eleven
month period ended December 31, 1997. While we earned $121,767 on revenues of
$21,815,844 during 1998, and $683,726 on revenues of $29,828,018 during the
nine months ended September 30, 1999, there are no assurances that we will
continue to operate profitably in the future. Our ability to operate
profitably will depend on our ability to upgrade the age of our tractors and
trailers, to make good acquisitions and to increase our level of revenues.
FAILURE TO RAISE ADDITIONAL FINANCING WILL RESTRICT OUR ABILITY TO MAKE
ADDITIONAL ACQUISITIONS. We do not generate sufficient funds internally to
finance acquisitions. While we anticipate paying for acquisitions primarily
with our stock, the purchase price for some or all of such acquisitions may
include cash. If we cannot raise such funds through debt, equity or seller
financing, our plans for growth would be curtailed.
THE LOSS OF ANY OF OUR KEY CUSTOMERS WOULD PROBABLY HAVE A MATERIALLY
ADVERSE EFFECT ON OUR BUSINESS AND OPERATING RESULTS. A significant portion
of our revenue is generated from key customers. The loss of business from any
of our key customers would probably have a material adverse effect on our
business and operating results. During 1999, our top 10 customers accounted
for approximately __% of revenues. Our largest customer, Consolidated Papers,
Inc. accounted for ____% of revenues. We do not have long-term contractual
relationships with any of our customers.
THE FACT THAT OUR SHARES ARE NOT LISTED ON NASDAQ OR AN EXCHANGE WILL
LIMIT YOUR ABILITY TO RESELL YOUR SHARES. Because our Shares are not
currently listed on Nasdaq or an exchange, they are subject to Rule 15g-9
under the Exchange Act, which may limit their marketability. That rule
imposes additional sales practice requirements on broker-dealers that sell
low-priced securities to persons other than established customers and
institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the rule affects the ability of broker-dealers to sell
our shares and may affect the ability of shareholders to sell our shares in
the secondary market.
MANAGEMENT WILL CONTROL 60% OF U.S. TRUCKING, INC.; THEIR INTERESTS MAY
BE DIFFERENT FROM AND CONFLICT WITH YOURS. The interests of management could
conflict with the interests of our other stockholders. Executive officers and
directors beneficially own a total of approximately 60% of our outstanding
common stock. Accordingly, if they act together, they would have the power to
control the election of directors and the approval of actions for which the
approval of our stockholders is required.
FUTURE SALES INTO THE MARKET BY CURRENT SHAREHOLDERS COULD CAUSE THE
MARKET PRICE OF YOUR COMMON STOCK TO DECLINE. It is likely that market sales
of large amounts of the shares described below or other U.S. Trucking shares
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will have the effect of depressing the market price of our shares. We
currently have 7,730,955 shares of Common Stock outstanding and the following
is a breakdown of these shares:
WE CANNOT PREDICT THE DEPRESSIVE EFFECT OF RESALES.
* Free Trading 1,632,701
* Restricted: 5,376,182
Currently eligible for
sale under Rule 144 3,334,316 Shares
Being offered in this
Prospectus 2,505,531 Shares
WE ARE ALSO REGISTERING AN ADDITIONAL ____ COMMON SHARES FOR POSSIBLE
CONVERSIONS OF DEBENTURES AND PREFERRED STOCK AND FOR POSSIBLE EXERCISES OF
WARRANTS. We are unable to predict the effect that sales made in this
offering or under Rule 144 may have on the then prevailing market price of our
shares.
WE HAVE ISSUED $2,950,000 OF CONVERTIBLE PREFERRED STOCK WHICH IS
CONVERTIBLE AT 90% OF THE THEN CURRENT MARKET PRICE WHICH COULD RESULT IN THE
ISSUANCE OF AN EXTREMELY LARGE NUMBER OF SHARES OF COMMON STOCK. We have sold
2,000 shares of Series B Convertible Preferred Stock and 950 shares of Series
D Convertible Preferred Stock to investors for $2,950,000 in cash. These
investors have the right to convert these shares into common stock at a price
equal to 90% of the average closing bid price for the ten consecutive trading
days immediately preceding the conversion date, not to exceed $2.59 per share.
Therefore, if the trading price of our common stock drops much below $2.59, we
could be forced to issue an extremely large number of shares.
WE MUST PAY 12% ANNUAL DIVIDENDS ON $5,250,000 OF CONVERTIBLE PREFERRED
STOCK. We have sold a total of 5,250 shares of three series of convertible
preferred stock for $5,250,000 in cash. We are required to pay a 12% dividend
on all of these shares which amounts to $630,000 per year.
INCREASES IN FUEL PRICES WILL NEGATIVELY AFFECT OUR PROFITS. One of our
largest operating expenses is fuel. Recent increases in diesel fuel prices
will negatively impact our operating results to the extent we are unable to
pass through the added costs to our customers.
Some of the statements contained in this prospectus discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. Factors that could cause the results to differ include the risk
factors set forth on page 5 above.
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MARKET PRICES AND DIVIDENDS
U.S. Trucking's Common Stock trades in the over-the-counter market, under
the symbol "USTK". There were no quotations for U.S. Trucking'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 U.S. Trucking'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
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September 30, 1998 $1.875 $0.002
December 31, 1998 $4.50 $0.75
March 31, 1999 $5.68 $3.00
June 30, 1999 $3.75 $2.31
September 30, 1999 $4.72 $2.625
December 31, 1999 $4.56 $2.50
As of December 31, 1999, we had approximately 310 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
U.S. Trucking's Board of Directors. No dividends have been paid on the Common
Stock and no dividends are anticipated to be paid in the foreseeable future.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements of U.S. Trucking and related footnotes
appearing in this prospectus.
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 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.
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 trucking. 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 stockholders for cash and 25% of U.S. Trucking -
Nevada's common stock;
2. Purchased 100% of the common stock of Mencor, Inc. from its stock-
holders for cash and 37,500 shares of the common stock of U.S.
Trucking - Nevada's parent company, U.S. Transportation System,
Inc.;
3. Purchased certain assets and liabilities of Jay & Jay Transpor-
tation, 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. to Logistics
Management LLC. 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
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different accounting basis than the period to January 30, 1997, and
accordingly, the amortization of the resulting goodwill recognized in the
purchase transaction as well as the increased depreciation also incurred 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 U.S. Trucking, Inc. 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
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 and freight settlements paid
to outside carriers. 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. 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.
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
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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.
Other income increased $346 thousand from $101 thousand in 1997 to $447
thousand in 1998. The reason for this increase was due to increased revenues
from trucking consulting which represents 95% of amounts classified to this
area.
Due to the above information, net income increased $1.65 million from a
$1.53 net loss in 1997 to a $122 thousand net profit in 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The amounts for the year ended December 31, 1997, differ from those of
1996 based on the following factors:
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, 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 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
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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 and the
depreciation expense for the 30 days ended January 30, 1998 for the
predecessor entities is not comparable to the depreciation for the remaining
eleven months of 1998 after the acquisitions.
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 U.S.
Trucking, Inc. 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 in operating expenses as a percentage of revenue was due
primarily to the increase in business associated with the operations added in
early 1997, yielding higher driver payroll ($1.2 million) and higher fuel
costs and higher repair and maintenance costs ($400,000) 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 primarily to additional equipment being added to our
fleet yielding $280,000 in additional depreciation charges, and to a lesser
extent increased amortization costs ($120,000 increase) due to the
restructuring of certain loans and increased depreciation ($70,000 increase)
due to certain capitalized repairs.
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 lower cost of
borrowing from its restructuring of some equipment debt, and interest expense
being lower on more recent portions of equipment loans, and to a lesser extent
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.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues increased 88.5% to $29.8 million for the nine months ended
September 30, 1999 from $15.8 million for the same period ended in 1998. The
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reason for this increase is attributed to five major factors: the Mid-Cal
acquisition which occurred on December 30, 1998, the ProStar acquisition which
occurred on April 22, 1999, the opening of an owner operator based container
division in June 1999 ,the acquisition of Fulmer Transport, Inc. in September
1999 and the addition of a Captive Insurance Program in 1998. For the nine
month period ended September 30, 1999 acquisitions increased company revenues
over the same period in 1998 as follows: the Mid-Cal acquisition increased
revenues by $6.6 million, the ProStar acquisition increased revenues by $3.1
million, the Fulmer Transport acquisition increased revenues by $1.5 million,
the container division increased revenues by $1.2 million and revenues from
the Captive Insurance Program increased $1.5 million.
Operating expenses increased by $13.8 million or 91.3% to $28.9 million
for the nine months ended September 30, 1999 from $15.2 million for the same
period in 1998. The reasons for the increase in the dollar amount are set
forth in the discussions of the individual line items below. Operating
expenses increased as a percentage of revenue to 97.2% for the nine months
ended September 30, 1999 from 95.8% for the same period in 1998. The primary
factor causing this increase in the percentage was the increase in general and
administrative expenses which increased as a percentage of revenue to 6.1% for
the nine months ended September 30, 1999 from 3.9% for the same period in
1998. Management believes as revenues continue to increase, general and
administrative expenses will start to decrease as a percentage of revenue
because the costs of centralizing the general office and being a public
company should level out going forward.
Purchased transportation increased by $7.0 million or 127% to $12.6
million or 42.2% of revenue for the nine months ended September 30, 1999 from
$5.6 million or 35.1% of revenue for the same period ended in 1998. The reason
for this increase is higher settlements incurred from increased revenues
generated from brokerage, agents and container operations which historically
have higher purchased transportation costs associated with them. Brokerage
settlements increased by $2.8 million, agent settlements increased by $1.3
million and settlements paid to owner operators increased $1.2 million for the
nine months ended September 30, 1999 compared to the same period in 1998.
Salaries, wages and benefits increased by $2.4 million to $6.4 million
for the nine months ended September 30, 1999 from $4.0 million for the same
period ended 1998 but decreased as percentage of revenue to 21.5% in 1999
compared to 25.3% in 1998. The reason for this decrease as percentage of
revenue is increased revenues generated from brokerage, owner operators and
agents which have much lower payroll costs associated with them. This expense
increased in dollar amount as a result from the Mid-Cal acquisition which
added administrative and company driver payrolls.
Fuel expense increased by $843 thousand or 54% to $2.4 million for the
nine months ended September 30, 1999 from $1.56 million for the same period
ended in 1998 but decreased as a percentage of revenue to 8.1% for the nine
months ended September 30, 1999 from 9.9% for the same period ended in 1998.
Fuel expense decreased as percentage of revenue because of increased revenues
generated by brokerage, agents and owner operators which have no fuel costs
associated with them. Fuel expense increased in dollar amount primarily as a
result from the Mid-Cal acquisition, which increased the Company's driver
base.
Operating supplies and maintenance increased by $243 thousand or 28.3% to
$1.1 million for the nine months ended September 30, 1999 from $860 thousand
for the same period ended in 1998 but decreased as a percentage of revenue to
3.7% for the nine months ended September 30, 1999 from 5.4% for the same
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period ended in 1998. The reason for the decrease as a percentage of revenue
is due to increased revenues generated by brokerage, agents and owner
operators which have minor maintenance costs associated with them. The reason
for the increase in dollar amount is primarily the result of the Mid-Cal
acquisition, which increased the number of company tractors.
Insurance captive expense increased by $815 thousand to 2.7% of revenues
for the nine months ended September 30, 1999. The reason for the increase is a
change in accounting treatment for captive insurance that wasn't put into
effect until the 1998 year end. For the nine months ended September 30, 1998
all revenues and direct costs were reported at net as a decrease in insurance
expense. Beginning year end 1998 all premiums written from third party
truckers were classified as revenues and all costs associated with that
revenue were classified as captive insurance expense.
Depreciation and amortization increased by $540 thousand or 45.2% to
$1.73 million for the nine months ended September 30, 1999 from $1.19 million
for the same period ended in 1998 but decreased as a percentage of revenue to
5.8% for the nine months ended September 30, 1999 from 7.5% for the same
period in 1998. The reason for this decrease as percentage of revenue is due
to increased revenues generated by brokerage, agents and owner operators which
have minimal depreciation costs associated with them. It should be noted
however that amortization expense increased $150 thousand to $306 thousand for
the nine months ended September 30, 1999 from $156 thousand for the same
period ended in 1998. Depreciation increased in dollar amount because of the
addition of fixed assets from the Mid-Cal acquisition.
