UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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{X} QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
{ } TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
Commission File Number 0-22388
US Industrial Services, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 99-0273889
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
54 Stiles Road
Salem, NH 03079
----------------------------------------
(Address of principal executive offices)
(603) 890-3680
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(Issuer's telephone number)
EIF Holdings, Inc.
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since last report
Check whether the issuer(1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as the latest practicable date.
Class Outstanding at July 20, 1998
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Common stock, $0.01 par value 3,461,820
Transitional Small Business Disclosure Format (Check one):
Yes ; No X
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Page 1 of 18
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US INDUSTRIAL SERVICES, INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1998
and September 30, 1997............................................ 3
Consolidated Statements of Operations for the Three and Nine
Months Ended June 30, 1998 and 1997............................... 4
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 1998 and 1997...................................... 5
Notes to Consolidated Interim Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................. 15
Item 5. Other Information................................................... 15
Item 6. Exhibits and Reports on Form 8-K.................................... 15
Signatures.......................................................... 16
Page 2 of 18
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
US INDUSTRIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, September 30,
1998 1997
------------ ------------
ASSETS
Current assets:
Cash........................................... $ 1,507,479 $ 304,678
Accounts receivable, net....................... 12,980,305 3,807,367
Note receivable................................ 2,814,800 2,562,500
Securities available for sale.................. 1,170,000 5,562,697
Receivable officer............................. 120,507 70,000
Costs and estimated earnings on contracts
in progress in excess of billings............. 1,149,746 52,003
Prepaid assets and other current assets........ 1,904,449 726,684
------------ ------------
Total current assets...................... 21,647,286 13,085,929
Machinery and equipment, net...................... 6,877,785 603,940
Other noncurrent assets:
Goodwill, net.................................. 4,177,076 755,597
Receivable officer............................. 340,107 210,000
Investments.................................... 427,836 --
Retention bonus agreements..................... 800,000 --
Other assets................................... 700,662 20,520
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6,445,681 986,117
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Total assets................................... $ 34,970,752 $ 14,675,986
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses........... $ 6,275,675 $ 2,408,077
Notes payable................................... 1,703,754 1,695,120
Billings in excess of costs and estimated
earnings on contracts in progress.............. 357,584 178,921
Note payable due to shareholder................. 18,023,677 17,609,424
Reserve for contingencies....................... 2,112,714 1,349,000
Net liabilities for discontinued operations..... 870,604 1,776,041
Current maturities of long-term debt............ 9,074,427 --
Income taxes payable............................ 276,000 --
Deferred income taxes........................... 211,000 --
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38,905,435 25,016,583
Non-current liabilities:
Long term debt................................. 5,166,476 --
Deferred taxes................................. 362,000 --
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5,528,476 --
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Total liabilities......................... 44,433,911 25,016,583
Stockholders' deficit
Common stock................................... 3,019,246 3,019,246
Additional paid-in capital..................... 804,696 804,696
Unrealized holding loss on securities
available for sale............................ (386,516) --
Accumulated deficit............................ (12,900,585) (14,164,539)
------------ ------------
Total stockholders' deficit.............. (9,463,159) (10,340,597)
------------ ------------
Total liabilities and stockholders' deficit... $ 34,970,752 $ 14,675,986
============ ============
The balance sheet at September 30, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statement presentation.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 18
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<TABLE>
<CAPTION>
US INDUSTRIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue........................................... $ 15,642,309 $ 3,562,318 $ 36,658,878 $ 9,157,892
Cost of revenue................................... 12,853,531 2,016,243 28,861,339 5,512,376