Interest expense increased $83 thousand or 16.1% to $596 thousand for the
nine months ended September 30, 1999 from $513 thousand for the same period
ended in 1998 but decreased as percentage of revenue to 2.0% for the nine
months ended September 30, 1999 from 3.2% for the same period ended in 1998.
The reason for this decrease as a percentage of revenue is due to increased
revenues generated from brokerage, agents and owner operators which have
minimal interest expense associated with revenue equipment debt. The reason
for the increase in dollar amount is from increased debt inherited from the
Mid-Cal acquisition.
General and administrative expenses increased $530 thousand or 252% to
$740 thousand or 6.2% of revenues for the nine months ended September 30,
1999, from $211 thousand or 3.9% of revenues for the same period ended in
1998. The primary reason for this increase as a percentage in revenue is that
legal, accounting and consulting expenses increased by $350 thousand to $381
thousand for the nine months ended September 30, 1999, from $31 thousand for
the same period ended in 1998.
Gain on sale of equipment increased by $405 thousand for the nine months
ended September 30, 1999 in comparison to no gain in the same period in 1998.
The company was able to sell its unutilized and older equipment that had low
book values for amounts substantial enough to recognize gains.
Net income increased $474 thousand or 225% to $684 thousand for the nine
months ended September 30, 1999 from $210 thousand for the same period ended
in 1998. The primary reason for this increase is attributed to the gain on
sales mentioned previously.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999 the Company had a working capital surplus of
$1,065,473 as compared to a deficit of $1,912,731 at December 31, 1998. The
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Company's working capital improved primarily due to $1,104,114 received from
the sale of transportation equipment in February 1999, $1,864,700 received
from the sale of Series B Preferred Stock, $800,000 received from the sale of
Series D Preferred Stock, $300,000 from the sale of common stock and
$1,040,000 from the sale of convertible debentures. Historically, the
Company has had a working capital deficit but has been able to meet its
obligations as they come due by utilizing its revolving credit facility with
General Electric Capital Corporation (after December 22, 1998) and its
receivable factoring arrangement with Transport Clearings (prior to December
22, 1998). In addition, the Company has relied on equity investments from
outside investors to facilitate our cash flows. In order to continue with its
growth plans, the Company intends to continually raise additional funds
through the private placement of equity and/or debt securities, which will
depend upon prevailing market conditions, the market price of common stock and
other factors over which the Company has no control. Since September 30, 1999,
the Company has raised $2,300,000 in gross proceeds from the sale of Series E
Preferred Convertible Stock, $550,000 in gross proceeds from the sale of
convertible debentures and $2,000,000 in proceeds from the sale of common
stock. In addition, since September 30, 1999, $600,000 of convertible
debentures have been converted to 263,360 shares of common stock.
During the nine month period ended September 30, 1999, the Company used
$3,494,012 in operating activities and in the corresponding prior year period
operating activities provided $848,649 in cash. Accounts receivable increased
by $4.5 million for the nine months ended September 30, 1999 compared to a
$320 thousand increase for the corresponding period in the prior year. The
primary reason for the increase was added revenues from the Mid-Cal, ProStar
and Fulmer Transport acquisitions. Accruals for independent contractor
settlements, brokerage freight settlements, and company driver payroll
resulted in cash inflows of $645 thousand, as compared to $49 thousand in
accruals for these items in the prior period. The reason for this increase is
from the acquisitions previously mentioned. Increase in notes receivable
decreased cash flows $664,404 for the nine months ended September 30, 1999, in
comparison to zero for the prior year. These notes are the result of equipment
sales and notes receivable inherited from the Fulmer Transport acquisition.
Also, the Company sold refrigerated trailers obtained in the Mid-Cal
transaction to Freedom Leasing for $1.1 million. The Company recorded a $124
thousand gain on sale for this transaction and decreased our annual debt
service by $78 thousand. In addition, the Company sold unutilized and older
equipment. Because of the low book values, the Company recognized gains in the
amount of $281 thousand during September 1999.
Cash used in investing activities increased by $920 thousand from net
cash used of $467 thousand for the nine months ended September 30, 1998 to a
net cash used of $1.387 million for the same period ending in 1999. One reason
for this change was the net increase in fixed assets acquired of $1 million
for the nine months ended September 30, 1999 compared to the same period in
1998.This increase is reflected by the purchase of a new computer system along
with fixed assets acquired in the Fulmer Transport acquisition. The sale of
equipment to Freedom Leasing mentioned in the preceding paragraph created $1.1
million of cash inflows and $899 thousand in cash has been used to fund the
acquisitions of ProStar, the container division and Fulmer Transport .
Cash flows provided by financing activities increased $6.7 million during
the period from a net cash outflow of $312 thousand for the nine months ended
September 30, 1998 to a net cash inflow of $6.4 million for the same period in
1999. In addition to the sales of preferred stock and convertible debentures
discussed above, the Company received a $372 thousand capital contribution
during the first quarter of 1999. Principal payments on long term debt
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increased by $1.51 million, from $657 thousand for the nine months ended
September 30, 1998 to $2.17 million for the same period in 1999. The reason
for this increase is twofold. One is more debt was inherited from the Mid-Cal
acquisition, thus more principal payments had to be made, and secondly $848
thousand of debt was paid down on the sale of 35 refrigerated trailers to
Freedom Leasing in February 1999. One other item which significantly changed
cash flow from a financing perspective was the increase in debt relating to
the revolving credit facility with General Electric Capital Corporation. This
created a $3.1 million increase in cash flow for the nine months ended
September 30, 1999 and can be directly linked to the increase in accounts
receivable created by the Mid-Cal, ProStar, container division and Fulmer
Transport acquisitions.
The Company completed a working capital financing agreement with General
Electric Capital Corporation on December 21, 1998. The transaction involved 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 June 30, 1999, $1.8
million was outstanding on the line. While General Electric Capital
Corporation increased our credit facility to $7,000,000 in September, the
Company believes that this will not be sufficient to handle internal and
acquisition growth for the remainder of 1999. While the Company believes
General Electric Capital Corporation may increase our line further, there is
no assurance this will happen. In the event this does not happen, the Company
will have to rely on capital infusions from other sources.
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 tractors. The
amount received on trade-in totaled $288,000, with the new lease after
sale-leaseback requiring $1,150,000 in rental payments. 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 and 20 new dry van trailers. The amount received on trade-in
totaled $349,000, with the new lease after sale-leaseback requiring $2,500,000
in rental payments. The term of this lease is 72 months with monthly payments
of $38,500. General Electric Capital Corporation also refinanced all other
long-term debt. The total debt refinanced amounted to $3.2 million, payable
over 36 months with monthly payments of $105,000.
The foregoing transactions have yielded savings in repairs and
maintenance but the Company is not satisfied with the condition of the fleet.
Accordingly, the Company has ordered 100 year 2000 Volvo tractors, which when
delivered with the trade-in of all units year 1996 or older will make our
tractor fleet much more efficient and productive. General Electric Capital
Corporation will be lessor of record for the new fair market value lease with
an aggregate cost of $8.4 million, a lease term of 48 months and monthly
payments of $138 thousand. This arrangement requires a 10% advance to General
Electric Capital Corporation to be held as security for the our performance
under each lease. At the end of the lease term, the Company will have an
option to 1) purchase the equipment at the fair market value, 2) return the
equipment to General Electric Capital Corporation or 3) renew the lease at the
then fair market value rental rate. The Company believes this transaction
will result in higher equipment utilization and lower repair and maintenance
costs and will increase cash flow by $600 thousand annually. The 10% advance
held as security by General Electric Capital Corporation will be funded
through an engine rebate from Volvo Trucks North America, Inc. and the sale of
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a convertible debenture. The Company believes that the amounts received for
trade-in's will be sufficient to pay off debt associated with them, currently
$2.3 million. The equipment debt left after trade-in's can be met through
operating cash flows. If the Company can't meet debt obligations or other
capital commitments through operating cash flows, capital infusions or debt
refinancings will need to be effected. The Company cannot give any assurance
this will happen. In addition, approximately $4.9 million of the above
described debt comes due within the next three years. While the Company
anticipates General Electric Capital Corporation or another lender will be
willing to refinance the debt remaining at such time, there can be no
assurances that this will happen. If the Company is unable to repay its debts
when due, the Company can be forced to liquidate some of its assets and/or its
creditors would attach certain of its assets, both of which could have
material adverse consequences for the Company.
INFLATION
Many of the Company's operating expenses, including fuel costs and fuel
taxes, are sensitive to the effects of inflation, which could result in higher
operating costs. The effects of inflation on the Company's business during
the nine months ended September 30, 1999, were negligible.
SEASONALITY
In the transportation industry, results of operations frequently show a
seasonal pattern. Seasonal variations may result from weather or from
customer's reduced shipments after the busy winter holiday season. To date,
the Company's revenues have not shown any significant seasonal pattern. The
current expansion of the Company's operations into the West Coast could expose
the Company to greater operating variances due to seasonal weather.
YEAR 2000
Neither we nor anyone we do business with has encountered any problems
with respect to the inability of computer systems to recognize and process
date-sensitive information after 1999 due to the use of only the last two
numbers to refer to a year.
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BUSINESS
GENERAL
U.S. Trucking provides transportation and freight brokerage services. We
transport full truckloads of both refrigerated and non-refrigerated
commodities over various distances on a nationwide basis.
We are actively seeking other companies which are interested in
outsourcing their transportation service needs.
Our truckload division operates approximately 370 tractors (including
approximately 200 tractors which are owned by independent contractors and
agent operators) and approximately 370 trailers.
We intend to expand our business through internal growth and
acquisitions. The transportation industry is highly fragmented, which
provides a large number of acquisition opportunities. We are primarily
interested in medium to long haul truckload carriers, container and freight
brokerage operations, with annual revenues of not less than $5.0 million.
HISTORY AND DEVELOPMENT OF U.S. TRUCKING
U.S. Trucking, 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 completed a reverse acquisition of U.S. Trucking, Inc., a
Nevada corporation, which is now a wholly-owned subsidiary. 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.
Our primary operating subsidiary, Gulf Northern, has operated as a
truckload carrier since it was formed in 1991. Current management purchased
Gulf Northern in 1994. Except as discussed below, in the past three years
there have been no material developments in the Gulf Northern business in
terms of reorganizations, management changes or operations. 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, U.S. Transportation Systems had contributed
to U.S. Trucking-Nevada 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 offered roller-bed truckload services, primarily to UPS between
Florida and Kentucky. The Translynx business was discontinued in early 1998.
As it became clear that the expected benefits from affiliating with U.S.
Transportation Services would not be forthcoming, Messrs. Huff and Pixler
arranged for Logistics Management, LLC to repurchase the majority position
held by U.S. Transportation Systems.
Since September 1998 we have significantly expanded the size and scope of
our business through four acquisitions. In December 1998 we acquired the
assets of Mid-Cal Express, Inc., a California based long-haul truckload
carrier, for 400,000 shares of our common stock and the assumption of
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approximately $5.7 million of obligations. This acquisition expanded the
scope of our services from coast-to-coast and into Canada, and increased our
average length haul.
In April 1999 we acquired Prostar, Inc., a South Carolina based freight
brokerage business with approximately $6 million in annual revenues, for
$300,000 cash and 200,000 shares of common stock.
In June 1999 we acquired the intermodal business of Excalibur Express,
Inc., a Charleston, SC based company with approximately $6 million annual
revenues, for 200,000 shares of common stock and $300,000 cash.
In August 1999 we acquired the long-haul truckload carrier and freight
brokerage business of Fulmer Brothers, Inc., a Florida based $24 million
revenue company. In connection with this acquisition we opened nine new
agency facilities at various locations throughout the U.S. We paid 400,000
shares of common stock for this acquisition.
In February 2000, we acquired the freight brokerage business of Checkmate
Truck Brokerage, Inc. and Maverick Truck Brokerage, Inc., Florida-based
freight brokerage companies with combined revenues of $23 million. We paid
$1.0 million cash and 385,000 shares of our common stock for these companies.