------------ ------------ ------------ ------------
Gross profit..................................... 2,788,778 1,546,075 7,797,539 3,645,516
Selling, general and administrative expenses...... 1,833,280 1,475,046 5,839,715 5,673,711
------------ ------------ ------------ ------------
955,498 71,029 1,957,824 (2,028,195)
Other:
Other income (expense)........................... 684,619 (22,424) 1,109,292 (22,424)
Interest expense................................. (609,926) (348,417) (1,754,169) (1,091,433)
------------ ------------ ------------ ------------
Income (loss) before income taxes................ 1,030,191 (299,812) 1,312,947 (3,142,052)
Income taxes...................................... 29,000 -- 49,000 --
------------ ------------ ------------ ------------
Income (loss) from continuing operations.......... 1,001,191 $ (299,812) $ 1,263,947 $ (3,142,052)
Gain (loss) from discontinued operations.......... - 1,950,508 - (3,633,304)
------------ ------------ ------------ ------------
Net income (loss)................................. $ 1,001,191 $ 1,650,696 $ 1,263,947 $ (6,775,356)
============ ============ ============ ============
Earnings per share - basic:
Net income (loss) before extraordinary items...... $ 0.41 $ (0.12) $ 0.51 $ (1.28)
Gain (loss) from discontinued operations.......... $ - $ 0.79 $ - $ (1.47)
------------ ------------ ------------ ------------
Net income (loss) per share - basic............... $ 0.41 $ 0.67 $ 0.51 $ (2.75)
============ ============ ============ ============
Earnings per share - diluted:
Net income (loss) before extraordinary items...... $ 0.33 $ (0.12) $ 0.49 $ (1.28)
Gain (loss) from discontinued operations.......... $ - $ 0.79 $ - $ (1.47)
------------ ------------ ------------ ------------
Net income (loss) per share - diluted............. $ 0.33 $ 0.67 $ 0.49 $ (2.75)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 18
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US INDUSTRIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months ended
June 30,
----------------------------
1998 1997
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Net cash used in operating activities net
of effects of business acquired............... $ (3,006,076) $ (4,642,159)
Cash flow from investing activities
Proceeds from sale of marketable securities... 4,200,000 --
Purchase of machinery and equipment........... (1,010,463) (198,228)
Proceeds from sale of equipment............... 237,129 --
Acquisition of business net of cash acquired.. 192,253 --
------------ ------------
Net cash provided by (used in)investing activities 3,618,919 (198,228)
Cash flow from financing activities
Net advances on notes payable.................. 150,654 685,595
Net advances on notes due to shareholder....... 414,253 4,187,609
Net proceeds (payments) on long-term debt...... 25,051 (73,882)
------------ ------------
Net cash provided by financing activities......... 589,958 4,799,322
------------ ------------
Net increase (decrease)in cash.................... 1,202,801 (41,065)
Cash, beginning of period......................... 304,678 178,231
------------ ------------
Cash, end of period............................... $ 1,507,479 $ 137,166
============ ============
Supplemental disclosure of Non-cash Investing and Financing Activities
During the nine months ended June 30, 1998, the Company assumed $9,000,000 of
liabilities associated with the acquisition of a business.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 18
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US INDUSTRIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared by US Industrial Services, Inc. (the "Company" or "USIS"), (formerly
"EIF Holdings, Inc."), in accordance with generally accepted accounting
principles pursuant to Regulation SB of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in audited
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Accordingly, these interim
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and related notes as contained in
Form 10-KSB for the year ended September 30, 1997. In the opinion of management,
the interim consolidated financial statements reflect all adjustments, including
normal recurring adjustments, necessary for fair presentation of the interim
periods presented. The results of operations for the nine months ended June 30,
1998 are not necessarily indicative of results of operations to be expected for
the full year.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries; J.L. Manta, Inc.("Manta"), P.W.
Stephens Residential, Inc.("Residential"), and P.W. Stephens Contractors, Inc.
and P.W. Stephens Services, Inc. (collectively referred to as "St. Louis"). The
P.W. Stephens Contractors, Inc. and QHI Stephens Contractors, Inc. subsidiaries
were discontinued in May 1997 and have been accounted for as discontinued
operations for all prior year periods reported under this Form 10-QSB. Kelar
Controls, Inc. was divested on June 30, 1997, and is also accounted for as
discontinued operations for all prior periods reported under this Form 10-QSB.
Net Income (Loss) Per Share Information. The net income (loss) per share amounts
have been computed by dividing net income (loss) by the weighted-average number
of common shares outstanding during the respective periods.
In February 1997, The Financial Accounting Standards Board Issued Statement No.