THE TRUCKLOAD SEGMENT OF THE TRANSPORTATION INDUSTRY
The for-hire truckload market segment of the transportation industry
accounted for approximately $65 billion of revenue in 1998. The truckload
transportation industry currently is undergoing changes that affect both
shippers and carriers. Shippers, which are the customers of trucking
companies, have been focusing their capital resources on their primary
businesses and are outsourcing their transportation 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. U.S. Trucking's average length of haul is approximately 1,000
miles.
We also operate a container division from our Charleston, SC location,
the third largest port in the U.S. Also known as "intermodal" transportation,
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this business primarily involves transporting container loads between port
destinations for export and import locations, either in Charleston or a final
destination elsewhere in the U.S.
TRANSPORTATION BROKERAGE SERVICES
We offer transportation brokerage services through our wholly-owned
subsidiaries Mencor, Inc., Prostar, Inc., and UST Logistics, Inc., the
acquisition vehicle for our recent purchases of Checkmate and Maverick. These
companies return hauls for common carriers and corporations transporting their
own goods which 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 the returning
shipper or carrier to effect the move, and the amount we receive from the
shipper. Mencor was incorporated as an Arkansas corporation in 1994 by
Roxanne Pixler and Michael Menor. They sold Mencor to U.S. Trucking-Nevada in
the transaction discussed above in which Gulf Northern was sold. In the past
three years there have been no other material developments in the Mencor
business in terms of reorganizations, management changes, or operations.
Prostar was incorporated as a South Carolina corporation in October 1996.
Checkmate and Maverick were incorporated as Florida corporations in February
1983 and April 1996, respectively.
AGENT PROGRAM
In 1999 we instituted an agent program, pursuant to which we allow small
carriers to operate under our authority as an agent. In this program the
agent provides its customers and business. We collect all of the revenue
from the shippers and pay the agent 85% of the revenue less certain expenses
we pay such as fuel costs and pallet costs. We provide the agent with
liability insurance coverage and certain administrative services such as
billing and collecting receivables. We also provide the agent with access to
our other insurance coverages such as medical and hospitalization insurance.
The agent is required to deposit one percent (1%) of its revenue in an escrow
to cover any bad debts, and it must pay all cash expenses including tolls,
tractor washes, and any of its own other operating expenses.
INSURANCE
In 1998 we commenced offering auto/truck liability insurance to other
transportation companies in order to take advantage of the underwriting profit
potential of our captive insurance program. Policies are for $1 million,
combined, single limit. Insured companies must abide by our safety and
maintenance manual procedures in order to obtain insurance under the program.
American Financial Services, Inc. acts as program manager and broker.
American negotiates pricing with the front end carrier and monitors claims,
regulatory filings and policy issuance. American has also developed other
insurance products which we are now offering, e.g. excess and umbrella
liability insurance. Legion Insurance Company is the front-end carrier and
receives a fee for issuing policies and monitoring claims administration and
aggregate reinsurance. We profit under the program to the extent payouts and
other expenses are less than premiums.
OPERATING STRATEGY
Our operating strategy is to provide high quality transportation and
freight brokerage services that position us as a preferred supplier or "core
carrier" to major shippers. We do not compete primarily on a price basis. We
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seek to effect this strategy by providing reliable, time-definite pick up and
delivery services. An important factor in our ability to effect this strategy
is the ready availability of drivers. We seek to address the chronic driver
shortage in the trucking industry through a variety of practices. We believe
our driver retention history is significantly better than the industry
average.
We believe that our operating strategy has positioned us 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 (i.e.
companies that coordinate and manage all their transportation needs). The
small carriers, without the capacity to adequately service these shippers or
offer logistics service will not benefit from this trend. As a medium size
carrier with the capability to also offer freight brokerage and warehousing
services, we are well-suited to capitalize on this trend. Our capability to
offer freight brokerage and warehousing services also helps us obtain business
from companies which use "just-in-time" distribution methods.
ACQUISITION STRATEGY
We are actively seeking acquisition candidates in the truckload, freight
brokerage and container segments of the transportation industry. We are
primarily seeking targets with not less than $5.0 million in annual revenues.
We intend to use a combination of cash, stock, debt and equity securities
to facilitate our acquisition and expansion plans. No assurance can be given
that we will be able to effect this strategy.
We are currently holding discussions relating to numerous potential
acquisitions, but do not anticipate making any further acquisitions until
adequate financing is in place.
MARKETING
We market high quality, "just-in-time", temperature-sensitive and dry
freight truckload services in the truckload carrier market.
Our operations are nationwide, with an emphasis on the Midwest, Southeast
and Northeast United States. We believe that we have established a presence
in these regions and have 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 our commitment to high levels of service,
flexibility, responsiveness, analytical planning and information management in
order to position us to serve customers' demands for time definite pickup and
delivery. Our marketing personnel seek to strengthen our position with
existing customers and establish ourselves with prospective customers.
We maintain a strong commitment to expanding our relationships with
existing customers. Customer shipping patterns are monitored daily, allowing
us flexibility in responding rapidly to the varying service demands of our
customers. We have written motor carrier contracts with approximately 90% of
our 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.
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OPERATIONS
All of our offices and terminals are leased. Our executive office is
located in Mt. Pleasant, South Carolina, where billing, collections,
brokerage, banking and overall management of U.S. Trucking take place. The
lease, which expires February 1, 2001, covers 4,000 square feet of rental
space and provides for monthly rent of $6,380. We believe that this facility
is adequate for our present needs. We recently consolidated payroll, dispatch
and certain administrative functions in our Wisconsin Rapids office and closed
our Los Angeles and Savannah offices.
We also maintain the following other office, terminal and warehouse
locations:
Location Description
-------- -----------
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.
Mt. Pleasant, South Carolina Container division office (1,800 square
feet) and drop yard leased for $2,500
per month
Jacksonville, Florida A 375 square foot office and a
1,125 square foot warehouse leased
for $1,003 per month
We also have agent and brokerage offices in Alabama, Arkansas, Florida,
Missouri, Tennessee, Texas and Washington.
Each of our 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.
We are in the process of outsourcing many of our "backroom" functions to
Professional Transportation Group Ltd., Inc., an Atlanta-based transportation
company majority owned by Logistics Management, LLC, our majority shareholder.
We are effecting this change to take advantage of the superior computer and
communications systems of PTG over the systems we have inherited through our
acquisitions. The functions which will be migrated to PTG include accounting,
payroll, dispatch and safety. We will pay PTG a fee of 3% of the amounts PTG
bills for us in consideration of such services. In connection with this
relationship we will also be given use of up to 150 Qualcomm tracking
satellite units for use with company tractors.
TRACTORS AND TRAILERS
We operate a fleet of approximately 252 tractors, including 78 tractors
that are owned by independent contractors, and 401 trailers, including 15
trailers that are owned by independent contractors. Since the closing in
December 1998 of the financing with General Electric Capital Corporation, we
have traded 18 older tractors for 20 newer tractors. We have also traded 91
aged trailers for 63 new trailers which includes 43 refrigerated trailers and
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20 dry vans. We have also recently added 65 tractors which are all 1996 or
newer and 149 refrigerated trailers. The ages of our equipment is as follows:
Age Tractors Trailers
------- -------- --------
0-3 years 92 98
4-6 years 69 125
7-9 years 8 85
9 years + 0 12
Our policy is to purchase quality late-model tractors and refrigerated
and dry trailers that meet our specifications. We have financed our tractor
and trailer purchases through several asset-based finance agreements. We also
contract with owner-operators to provide additional tractors and trailers. We
have established standard specifications for the purchase of equipment
replacements. Each of our 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.
We are developing a plan to replace our tractors every four years and our
trailers every seven years. We maintain warranties that extend beyond the
four year life of the tractors on all engines, transmissions, drive axles and
running gear.
We have 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 our
maintenance is performed at our Wisconsin Rapids, Wisconsin and Savannah, New
York terminals.
DRIVERS
All of our drivers must meet specific guidelines relating primarily to
safety record, driving experience and personal evaluation, including DOT
mandated drug testing and personal background checks. We recruit and retain
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. We maintain experienced driver recruiters.
We require that prospective drivers have a minimum of one year of truck
driving experience in order to be considered for a position. In addition, new
drivers are required to meet all DOT requirements. Upon hiring a driver, we
conduct an orientation program covering such topics as our business, policies,
procedures, safety, benefits, maintenance and operation of equipment.
Our 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 our 401(k)
plan and health and life insurance plans.
Although we currently have an adequate number of drivers, there can be no
assurance that we will not be affected by a shortage of qualified drivers in
the future. Significant driver turnover is a problem within the industry as a
whole. In addition, the trucking industry is experiencing a diminished
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workforce of qualified drivers. As a result, we must compete with other
transportation service companies for the available drivers. We anticipate
that the intense competition for qualified drivers in the trucking industry
will continue.
In addition to our driver employees, we contract with a select group of
independent contractors who own and operate their own tractors and trailers.
Our 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 which is cancelable by either party
upon thirty days notice. The owner-operators provide us with an additional
source of drivers, particularly during periods of peak demand for
transportation services.
INSURANCE AND SAFETY
Our safety department is responsible for training and supervising
personnel to keep safety awareness at its highest level. We have implemented
an active safety and loss prevention program at our corporate headquarters and
all of our terminals. 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.
Our 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 our Director of
Safety. It is our policy to reward drivers who have satisfied safety
performance goals. Safe-driver awards are presented based upon the number of
miles a 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.
We have implemented a written disciplinary system for our 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 equipment, willful or negligent damage of equipment or property or
injury to another person, carrying, possessing or being under the influence of
intoxicants or narcotics while on duty or on our premises, possession of
firearms or other lethal weapons while on duty or while on our premises and
other similar offenses. Our Director of Safety continuously monitors driver
performance and makes recommendations to our executive officers regarding
employment and retention of drivers.
We are 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. We maintain insurance that we believe is
adequate to cover our potential liabilities and risks.
We have set up captive insurance arrangements with an insurance company
pursuant to which we make monthly payments into a loss reserve fund in
addition to the payments we make 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
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$1 million per occurrence. To the extent that the annual claims are less than
the amount projected by the insurance company, we receive back a portion of
the reserve fund.
We also have 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.
We manage fuel purchases by directing our drivers to certain truck stops along
designated routes that give us certain discounts in return for volume
purchases on a recurring basis. Through the use of computerized monitoring
devices imbedded in the engines of our tractors, we monitor fuel usage, miles
per gallon, cost per mile, and cost per gallon. We have not experienced any
difficulty in maintaining fuel supplies sufficient to support our operations.
Historically, we have been able to pass on a portion of fuel price increases
to our 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 our operations and profitability.
COMPETITION
The trucking industry is highly competitive and fragmented. We compete
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, we
believe that competition for the freight transported by us is based primarily
on quality of service, such as 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 we do. We also compete with other
motor carriers in hiring qualified drivers. Our primary emphasis is service,
especially to its core carrier customers, rather than price alone. However,
the industry in which we operate is extremely price sensitive and we are
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 us,
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. Rates and charges are not
directly regulated by these authorities. As primarily a contract carrier, we
negotiate 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
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operating authority, and interstate motor carriers 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 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. We believe
that we are 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 our drivers are required
to obtain national commercial driver's licenses pursuant to regulations
promulgated by the DOT. DOT regulations impose mandatory drug testing of
drivers. We have implemented a random drug-testing program in accordance with
these regulations. In addition, we are required to implement alcohol and 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. We comply with all applicable regulations
imposed on our 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 adversely affect the
availability to us of qualified drivers.
Our operations are subject to federal, state and local laws and
regulations concerning the environment. We have not received any notices from
any regulatory authority relating to any violation of any environmental law
and incur no material costs specifically related to compliance with such laws.
EMPLOYEES
As of the date of this prospectus, we employ 166 persons, of whom 100
were drivers and 66 were maintenance and administrative personnel. None of
our employees are represented by a collective bargaining unit and we have
never experienced a work stoppage. We believe that our relations with our
employees is good.
LEGAL PROCEEDINGS
We have been from time to time a party to litigation incidental to our
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. As of the date of
this prospectus, we are not party to any litigation which, individually or in
the aggregate, management believes will have a material adverse effect on our
financial condition or operations. We maintain insurance that we believe is
adequate to cover our liability risks.
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REPORTS TO SECURITY HOLDERS
We are subject to the reporting requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended, and in accordance therewith file
periodic reports with the Commission. Such reports concerning us may be
inspected or copied at the public reference facilities at the Commission
located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's Regional Offices in New York, 7 World Trade Center, New York,
New York 10048, and in Chicago, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such documents can be
obtained at the public reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically.
We do not currently plan on sending to stockholders quarterly or annual
reports.
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MANAGEMENT
DIRECTORS AND OFFICERS
Our Directors and Executive Officers are as follows:
NAME AGE POSITIONS HELD
---- --- --------------
Danny L. Pixler 51 President, CEO and Director
W. Anthony Huff 38 Executive Vice President and Chairman
of the Board
John Ragland 34 Vice President of Finance
Rick Kelly 46 Vice President of Operations
Richard W. Bradley 33 Chief Financial Officer
There is no family relationship between any Director or Executive Officer
of U.S. Trucking, Inc.
We have audit and compensation committees which both consist of Danny L.
Pixler and W. Anthony Huff.
Set forth below are the names of our directors and executive officers,
all positions and offices with us 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 U.S.
Trucking, Inc. since September 8, 1998, when we completed our 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 our Executive Vice President and Chairman
of the Board 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. Huff
has also served as Vice President and Assistant Secretary of Mencor since June
1998. Mr. Huff manages our 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
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providing administrative and financial services to its members. Mr. Huff
spends approximately 60% of his time on our 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). Corporate Insurance
Services, a company of which Mr. Huff was President and owner, was also a
guarantor of this debt and also filed for bankruptcy at this time (Chapter 11
converted to Chapter 7). 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.
JOHN RAGLAND has served as our Vice President - Finance, since November
1, 1999. He had served as Chief Financial Officer 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.
RICK KELLY has served as Vice President, Operations for Gulf Northern
since November, 1999. Prior to that he served as President of our intermodal
division, which commenced operations in June 1999. From September 1996
through June 1999 he owned and operated Excalibur Express, Inc., a $7 million
revenue intermodal transporation company based in Charleston, SC. From
November 1995 to September 1996 he was Vice President, Southeast Region for
Rocor, Inc., a $450 million truckload/intermodal carrier, wherein he was
responsible for operations at 17 terminals contributing $30 million in
revenues. From 1992 through November 1995 he served as terminal manager in
Charleston, and then Vice President, Operations, for Ty Pruitt, Inc., a $50
million intermodal/truckload carrier. From 1983-1992 he was President and
Chief Executive Officer for GFC Trucklines, a $7 million regional short-haul
truckload and intermodal carrier based in Charleston, SC.
RICHARD W. BRADLEY has served as Chief Financial Officer since November
1, 1999. Since 1992 he had been a partner in the accounting firm of Chesnut &
Bradley, wherein he provided accounting, consulting, financial and tax
planning services, with an emphasis on mergers, acquisitions and divestitures.
For a one year period during this time he took an assignment as Chief
Financial Officer of Snow Construction, Inc, a $20 million home builder.
From 1988-1992 Mr. Bradley was manager of accounting responsible for financial
reporting for Overnite Transportation, Inc., a national trucking business and
subsidiary of Union Pacific Railroad. Mr. Bradley is a member of the advisory
boards of Atlantic Capital Group, L.C., an investment banking concern and The
Colonial BancGroup, Inc., the publicly traded parent company for a national
bank.
Our executive officers hold office until the next annual meeting of the
Directors. We have agreements with Messrs. Pixler and Huff whereby we are
required to use our best efforts to elect and retain them as members of the
Board of Directors as long as they are guarantors as to any U.S. Trucking or
affiliated debt. There are no other arrangements or understandings between
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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.
EXECUTIVE COMPENSATION
The following tables set forth information regarding executive
compensation for U.S. Trucking, Inc.'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.
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. 1999 $105,000 -- $6,000(1) -- 250,000 -- --
Pixler, 1998 $105,000 -- $6,000(1) -- 100,000 -- --
President 1997 $105,000 -- $6,000(1) -- -- -- --
______________
(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 12/31/99 at 12/31/99
Exercise Value Exercisable/ Exercisable/
Name (Number) Realized Unexercisable Unexercisable
---- -------- -------- ---------------- ----------------
Danny L. Pixler -0- $ -0- 100,000 / 250,000 $245,000 / 0
Options / Grants in Last Fiscal Year
Individual Grants
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/sh) Date
---- ------------ ------------ ----------- ----------
Danny L. Pixler 250,000 50% $3.00 4/27/04
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EMPLOYMENT AGREEMENTS
We have 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 our business or an auto allowance not to exceed
$550 per month.
We have 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%.
We have 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 our business.
These employment agreements are terminable by us 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 our Stock Option Plan (the "Plan"), and we
assumed the obligations represented by 1,500,000 options which were already
outstanding. These options have an exercise price of $0.30. The Plan
authorizes the issuance of options to purchase up to 2,500,000 shares of our
Common Stock. An additional 500,000 options have been granted under the plan
at an exercise price of $3.00.
The Plan allows the Board to grant stock options from time to time to
employees, officers, directors and consultants of U.S. Trucking. 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 us 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 us in connection with Incentive Stock
Options granted under the Plan. With regard to options that are not Incentive
Stock Options, we 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.
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SECURITY OWNERSHIP OF MANAGEMENT,
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDERS
The following table sets forth, as of February __, 2000, and as
adjusted for the sale of the shares offered by the selling shareholders, the
stock ownership of each person known by us to be the beneficial owner of five
percent or more of the our Common Stock, all Directors individually and all
Directors and Executive Officers as a group, and the selling shareholders.
Except as noted, each person has sole voting and investment power with respect
to the shares shown.
Per-
centage
Amount of of Class
Name and Address of Beneficial Prior
Beneficial owner Ownership to Sales
- ------------------- ---------- --------
Principal Shareholders
and Management:
- ----------------------
Logistics Management,
L.L.C. (1) 5,750,000 (2) 57.6%
10602 Timberwood Circle #9
Louisville, KY 40223
Danny L. Pixler 3,225,000 (3) 32.3%
Suite 216
3125 Ashley Phosphate Road
North Charleston, SC 29418
W. Anthony Huff 3,225,000 (4) 32.3%
10602 Timberwood Circle #9
Louisville, KY 40223
All Directors and Executive 6,450,000 (3) 60.3%
Officers as a Group (4)
(3 Persons)
Per-
Number centage
of of Class
Shares After
Offered Sales
--------- --------
Selling Shareholders:
- --------------------
Mark Weber 40,000 * 40,000 0
3206 162nd Place, SE
Bellevue, WA 98008
Ronald Setzkorn 338,648 3.5% 233,333 2.4%
1211 Willow Bend
Clarksville, TN 37043
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Market Edge Inc. 46,668 * 46,668 0
No. 2B
1304 E. Algonavin Road
Schaumburge, IL 60173
Jay W. Bosselman 93,333 * 93,333 0
No. 2B
1304 E. Algonavin Road
Schaumburge, IL 60173
Ralph Brown 33,333 * 33,333 0
P.O. Box 97
Gainesville, MD 65655
B. A. Bates 65,000 * 65,000 0
19 2nd Street East
Kalispell, MT 59901
Sebrite Financial 33,333 * 33,333 0
Suite 1215
600 South Highway 169
St. Louis Park, MN 55426
Stanley Chasen 33,333 * 33,333 0
6711 North Ocean Boulevard
Ocean Ridge, FL 33435
Jud Wagenseller 26,668 * 26,668 0
2107 Bainbridge Row Drive
Louisville, KY 40207
Transportation Services Co. 261,666 2.7% 261,666 0
10602 Timberwood Circle #9
Louisville, KY 40223
Michelle A. Vetrano 26,667 * 26,667 0
10415 North Pecan Place
Tucson, AZ 85737
Paolo Dorigo 33,333 * 33,333 0
3865 Jasmine Avenue
Culver City, CA 90232
George R. Vetrano, Jr. 13,333 * 13,333 0
9255 Doheny Road, No. 2804
Los Angeles, CA 90069
George R. Vetrano, Sr. and
Carol A. Vetrano 26,667 * 26,667 0
10818 North Sand Canyon Road
Oro Valley, AZ 85737
Kevin P. Judge 33,333 * 33,333 0
3417 Clinton Street
West Seneca, NY 14224
Sidney Anderson 33,334 * 33,334 0
1503 Evergreen Road
Louisville, KY 40223
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Mid-Cal Express, Inc. 400,000 4.2% 400,000 0
155 Montgomery St., Suite 406
San Francisco, CA 94104-4109
Glenn Bagwell, Jr. 250,000 2.6% 250,000 0
Suite 204
3005 Anderson Drive
Raleigh, NC 27609
________________
* Less than 1%.
(1) Logistics Management, L.L.C. is 50% owned jointly by Danny and Roxanne
Pixler, the wife of Danny L. Pixler, and 50% owned by Association
Services, Inc., which is 100% owned by the Huff Grandchildren's Trust.
(2) Includes 3,600,000 shares which may be acquired within 60 days by
exchanging 360,000 shares of Series A Preferred Stock for 3,600,000
shares of common stock. Does not include 900,000 shares of our Series A
Preferred Stock held by Logistics Management, LLC, which represents
9,000,000 votes and which is exchangeable for up to 9,000,000 shares of
U.S. Trucking common stock when certain revenue targets are achieved.
(See "DESCRIPTION OF SECURITIES.")
(3) Represents a 50% beneficial interest in the shares held by Logistics
Management, LLC and options to purchase 350,000 shares of Common
Stock. Does not include 25,000 shares of Series C Preferred Stock held
by Danny Pixler which carry 2,500,000 votes.
(4) Represents a 50% beneficial interest in the shares held by Logistics
Management, L.L.C. and options to purchase 350,000 shares of Common
Stock. Does not include 25,000 shares of Series C Preferred Stock
held by Huff Grandchildren's Trust which carry 2,500,000 votes, of which
Mr. Huff is co-trustee.
There are no known agreements, the operation of which may at a subsequent
date result in a change in control of U.S. Trucking.
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TRANSACTIONS WITH MANAGEMENT AND OTHERS
In March 1998, Gulf Northern 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, Gulf
Northern is required to pay for all expenses associated with the tractors
including maintenance, insurance, permits, licenses and other operating
expenses.
In September 1998, Gulf Northern 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, Gulf Northern is required to pay for all expenses
associated with the tractors including maintenance, insurance, permits,
licenses and other operating expenses.
During January 1999, three of our shareholders entered into a stock
exchange agreement with us whereby they agreed to exchange a total of
9,990,000 shares of our common stock for 999,000 shares of our 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 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.
In June 1999, we issued 25,000 shares of Series C Preferred Stock to each
of Danny Pixler and the Huff Grandchildren's Trust in consideration of those
parties' guaranties with respect to in excess of $13,000,000 of our debt
obligations. Each Series C Share carries 100 votes per share on all matters
submitted to a vote of stockholders, but otherwise carries no rights to
dividends or other distributions.
In 1999 we provided loss control and risk management consulting services
to Transportation Consulting Services, Inc., for which services we received an
aggregate of $112,000 in fees. Marion Huff, father of Anthony Huff, is
President and sole stockholder of Transportation Consulting Services.
The board of directors believes that the above transactions involving
U.S. Trucking-Nevada and its subsidiaries have been on terms no less favorable
to us than those that could have been obtained from unaffiliated parties.
When reviewing transactions with affiliates, the members of the board attempt
to consider all of their fiduciary duties to shareholders and they consult
with the our legal counsel for their opinions on the transactions.
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DESCRIPTION OF SECURITIES
COMMON STOCK
Our authorized capital stock includes 75,000,000 shares of common stock,
no par value. All shares have equal voting rights, i.e. one vote per share.
Voting rights are not cumulative, and so the holders of more than 50% of the
Common Stock could, if they chose to do so, elect all the Directors.
Upon liquidation, dissolution or winding up of U.S. Trucking, Inc., our
assets, after the payment of liabilities and any liquidation preferences on
outstanding preferred stock, will be distributed pro rata to the holders of
the common stock. The holders of the Common Stock do not have preemptive
rights to subscribe for any of our securities and have no right to require us
to redeem or purchase their shares. The shares of common stock presently
outstanding are fully paid and nonassessable.
Holders of common stock are entitled to share equally in dividends when,
as and if declared by the board of directors, out of funds legally available
therefor. We have not paid any cash dividends on our common stock, and it is
unlikely that any such dividends will be declared in the foreseeable future.
TRANSFER AGENT
Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite 430,
Denver, Colorado 80209, serves as the transfer agent for the U.S. Trucking,
Inc.
PREFERRED STOCK
We are authorized to issue 10,000,000 shares of preferred stock, no par
value. The preferred stock may be issued in series from time to time with
such designation, rights, preferences and limitations as the board of
directors may determine by resolution. The rights, preferences and
limitations of separate series of preferred stock may differ with respect to
such matters as may be determined by the board of directors, including,
without limitation, the rate of dividends, method and nature of payment of
dividends, terms of redemption, amounts payable on liquidation, sinking fund
provisions (if any), conversion rights (if any), and voting rights. The
potential exists, therefore, that preferred stock might be issued which would
grant dividend preferences and liquidation preferences to preferred
shareholders over common shareholders. Unless the nature of a particular
transaction and applicable statutes require such approval, the board of
directors has the authority to issue these shares without shareholder
approval. The issuance of preferred stock may have the affect of delaying or
preventing a change in control of U.S. Trucking, Inc. without any further
action by shareholders.
We have designated 999,000 shares of our preferred stock as Series A
Preferred Stock, all of which are currently outstanding; 2,000 shares of
Series B Convertible Preferred Stock, all of which are outstanding; 50,000
shares of Series C Preferred Stock, all of which are outstanding; 950 shares
of Series D Convertible Preferred Stock, all of which are outstanding; and
2,300 shares of Series C Convertible Preferred Stock, all of which are
outstanding. Following is a summary of the rights and preferences of the
outstanding preferred stock.
SERIES A PREFERRED STOCK. Each share of Series A Preferred Stock is
entitled to ten votes and will vote together with the holders of the Common
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Stock. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of U.S. Trucking, Inc., the holders of the shares
of Series A Preferred Stock will be entitled to be paid an amount equal to ten
times the amount payable on each share of common stock.
The shares of Series A Preferred Stock were issued to the holders of
9,990,000 shares of our Common Stock pursuant to a stock exchange agreement.
Pursuant to this agreement, each share of Series A Preferred Stock will be
exchanged for ten shares of common stock as follows: one-fifth of the shares
upon U.S. Trucking, Inc. reporting revenues of $31 million or more for any
fiscal year or shorter period in a report filed 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.
SERIES B CONVERTIBLE PREFERRED STOCK. Shares of Series B Convertible
Preferred Stock are convertible into shares of common stock based on the
stated value of $1,000 per share of preferred stock divided by the conversion
price on the conversion date. Holders of Series B Convertible Preferred Stock
may elect to convert their shares commencing on the earlier of October 28,
1999, or the occurrence of any merger, tender offer, or redemption event
described below. The conversion price is equal to 90% of the average closing
bid price for the ten consecutive trading days immediately preceding the
conversion date, not to exceed $2.59 per share.
Holders of Series B Convertible Preferred Stock are entitled to receive a
dividend of 12% annually.
In the event of a voluntary or involuntary dissolution, liquidation or
winding up of U.S. Trucking, Inc., holders of the Series B Convertible
Preferred Stock are entitled to receive out of the assets of the Company
legally available for distribution, before any payment to holders of common
stock, an amount per share equal to $1,000 plus any accrued premium on such
shares.
Holders of the Series B Convertible Preferred Stock are entitled to
redeem their shares upon the occurrence of certain events, referred to as
redemption events, which include the following:
* In the event that we are unable to issue free trading common
stock into which shares of Series B Convertible Preferred Stock
have been converted because the shares have not been registered
under the Securities Act;
* In the event that we notify holders of Series B Convertible
Preferred Stock of our intention not to issue shares of common
stock on conversion;
* If we transfer substantially all of our assets, merge or con-
solidate with another entity, or have 50% or more of our voting
power held by a person or group other than Logistics Management
LLC and its affiliates;
* If we breach any material term of the securities purchase agreement
or registration rights agreement with the purchasers of the Series B
Convertible Preferred Stock; or
36
<PAGE>
* If the trading volume for any 20 consecutive trading days does not
equal or exceed $150,000 beginning October 27, 1999.
Upon the occurrence of a redemption event, we may preclude any redemption by
paying, as liquidated damages, an amount equal to 10% of the stated value of
the Series B Convertible Preferred Stock to each holder in cash or in stock at
80% of the conversion rate.
In the event of a redemption, the redemption amount to be paid will be
equal to the number of shares which would have been issued if the shares of
Series B Convertible Preferred Stock were converted multiplied by the current
market value. Alternatively, we may pay an amount equal to 120% of the stated
value of the shares being converted in cash or in stock at 80% of the
conversion rate.
We are also required to pay to the holders of the Series B Convertible
Preferred Stock an aggregate of $30,000 commencing October 15, 1999, and
$30,000 per month thereafter until this registration statement is declared
effective by the Securities and Exchange Commission. We are currently
negotiating an extension of this agreement.
The holders of Series B Convertible Preferred Stock have no voting rights
except as required by Colorado law. In the event that voting is required
under Colorado law, the holders shall have one vote for each share held on
matters to be voted on as a class, and on an as-converted basis on matters
which the Class B Convertible Preferred Stock and common stock vote together
as one class.
SERIES C PREFERRED STOCK. Each share of Series C Convertible Preferred
Stock entitles the holder to one hundred votes and votes together with the
holders of common stock as a single class. The holders of Series C Preferred
Stock have no liquidation rights and no rights to dividends. The Series C
Preferred Stock is not redeemable.
SERIES D CONVERTIBLE PREFERRED STOCK. Shares of Series D Convertible
Preferred Stock are convertible into shares of common stock based on the
stated value of $1,000 per share of preferred stock divided by the conversion
price on the conversion date. Holders of Series D Convertible Preferred Stock
may elect to convert their shares commencing on the earlier of January 8,
2000, or the occurrence of any merger, tender offer, or redemption event
described below. The conversion price is equal to 90% of the average closing
bid price for the ten consecutive trading days immediately preceding the
conversion date, not to exceed $2.59 per share.
Holders of Series D Convertible Preferred Stock are entitled to receive a
dividend of 12% annually.
In the event of a voluntary or involuntary dissolution, liquidation or
winding up of U.S. Trucking, Inc., holders of the Series D Convertible
Preferred Stock are entitled to receive out of the assets of the Company
legally available for distribution, before any payment to holders of common
stock, an amount per share equal to $1,000 plus any accrued premium on such
shares.
Holders of the Series D Convertible Preferred Stock are entitled to
redeem their shares upon the occurrence of certain events, referred to as
redemption events, which include the following:
* In the event that we are unable to issue free trading common
37
stock into which shares of Series D Convertible Preferred Stock
have been converted because the shares have not been registered
under the Securities Act;
* In the event that we notify holders of Series D Convertible
Preferred Stock of our intention not to issue shares of common
stock on conversion;
* If we transfer substantially all of our assets, merge or con-
solidate with another entity, or have 50% or more of our voting
power held by a person or group other than Logistics Management
LLC and its affiliates;
* If we breach any material term of the securities purchase agreement
or registration rights agreement with the purchasers of the Series D
Convertible Preferred Stock; or
* If the trading volume for any 20 consecutive trading days does not
equal or exceed $150,000 beginning March 7, 2000.
Upon the occurrence of a redemption event, we may preclude any redemption by
paying, as liquidated damages, an amount equal to 10% of the stated value of
the Series D Convertible Preferred Stock to each holder in cash or in stock at
80% of the conversion rate.
In the event of a redemption, the redemption amount to be paid will be
equal to the number of shares which would have been issued if the shares of
Series D Convertible Preferred Stock were converted multiplied by the current
market value. Alternatively, we may pay an amount equal to 120% of the stated
value of the shares being converted in cash or in stock at 80% of the
conversion rate.
The holders of Series D Convertible Preferred Stock have no voting rights
except as required by Colorado law. In the event that voting is required
under Colorado law, the holders shall have one vote for each share held on
matters to be voted on as a class, and on an as-converted basis on matters
which the Class B Convertible Preferred Stock and common stock vote together
as one class.
SERIES E CONVERTIBLE PREFERRED STOCK. Shares of Series E Convertible
Preferred Stock are convertible into shares of common stock based on the
stated value of $1,000 per share of preferred stock divided by the conversion
price on the conversion date. Holders of Series E Convertible Preferred Stock
may elect to convert their shares commencing on the earlier of March 9, 2000,
or the occurrence of any merger, tender offer, or redemption event described
below. The conversion price is $3.18 per share.
Holders of Series E Convertible Preferred Stock are entitled to receive a
dividend of 12% annually.
In the event of a voluntary or involuntary dissolution, liquidation or
winding up of U.S. Trucking, Inc., holders of the Series E Convertible
Preferred Stock are entitled to receive out of the assets of the Company
legally available for distribution, before any payment to holders of common
stock, an amount per share equal to $1,000 plus any accrued premium on such
shares.
37
<PAGE>
Holders of the Series E Convertible Preferred Stock are entitled to
redeem their shares upon the occurrence of certain events, referred to as
redemption events, which include the following:
* In the event that we are unable to issue free trading common
stock into which shares of Series E Convertible Preferred Stock
have been converted because the shares have not been registered
under the Securities Act;
* In the event that we notify holders of Series E Convertible
Preferred Stock of our intention not to issue shares of common
stock on conversion;
* If we transfer substantially all of our assets, merge or con-
solidate with another entity, or have 50% or more of our voting
power held by a person or group other than Logistics Management
LLC and its affiliates;
* If we breach any material term of the securities purchase agreement
or registration rights agreement with the purchasers of the Series E
Convertible Preferred Stock; or
* If the trading volume for any 20 consecutive trading days does not
equal or exceed $150,000 beginning October 27, 1999.
Upon the occurrence of a redemption event, we may preclude any redemption by
paying, as liquidated damages, an amount equal to 10% of the stated value of
the Series E Convertible Preferred Stock to each holder in cash or in stock at
80% of the conversion rate.
In the event of a redemption, the redemption amount to be paid will be
equal to the number of shares which would have been issued if the shares of
Series E Convertible Preferred Stock were converted multiplied by the current
market value. Alternatively, we may pay an amount equal to 120% of the stated
value of the shares being converted in cash or in stock at 80% of the
conversion rate.
The holders of Series E Convertible Preferred Stock have no voting rights
except as required by Colorado law. In the event that voting is required
under Colorado law, the holders shall have one vote for each share held on
matters to be voted on as a class, and on an as-converted basis on matters
which the Class B Convertible Preferred Stock and common stock vote together
as one class.
38
<PAGE>
PLAN OF DISTRIBUTION
The 2,505,531 Shares offered hereby may be offered and sold from time to
time by the selling shareholders, or by pledgees, donees, transferees or other
successors in interest. Such offers and sales may be made from time to time
in the over-the-counter market, or otherwise, at prices and on terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions. The Shares may be sold by one or more of the
following: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account; (c) an exchange distribution in accordance with the rules of such
exchanges; (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; (e) privately negotiated transactions; and (f) a
combination of any such methods of sale. In effecting sales, brokers or
dealers engaged by the selling shareholders may arrange for other brokers or
dealers to participate. Brokers or dealers may receive commissions or
discounts from selling shareholders or from the purchasers in amounts to be
negotiated immediately prior to the sale. The selling shareholders may also
sell such shares in accordance with Rule 144 under the 1933 Act.
The selling shareholders and any brokers participating in such sales may
be deemed to be underwriters within the meaning of the 1933 Act. There can be
no assurance that the selling shareholders will sell any or all of the shares
of common stock offered hereunder.
All proceeds from such sales will be the property of the selling
shareholders who will bear the expense of underwriting discounts and selling
commissions, if any, and their own legal fees. The selling shareholders are
not sharing the costs of the registration of the Shares.
39
<PAGE>
LEGAL MATTERS
The legality of the securities of U.S. Trucking, Inc. offered will be
passed on for us by Krys Boyle Freedman & Sawyer, P.C., 600 17th Street, Suite
2700 South Tower, Denver, Colorado 80202. Jon D. Sawyer, a director of Krys
Boyle Freedman & Sawyer, P.C., owns 95,000 shares of our Common Stock.
EXPERTS
The financial statements included in this prospectus, to the extent and
for the periods indicated in their report, have been audited by Bianculli,
Pascale & Co. P.C., Certified Public Accountants, and are included herein in
reliance on the authority of such firm as experts in accounting and auditing
in giving such reports.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the securities offered hereby has been filed by us with the
Securities and Exchange Commission, Washington, D.C. This prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to U.S.
Trucking, Inc. and the securities offered hereby, reference is made to such
Registration Statement, exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement may be inspected without
charge at the Commission's principal offices in Washington, D.C., and copies
of all or any part thereof may be obtained from the Commission upon the
payment of certain fees prescribed by the Commission. The Registration
Statement has been filed electronically through the Commission's Electronic
Data Gathering, Analysis and Retrieval System and may be obtained through the
Commission's Web site (http://www.sec.gov).
No person is authorized to give any information or to make any
representation other than those contained in this prospectus, and if given or
made such information or representation must not be relied upon as having
been authorized. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities
offered by this Prospectus or an offer to sell or a solicitation of an offer
to buy the securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
40
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
U.S. TRUCKING, INC. AND SUBSIDIARIES AS OF
SEPTEMBER 30, 1999 .............................................. F-2
Consolidated Balance Sheet as of September 30, 1999
(Unaudited) and December 31, 1998 ............................. F-3
Consolidated Statements of Operations and Accumulated Deficit
for the Nine Months Ended September 30, 1999 and 1998
(Unaudited) ................................................... F-5
Consolidated Statements of Operations and Accumulated Deficit
for the Three Months Ended September 30, 1999 and 1998
(Unaudited) ................................................... F-6
Consolidated Statement of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 1999 .................. F-7
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998
(Unaudited) ................................................... F-8
Notes to Consolidated Financial Statements .................... F-10
2) AUDITED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC.
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
PERIOD FROM INCEPTION (JANUARY 30, 1997)
TO DECEMBER 31, 1997 ............................................ F-15
Report of Independent Certified Public Accountants ............ F-16
Consolidated Balance Sheets as of December 31, 1998
and 1997 ...................................................... F-17
Consolidated Statement 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 ......................................... F-19
Consolidated Statement of Stockholders' Equity for the
year ended December 31, 1998 and for the period from
inception (January 30, 1997) to December 31, 1997 ............ F-20
Consolidated Statement of Cash Flows for the year ended
December 31, 1998 and for the period from inception
(January 30, 1997) to December 31, 1997 ...................... F-22
Notes to the Consolidated Financial Statements ................ F-25
F-1
<PAGE>
1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC.
AND SUBSIDIARIES AS OF SEPTEMBER 30, 1999.
F-2
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1999 December 31, 1998
(Unaudited) (Audited)
Assets
Current Assets
Cash In Bank $ 1,556,338 $ 22,976
Trade Accounts Receivable - net 8,975,002 3,447,570
Accounts Receivable - Other 1,299,019 141,673
Parts and Supply Inventory 296,900 257,030
Prepaid Expenses and Other 610,931 162,036
----------- -----------
Total Current Assets 12,738,190 4,031,285
Transportation & Other Equipment 7,945,768 9,718,805
at cost - Less accumulated
depreciation and amortization
Other Assets
Restricted Cash - Factor - -
Restricted Cash - Owner Operators 2,442 2,320
Restricted Cash - Letters of Credit 241,790 10,000
Restricted Cash - Captive Insurance 253,196 -
Due from Related Party 100,000 100,000
Due from Captive Insurer 540,299 355,321
Notes Receivable 664,404 -
Security Deposits 152,192 12,575
Intangible Assets - net of accumulated
amortization 5,007,237 2,082,055
----------- -----------
Total Other Assets 6,961,560 2,562,271
Total Assets $27,645,518 $16,312,361
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable - Trade $ 1,332,958 $ 1,443,415
Revolving Credit Line 4,830,053 1,795,888
Factor Payable 1,848,127 -
Accruals & Other Current Liabilities 1,314,682 669,957
Current Portion - Long Term Debt 2,346,897 2,034,756
----------- -----------
Total Current Liabilities 11,672,717 5,944,016
----------- -----------
Other Liabilities
Owner Operator Escrow 138,256 55,874
Convertible Debentures 1,150,000 -
Discount on Convertible Debentures (110,000) -
Long-Term Notes Payable - net of
current portion 3,933,072 5,224,092
----------- -----------
Total Other Liabilities 5,111,328 5,279,966
----------- -----------
Total Liabilities 16,784,045 11,223,982
----------- -----------
F-3
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
September 30, 1999 December 31, 1998
(Unaudited) (Audited)
Stockholders' Equity
Preferred Stock (no par value - 2,950,762 -
20,000,000 shares authorized,
990,000 Series A issued and outstand-
ing; 2,000 Series B issued and out-
standing; 50,000 Series C issued and
outstanding; and 950 Series D issued
and outstanding
Common Stock (no par value - 4,818,238 2,796,000
75,000,000 shares authorized, 8,058,883
issued and outstanding on September 30,
1999, and 16,074,591 on December 31,
1998)
Additional paid-in Capital 3,938,180 3,821,812
Accumulated Deficit (725,707) (1,409,433)
Subscription Receivable (120,000) (120,000)
----------- -----------
Total Stockholders' Equity 10,861,473 5,088,379
----------- -----------
Total Liabilities & Stockholders'
Equity $27,645,518 $16,312,361
=========== ===========
F-4
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION
For the Nine Months Ended For the Nine Months Ended
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <S>
Net Revenues $29,828,018 $15,827,179
Operating Expenses
Purchased Transportation & Rentals 12,589,165 42.2% 5,551,323 35.1%
Salaries, Wages & Benefits 6,400,761 21.5% 4,004,267 25.3%
Fuel 2,405,503 8.1% 1,562,002 9.9%
Operating Supplies & Maintenance 1,102,553 3.7% 859,398 5.4%
Insurance & Claims 881,603 3.0% 417,072 2.6%
Misc. Operating Expenses 577,969 1.9% 417,651 2.6%
Taxes & Licenses 416,033 1.4% 328,037 2.1%
Insurance Captive Expense 815,158 2.7% - 0.0%
Occupancy Costs 262,117 0.9% 201,657 1.3%
Depreciation and Amortization 1,731,921 5.8% 1,194,541 7.5%
General Administrative Expenses 1,810,006 6.1% 622,071 3.9%
----------- ------ ----------- ------
Total Operating Expenses 28,992,788 97.2% 15,158,019 95.8%
Operating Income 835,230 2.8% 669,160 4.2%
Interest Expense (596,048) -2.0% (513,460) -3.2%
Gain on Sale of Equipment 404,954 1.4% - 0.0%
Interest Income 13,691 0.0% 1,748 0.0%
Other Income 25,899 0.1% 52,511 0.3%
----------- ------ ----------- ------
Net Income Before Taxes 683,726 2.3% 209,959 1.3%
Provision for Income Taxes 266,653 0.9% 77,685 0.5%
Tax Benefit of Net Operating
Loss Carryforward (266,653) -0.9% (77,685) -0.5%
----------- ------ ----------- ------
Net Income 683,726 2.3% 209,960 1.3%
Accumulated Deficit - beginning (1,409,434) (1,531,200)
----------- -----------
Accumulated Deficit - ending (725,708) (1,321,240)
=========== ===========
Basic Earnings per Share 0.09 0.01
Diluted Earnings per Share 0.04 0.01
Average Number of Shares 7,876,381 15,381,256
Outstanding
</TABLE>
F-5
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION
For the Three Months Ended For the Three Months Ended
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <S>
Net Revenues $12,003,849 $ 5,108,214
Operating Expenses
Purchased Transportation & Rentals 5,501,283 45.8% 1,883,657 36.9%
Salaries, Wages & Benefits 2,262,888 18.9% 1,337,344 26.2%
Fuel 948,179 7.9% 449,388 8.8%
Operating Supplies & Maintenance 477,045 4.0% 237,969 4.7%
Insurance & Claims 412,466 3.4% 76,138 1.5%
Misc. Operating Expenses 277,138 2.3% 123,964 2.4%
Taxes & Licenses 181,020 1.5% 124,475 2.4%
Insurance Captive Expense 232,355 1.9% - 0.0%
Occupancy Costs 90,085 0.8% 76,349 1.5%
Depreciation and Amortization 585,204 4.9% 380,721 7.5%
General Administrative Expenses 740,835 6.2% 210,506 4.1%
----------- ------ ----------- ------
Total Operating Expenses 11,708,497 97.5% 4,900,511 95.9%
Operating Income 295,352 2.5% 207,703 4.1%
Interest Expense (217,576) -1.8% (198,384) -3.9%
Gain on Sale of Equipment 280,840 2.3% - 0.0%
Interest Income 11,266 0.1% 549 0.0%
Other Income - 0.0% 7,270 0.1%
----------- ------ ----------- ------
Net Income Before Taxes 369,882 3.1% 17,138 0.3%
Provision for Income Taxes 144,254 1.2% 5,826 0.1%
Tax Benefit of Net Operating
Loss Carryforward (144,254) -1.2% (5,826) -0.1%
----------- ------ ----------- ------
Net Income 369,882 3.1% 17,138 0.3%
Accumulated Deficit - beginning (1,095,590) (1,304,103)
----------- -----------
Accumulated Deficit - ending (725,708) (1,321,241)
=========== ===========
Basic Earnings per Share 0.05 -
Diluted Earnings per Share 0.02 -
Average Number of Shares 7,149,404 16,082,154
Outstanding
</TABLE>
F-6
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Sub-
No Par Value No Par Value Paid-In Accumulated scriptions
Shares Amount Shares Amount Capital Deficit Receivable Total
--------- ---------- ----------- ---------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Opening Balance-January
1, 1999 0 $ - 16,074,591 $2,796,000 $3,841,812 $(1,409,433) (140,000) $ 5,088,379
--------- ---------- ----------- ---------- ----------- ------------ ---------- -----------
Issuance of common stock
at $0.18 per share 400,000 72,000 (72,000) 0
Issuance of common stock
at $.030 per share 116,667 35,000 (27,500) 7,500
Common stock exchanged
for Series A preferred 999,000 762 (9,990,000) (762) 0
Contribution to addi-
tional paid-in capital 401,668 401,668
Net income for the 3
months ended March 31,
1999 119,945 119,945
--------- ---------- ----------- ---------- ----------- ------------ ---------- -----------
Balance-March 31, 1999 999,000 $ 762 6,601,258 $2,902,238 $4,243,480 $(1,289,488) $( 239,500) $ 5,617,492
--------- ---------- ----------- ---------- ----------- ------------ ---------- -----------
Issuance of preferred
stock-Series B 900 900,000 900,000
Issuance of common stock
and costs incurred to
acquire Prostar, in
accordance with the
share exchange agreement 200,000 500,000 500,000
Issuance of common stock
at $0.30 per share 100,000 30,000 (30,000) 0
Issuance of common stock
and costs incurred to
acquire Fulmer, in
accordance with the
share exchange agreement 125,000 500,000 500,000
Issuance of common stock
and costs incurred to
acquire Kelly Container,
in accordance with the
share exchange agreement 200,000 650,000 650,000
Net income for the 3
months ended June 30,
1999 193,898 193,898
--------- ---------- ----------- ---------- ----------- ------------ ---------- -----------
Balance-June 30, 1999 999,900 $ 900,762 7,226,258 $4,582,238 $4,243,480 $(1,095,590) $ (269,500) $ 8,361,390
--------- ---------- ----------- ---------- ----------- ------------ ---------- -----------
Issuance of preferred
stock-Series B 1,100 1,100,000 (135,000) 965,000
Issuance of common
stock at $0.30 per
share 957,625 287,288 (287,288) -
Issuance of common
stock at $4.00 per
share 100,000 300,000 300,000
Issuance of preferred
stock-Series D 950 950,000 (150,000) 800,000
Issuance of common
stock-conversion of
stock options-to
Transportation
Services Company
for conversion of
debt 100,000 300,000 300,000
Net income for the
3 months ended
September 30, 1999 369,883 369,883
--------- ---------- ----------- ---------- ----------- ------------ ---------- -----------
Balance-September 30,
1999 1,001,950 $2,950,762 8,383,883 $5,469,526 $3,958,480 $ (725,707) $(556,788) $11,096,273
--------- ---------- ----------- ---------- ----------- ------------ ---------- -----------
</TABLE>
F-7
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine For the Nine
Months Ended Months Ended
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
Cash Flows from Operating Activities
Net Income $ 683,726 $ 209,960
Adjustments to Reconcile Net Income
to Net Cash Provided by (Used in)
Operating Activities
Depreciation & Amortization 1,731,921 1,186,542
Expense related to stock-based - 15,000
compensation plan
Gain on Sale of Equipment (404,954) -
(Increase) Decrease - Assets
Restricted Cash (485,108) (314,332)
Accounts Receivable (4,483,078) (326,986)
Notes Receivable (664,404) -
Parts & Supply Inventory (39,870) (15,689)
Prepaid Expenses & Other Current
Assets (448,895) (84,523)
Increase (Decrease) - Liabilities
Accounts Payable and Due to Factor (110,457) 129,257
Accrued Expenses and Other Liabilities 727,107 49,420
----------- -----------
Total Adjustments (4,177,738) 638,689
Net Cash Provided by (Used in)
Operating Activities (3,494,012) 848,649
Cash Flows from Investing Activities
Reduction (Increase) in security
deposit (139,617) (2,309)
Purchase of Equipment (1,251,766) (248,287)
Net Accounts Receivable acquired
from acquisition (352,974) -
Sale of Transportation and Other
Equipment 1,255,160 -
Cash paid for acquisitions (898,484) (161,228)
Payment for Refinancing of
Acquisition Debt - (55,274)
----------- -----------
Net Cash Used in Investing Activities (1,387,681) (467,098)
Subtotal (4,175,745) 381,551
F-8
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Nine For the Nine
Months Ending Months Ending
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
Cash Flows from Financing Activities
Proceeds from Revolving Credit Loan 20,602,120 -
Payments on Revolving Credit Loan (17,567,955) -
Proceeds from Long Term Debt Financing 1,071,229 -
Discount on Note Payable 13,344 -
Issuance of Preferred Stock 2,665,462 -
Sale of Common Stock 300,000 575,000
Sale of Convertible Debenture 1,040,000 -
Conversion of stock options 71,238 -
Paid in capital 401,688 -
Principal Payments on Long-Term Debt (2,168,727) (656,755)
Principal Payments on Capital Lease - (243,086)
Obligations
----------- -----------
Net Cash Provided by (Used in)
Financing Activities 6,415,055 (311,497)
Net Increase (Decrease) in Cash 1,533,362 70,054
Cash at Beginning of Year 22,976 60,099
----------- -----------
Cash at End of Period $ 1,556,338 $ 130,153
=========== ===========
Supplementary Disclosure of Cash
Flow Information
Cash Paid during the period
Interest Expense $ 596,048 $ 503,507
=========== ===========
Income Taxes $ -
===========
F-9
<PAGE>
U.S. TRUCKING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1 - Basis of Presentation
The accompanying consolidated financial statements include the parent company,
US Trucking, Inc. and its wholly owned subsidiaries, Gulf Northern Transport,
Inc., ProStar, Inc., Mencor, Inc. and the US Trucking Captive Insurance
Program (hereinafter collectively called the "Company"). All material
inter-company items and transactions have been eliminated in consolidation.
The consolidated financial statements included herein have been prepared in
accordance with generally accepted accounting principles ("GAAP"), pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures have been omitted or condensed pursuant
to such rules and regulations. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Results of operations in interim periods are
not necessarily indicative of results for a full year. These consolidated
financial statements and notes thereto should be read in conjunction with the
Company's consolidated financial statements and notes. The preparation of
financial statements in accordance with GAAP requires management to make
estimates and assumptions. Such estimates and assumptions affect the reported
amounts of assets and liabilities as well as disclosure of contingent assets
and liabilities, at the date of the accompanying consolidated financial
statements, and the reported amounts of the revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
NOTE 2 - Earnings per Share
Earnings per common share amounts are based on the weighted average number of
common shares outstanding and diluted earnings per share amounts are based on
the weighted average number of common shares outstanding plus the incremental
shares that would have been outstanding upon the assumed exercise of all
diluted preferred shares.
NOTE 3 - Segment Information
Description of the types of services from which each reportable segment
derives its revenues. The Company has four major business segments: long-haul
trucking of refrigerated and nonrefrigerated products, interstate freight
brokerage, trucking and brokerage agents program and a captive insurance
program for liability insurance for the 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 information on its truck brokerage operation.
In addition, during 1998, the company added the captive liability insurance
program (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 the agents program and
effective tax rates are determined for each business segment.
The Company evaluates performance and allocated resources based on net profit
and loss from operations.
F-10
<PAGE>
The Company's reportable segments are business units that offer different
transportation services. The reportable segments are each managed separately
because of their distinct differences in the operations.
NINE MONTHS ENDING SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Long Haul Agents Truck Liability
Trucking Program Brokerage Insurance Intersegment Total
---------- --------- --------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Sales 23,195,461 1,459,227 4,521,499 1,485,780 (833,949) 29,828,018
Operating Income 420,589 65,450 266,151 184,978 (101,938) 835,230
Net Interest 562,252 5,250 4,382 - 24,164 596,048
Pretax Net Income (Loss) 231,415 60,200 261,768 184,978 (54,635) 683,726
Net Income (Loss) 231,415 60,200 261,768 184,978 (54,635) 683,726
Assets 22,368,773 1,328,057 1,778,527 2,170,161 0 27,645,518
Depreciation & Amorti-
zation 1,687,537 9,593 34,791 0 1,731,921
Additions to long-lived
Assets 768,766 483,000 - 0 1,251,766
</TABLE>
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Long Haul Agents Truck Liability
Trucking Program Brokerage Insurance Intersegment Total
---------- --------- --------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Sales 8,482,941 1,459,227 2,008,086 548,566 (494,971) 12,003,849
Operating Income 72,622 65,450 175,661 83,557 (101,938) 295,352
Net Interest 185,006 5,250 3,156 - 24,164 217,576
Pretax Net Income (Loss) 109,482 60,200 171,278 83,557 (54,635) 369,882
Net Income (Loss) 109,482 60,200 171,278 83,557 (54,635) 369,882
Assets 22,368,773 1,328,057 1,778,527 2,170,161 0 27,645,518
Depreciation and Amorti-
zation 553,729 9,593 21,882 585,204
Additions to long-lived
assets 524,093 483,000 - - 1,007,093
</TABLE>
F-11
<PAGE>
NINE MONTHS ENDING SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Long Haul Agents Truck Liability
Trucking Program Brokerage Insurance Intersegment Total
---------- --------- --------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Sales 14,312,368 1,514,814 15,827,182
Operating Income 661,467 7,693 669,160
Net Interest 500,798 2,709 503,507
Pretax Net Income (Loss) 204,976 - 4,984 209,960
Net Income (Loss) 204,976 4,984 209,960
Assets 10,129,009 324,466 10,453,475
Depreciation & Amorti-
zation 1,184,481 2,061 1,186,542
Additions to long-lived
Assets 248,287 248,287
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1998
</TABLE>
<TABLE>
<CAPTION>
Long Haul Agents Truck Liability
Trucking Program Brokerage Insurance Intersegment Total
---------- --------- --------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Sales 4,798,660 479,136 5,277,796
Operating Income 208,554 (4,934) 203,620
Net Interest 196,857 976 197,833
Pretax Net Income (Loss) 23,048 (5,910) 17,138
Net Income (Loss) 23,048 (5,910) 17,138
Assets 10,129,009 324,466 10,453,475
Depreciation and Amorti-
zation 380,562 687 381,249
Additions to long-lived
assets 140,000 140,000
</TABLE>
NOTE 4 - Acquisition of Subsidiaries and other Assets and Liabilities
(A) The Company acquired the stock of Prostar, Inc., a South Carolina
brokerage company effective April 22, 1999. The purchase price was $840,000
based on $340,000 cash and the issuance of 200,000 shares of the company's
common stock valued at $2.50 per share. The purchase was allocated to the
F-12
<PAGE>
assets and liabilities acquired at their fair market values and $1,054,313 of
goodwill was recognized. The goodwill is being amortized over fifteen years on
a straight-line basis. $29,314 has been expensed during 1999. Adjustments if
any, to the purchase price allocations are not expected to have a material
impact on the accompanying consolidated financial statements.
(B) The Company completed the acquisition of a container freight hauling
business located in South Carolina effective late June 1999. The purchase
price was $950,000 based on $300,000 cash and 200,000 shares of the company's
common stock valued at $3.25 per share. As of September 30, 1999, $146,057 of
cash portion was still payable. This purchase of a business was recorded at
its estimated fair value, at the acquisition date, in accordance with AFB
Opinion 16 and $950,000 of goodwill was recognized. The goodwill is being
amortized over fifteen years on a straight-line basis.
(C) Effective September 1999, U.S. Trucking, Inc. acquired certain assets and
liabilities of Fulmer Transport, Inc., a Florida based transportation company.
The purchase price was $1,500,000 based on $457,000 cash and 125,000 shares of
the company's stock valued at $4.00 per share and 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 $865,057 of goodwill was
recognized. The goodwill is amortized over fifteen years on a straight-line
basis. $3,844 was expensed during the third quarter of 1999.
An allocation of the purchase price for each of the following transactions
follow:
Fulmer
Prostar, Inc. Rick Kelly Transport, Inc.
------------- ---------- ---------------
Assets:
Cash 103,353
Restricted Cash 150,906 -
Accounts Receivable 109,624 - 2,051,701
Notes Receivable 361,800
Inventory -
Transportation Equipment 15,795 - 463,000
Other Assets 52,804 -
Goodwill 1,054,313 950,000 838,314
--------- ------- ---------
Total 1,486,795 950,000 3,714,815
Liabilities assumed,
Equity and Cash Paid:
Liabilities assumed 645,795 - 2,214,815
Paid in Capital 1,000
Stock issued 500,000 650,000 500,000
Cash Paid 340,000 300,000 457,000
Other expenses - - 543,000
--------- ------- ---------
Total 1,486,795 950,000 3,714,815
13
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Historical Historical
U.S. Trucking, Historical Historical Fulmar Pro Forma Pro Forma
Inc. Prostar Rick Kelly Transport Adjustments Combined
-------------- ---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues 22,984,116 5,784,179 3,456,200 14,007,581 (308,658) 45,923,418
Operating Expenses 22,748,055 5,623,895 3,093,344 14,023,538 (645,874) 44,842,958
Income (Loss) from
Operations 236,061 160,284 362,856 (15,957) 337,216 1,080,460
Other Income and Expenses
Interest income 126 5,104 - - - 5,230
Interest Expense (426,388) (74,419) (60,950) (245,097) 129,584 (677,270)
Other Income 450,039 1,089 - 31,213 - 482,341
Net Loss on Disposition
of Assets - - -
Total Other income and
expenses 23,777 (68,226) (60,950) (213,884) 129,584 (189,699)
Net income (loss) before
taxes 259,838 92,058 301,906 (229,841) 466,800 890,761
Provision for income taxes (122,345) (31,300) (68,648) - - 302,859
Benefit of net operating
loss carryforward 122,345 31,300 - - - (302,859)
Net income 259,838 92,058 233,258 (229,841) 466,800 890,761
Net income per common
share $0.02 $0.11
Weighted average number
of common shares 7,876,381 8,076,381
</TABLE>
F-14
<PAGE>
2) AUDITED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC. FOR THE YEAR
ENDED DECEMBER 31, 1998 AND THE PERIOD FROM INCEPTION (JANUARY 30,
1997) TO DECEMBER 31, 1997
F-15
<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-16
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
ASSETS
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-17
<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-18
<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
----------- -----------
Net revenues $21,815,844 $17,469,281
Operating expenses:
Transportation and rentals 8,281,383 5,870,857
Operating supplies and maintenance 901,205 1,678,622
Fuel 2,106,565 2,390,699
Insurance and claims 1,201,110 1,159,537
Depreciation and amortization 1,453,274 1,334,898
Taxes and licenses 909,976 824,965
Salaries, wages and benefits 3,633,461 3,174,936
Administrative expenses 2,924,746 1,999,692
----------- -----------
Total operating expenses 21,411,720 18,434,206
----------- -----------
Operating income 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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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)
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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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 2,500,000 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-45
<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 1,500,000 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 $450,000.
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-46
<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-47
<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-48
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other
arrangement under which any controlling person, Director or Officer of the
Company is insured or indemnified in any manner against any liability which he
may incur in his capacity as such, is as follows:
(a) The Company has the power under the Colorado Business Corporation
Act to indemnify any person who was or is a party or is threatened to be made
a party to any action, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a Director,
Officer, employee, fiduciary, or agent of the Company or was serving at its
request in a similar capacity for another entity, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection therewith if he acted in good faith
and in a manner he reasonably believed to be in the best interest of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In case of an action
brought by or in the right of the Company such persons are similarly entitled
to indemnification if they acted in good faith and in a manner reasonably
believed to be in the best interests of the Company but no indemnification
shall be made if such person was adjudged to be liable to the Company for
negligence or misconduct in the performance of his duty to the Company unless
and to the extent the court in which such action or suit was brought
determines upon application that despite the adjudication of liability, in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnification. In such event, indemnification is limited to
reasonable expenses. Such indemnification is not deemed exclusive of any
other rights to which those indemnified may be entitled under the Articles of
Incorporation, Bylaws, agreement, vote of shareholders or disinterested
directors, or otherwise.
(b) The Articles of Incorporation and Bylaws of the Company generally
require indemnification of Officers and Directors to the fullest extent
allowed by law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by
the Selling Shareholders, are as follows:
SEC Filing Fee ................................ $ 7,471.79
Printing Expenses ............................. 1,000.00
Accounting Fees and Expenses .................. 2,500.00
Legal Fees and Expenses ....................... 25,000.00
Blue Sky Fees and Expenses .................... 500.00
Miscellaneous ................................. 3,528.21
----------
Total .................................... $40,000.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During its past three years, the Registrant issued securities which were
not registered under the Securities Act of 1933, as amended (the "Act"), as
follows.
II-1
<PAGE>
Effective September 8, 1998, the Company effected a 1 for 160 reverse
split of the outstanding Common Stock. All numbers of shares stated below
give retroactive effect to this stock split.
On September 8, 1998, the Company completed the acquisition of 100% of
the outstanding common stock of 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 to the 29
shareholders of U.S. Trucking-Nevada pursuant to an Agreement ("Agreement")
between the Company and U.S. Trucking-Nevada.
During October 1998, the Company issued an additional 133,333 shares of
common stock to five accredited investors who had invested $100,000 in U.S.
Trucking-Nevada and who exchanged their shares in U.S. Trucking-Nevada for
shares of the Company's common stock on a one-for-one basis.
During November 1998, the Company issued 33,334 shares to an accredited
investor who invested $25,000 in a private placement.
Effective December 31, 1998, the Company issued 400,000 shares of common
stock to Mid-Cal Express, Inc. as partial payment for the assets which were
acquired from Mid-Cal Express, Inc.
During January 1999, the Company issued 999,000 shares of its Series A
Preferred Stock to three existing shareholders in exchange for a total of
9,990,000 shares of the Company's common stock.
During April 1999, the Company issued 2,000 shares of its Series B
Convertible Preferred Stock and 400,000 warrants to five investors in a
private placement which raised $2 million in gross proceeds.
During May 1999, the Company issued 50,000 shares of Series C Preferred
Stock to two shareholders in consideration of their guarantees with respect to
in excess of $13 million of the Company's debt.
During June 1999, the Company issued 200,000 shares of common stock to
two persons in connection with the acquisition of ProStar, Inc.
During July 1999, the Company issued 50,000 shares of its common stock to
one investor who paid $50,000.
In September 1999, the Company sold 950 shares of Series D Preferred
Stock for total consideration of $950,000.
In September 1999, the Company sold 100,000 shares of Common Stock for
$3.00 per share.
In October 1999, the Company sold 500,000 shares of Common Stock for
$4.00 per share.
In October 1999, the Company issued 263,360 shares of Common Stock in
connection with the conversion of convertible debentures.
In November 1999, the Company sold 2,300 shares of Series E Convertible
Preferred Stock for $2.3 million.
In December 1999, the Company issued 88,018 shares of Common Stock in
connection with the conversion of convertible debentures.
In February 2000, the Company issued 200,000 shares of Common Stock to
six persons in connection with the acquisition of the container division in
June 1999.
II-2
<PAGE>
In February 2000, the Company issued 385,000 shares of Common Stock to
four persons in connection with the Checkmate and Maverick mergers.
The sales described above were made in reliance on the exemption from
registration offered by Section 4(2) of the Securities Act of 1933. The
Company had reasonable grounds to believe that these persons (1) were
acquiring the shares for investment and not with a view to distribution, and
(2) had such knowledge and experience in financial and business matters that
they were capable of evaluating the merits and risks of their investment and
were able to bear those risks. Such persons had access to pertinent
information enabling them to ask informed questions. An appropriate
restrictive legend is noted on the certificates representing such shares, and
stop-transfer instructions have been noted in the Company's transfer records.
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B:
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
3.1 Articles of Incorporation, Previously filed
as amended
3.2 Bylaws, as amended Previously filed
3.3 Articles of Amendment to Previously filed
Articles of Incorporation
effective September 8, 1998
3.4 Articles of Amendment to Previously filed
Articles of Incorporation
dated January 20, 1999
regarding Series A Pre-
ferred Stock
3.5 Articles of Amendment to Previously filed
Articles of Incorporation
dated April 29, 1999
regarding Series B Pre-
ferred Stock
3.6 Articles of Amendment to Previously filed
Articles of Incorporation
dated June 10, 1999
regarding Series C Pre-
ferred Stock
3.7 Articles of Amendment to Incorporated herein by reference
Articles of Incorporation to Exhibit 3.7 to the Company's
dated September 10, 1999 Form 10-Q for the quarter ended
regarding Series D September 30, 1999 (SEC File
Preferred Stock 333-70353)
3.8 Articles of Amendment to Incorporated herein by reference
Articles of Incorporation to Exhibit 3.8 to the Company's
dated September 10, 1999 Form 10-Q for the quarter ended
regarding Series D September 30, 1999 (SEC File
Preferred Stock 333-70353)
II-3
<PAGE>
5 Opinion of Krys Boyle Previously filed
Freedman & Sawyer, P.C.
regarding the legality
of the securities being
registered
5.1 Revised Opinion of Krys Filed herewith electronically
Boyle Freedman & Sawyer,
P.C. regarding the legality
of the securities being
registered
10.1 1998 Stock Option Plan Incorporated herein by reference to
Exhibit No. 4.3 to the Company's
Registration Statement on Form S-8
(SEC File No. 333-70353)
10.2 Share Exchange Agreement Incorporated herein by reference to
with U.S. Trucking, Inc. Exhibit No. 10 to the Company's
Form 8-K dated September 8, 1998
10.3 Employment Agreement with Previously filed
Danny L. Pixler
10.4 Employment Agreement with Previously filed
Anthony Huff
10.5 Employment Agreement with Previously filed
John Ragland
10.6 Lease Agreement dated Previously filed
January 1, 1997, between
Gulf Northern Transport,
Inc., Dan L. Pixler, and
Sebrite Insurance Services,
Inc.
10.7 Lease Agreement dated Previously filed
March 5, 1998, between
Gulf Northern Transport,
Inc. and Dan Pixler for
three tractors
10.8 Lease Agreement dated Previously filed
September 23, 1998,
between Gulf Northern
Transport, Inc. and
Thomas Financial Services
10.9 Stock Exchange Agreements Previously filed
between U.S. Trucking and
three shareholders dated
January 29, 1999.
10.10 Loan and Security Agreement Previously filed
dated as of December 22,
1998 between General Electric
Capital Corporation and
U.S. Trucking, Inc., et al.
II-4
<PAGE>
10.12 10% Convertible Debenture Incorporated by reference to
due May 31, 2002 for Exhibit 10.12 to the Company's
$600,000 Form 10-QSB for the quarter
ended June 30, 1999
10.13 1998 Stock Option Plan, Previously filed
as amended
10.14 Purchase and Sale Agreement Incorporated by reference to
by and among Mid-Cal the Company's Form 8-K dated
Express, Inc., Prime April 14, 1999
Companies, Inc. and U.S.
Trucking, Inc.
10.15 Merger Agreement and Plan of Incorporated by reference to
Reorganization dated Exhibit 10.1 to the Company's
February 2, 2000, by and Form 8-K dated February 7,
between U.S. Trucking, Inc., 2000
Checkmate Acquisition Corp.,
Tommy Chambers, Marylou
Chambers and Timothy O'Bannon
and Checkmate Truck Brokerage,
Inc.
10.16 Merger Agreement and Plan of Incorporated by reference to
Reorganization dated Exhibit 10.2 to the Company's
February 2, 2000, by and Form 8-K dated February 7,
between U.S. Trucking, Inc., 2000
Checkmate Acquisition Corp.,
Tommy Chambers, Timothy
O'Bannon, Marylou Chambers
and Sharion O'Bannon and
Maverick Truck Brokerage,
Inc.
10.17 Price Adjustment Agreement Incorporated by reference to
Exhibit 10.3 to the Company's
Form 8-K dated February 7,
2000
21 Subsidiaries of the Previously filed
Registrant
23.1 Consent of Krys Boyle Contained in Exhibit 5
Freedman & Sawyer, P.C.
23.2 Consent of Bianculli, Filed herewith electronically
Pascale & Co. P.C.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
II-5
<PAGE>
such director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2, and authorized this Amendment
No. 2 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of North Charleston, State
of South Carolina, on the 29th day of February 2000.
U.S. TRUCKING, INC.
By:/s/ Danny L. Pixler
Danny L. Pixler, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the 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 February 29, 2000
Danny L. Pixler Officer) and Director
/s/ W. Anthony Huff Executive Vice President February 29, 2000
W. Anthony Huff and Director
/s/ John Ragland Chief Financial and February 29, 2000
John Ragland Accounting Officer
<PAGE>
U.S. TRUCKING, INC.
AMENDMENT NO. 1 TO
FORM SB-2 REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
5.1 Revised Opinion of Krys Boyle Freedman & Sawyer, P.C.
regarding the legality of the securities being registered
23.2 Pascale Razzino Alexanderson & Co. PLLC
OPINION OF KRYS BOYLE FREEDMAN & SAWYER, P.C.
KRYS BOYLE FREEDMAN & SAWYER, P.C.
ATTORNEYS AT LAW
Dominion Plaza, Suite 2700 South Tower
600 Seventeenth Street
Denver, Colorado 80202
Telephone Facsimile
(303) 893-2300 (303) 893-2882
February 29, 2000
U.S. Trucking, Inc.
10602 Timberwood Circle #9
Louisville, Kentucky 40223
Gentlemen:
We have acted as counsel to U.S. Trucking, Inc., a Colorado corporation
(the "Company"), in connection with the preparation and filing with the
Securities and Exchange Commission of a Registration Statement on Form SB-2
(the "Registration Statement"), pursuant to which the Company is registering
under the Securities Act of 1933, as amended, a total of 5,772,230 shares (the
"Shares") of its Common Stock, no par value (the "Common Stock") being offered
for resale by selling shareholders. This opinion is being rendered in
connection with the filing of the Registration Statement. All capitalized
terms used herein and not otherwise defined shall have the respective meanings
given to them in the Registration Statement.
In connection with this opinion, we have examined the Company's Articles
of Incorporation and Bylaws, both as currently in effect; such other records
of the corporate proceedings of the Company and certificates of the Company's
officers as we have deemed relevant; and the Registration Statement and the
exhibits thereto.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies.
Based upon the foregoing, and subject to the limitations set forth below,
we are of the opinion that the 5,772,230 Shares being offered for resale have
been duly and validly authorized by the Company and have been duly and validly
issued and are fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We hereby further consent to the reference to us
under the caption "Legal Matters" in the prospectus included in the
Registration Statement.
Very truly yours,
KRYS BOYLE FREEDMAN & SAWYER, P.C.
By: /s/ Jon D. Sawyer
Jon D. Sawyer
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of U.S. Trucking, Inc. on
Form SB-2 of our reports dated February 25, 1999, June 10, 1998, June 8, 1999,
November 7, 1997 and November 3, 1997, appearing in the Prospectus, which is a
part of this Registration Statement and to the reference to our firm under the
heading "Experts" in the Prospectus.
/s/ Pascale Razzino Alexanderson & Co. PLLC
(Successor firm to BIANCULLI, PASCALE & CO. P.C.)
Garden City, New York
September 9, 1999