128, Earnings Per Share, which was required to be adopted on December 31, 1997.
Statement 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible sceurities. Diluted earnings per share is
consistent with the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to the Statement 128 requirements.
Fair Value of Financial Instruments: The Company's financial instruments consist
of cash and cash equivalents, marketable equity securities, accounts receivable,
accounts payable and notes payable. The Company believes that the carrying value
of these instruments on the accompanying balance sheet approximates their fair
value.
Reclassifications: Certain reclassifications have been made to prior year
financial statements to conform with the current year presentation.
NOTE 2 - SECURITIES AVAILABLE FOR SALE
On September 30, 1997, 570,333 common shares of American Eco Corporation ("AEC")
were issued to the Company by AEC in lieu of cash in conjunction with an
Amendment dated September 30, 1997, to the existing line of credit which
increased the maximum borrowing amount under the line to $20,000,000. Through
the nine months ended June 30, 1998, the Company received proceeds of $4,200,000
from the sale of 390,333 shares of AEC, resulting in net realized gains totaling
$392,919. At June 30, 1998 unrealized holding losses of approximately $387,000
have been included as a component of stockholders' deficit.
NOTE 3 - NOTE RECEIVABLE
On June 30, 1997, the Company sold all of the issued and outstanding shares of
stock in its wholly owned subsidiary, Kelar Controls, Inc. to Regal Oak
Properties, Inc. for $2,500,000. Pursuant to the acquisition agreement, the
Company received a Promissory Note for the full amount of the purchase price,
bearing interest at 10%, and secured by performance bonds. The note matured on
June 30, 1998, and was paid in full including interest on August 19, 1998.
NOTE 4 - FIXED ASSETS
At the beginning of the second quarter, the Company initiated an evaluation of
the useful lives of trucks and machinery and equipment used in the recently
acquired industrial maintenance services operations. The evaluation resulted in
an increase in useful life from 5 years to 7 years on certain of the machinery
and equipment and trucks to better reflect the equipments' capacity. The total
cost of these assets is $4,142,000 with a net book value of $2,398,000. The
effect of the change in useful life decreases the monthly depreciation
allocation by $21,700.
Page 6 of 18
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NOTE 5 - TRANSACTIONS WITH AFFILIATES
On February 18, 1998, AEC executed a "Third Amendment" to the existing
$20,000,000 line of credit facility which is unsecured and carries interest at
the prime rate plus 2% per annum. The Third Amendment extended the maturity to
August 18, 1998 from February 18, 1998. As of June 30, 1998, the total amount
outstanding under the AEC facility was $18,023,677 including accrued interest of
$764,414. In the second quarter of 1998, the Company made an interest payment to
AEC in the amount of $1,038,627. The line of credit facility provides AEC an
option to convert the entire outstanding principal amount of the debt plus any
accrued interest outstanding at the time of conversion, into common shares of
USIS subject to stockholder approval to increase the number of authorized
shares. The conversion price for each common share is equal to 85% of the five
day weighted average closing price of the common shares as quoted in the
over-the-counter "pink sheets" immediately prior to the conversion date. On May
4, 1998, the shareholders approved a 1 for 10 reverse stock split, which was
effected on June 22, 1998. On July 24, 1998, AEC sold $17.9 million of its
outstanding notes to an outside investor group, which exercised its conversion
rights on July 27, 1998. (See NOTE 11 - SUBSEQUENT EVENTS for further
discussion.)
In connection with the acquisition of Manta, the Company issued convertible
promissory notes totalling $2,235,312 to certain of Manta's former stockholders.
The convertible notes are non-interest bearing and payable in installments with
a final payment due on November 18, 2000. The notes allow for the conversion of
any principal payment due under the Stockholder Notes into shares of the
Company's common stock, at a conversion price equal to the closing transaction
price of the USIS Stock on the date of conversion. The note agreements permit
conversion any time after June 30, 1998.
Concurrent with the closing of the Manta acquisition, the Company entered into
Retention Bonus Agreements with certain Manta Stockholders and key employees.
The Retention Bonus Agreements provide for bonus payments in the aggregate
amount of $900,000 to be made by the Company over a three year period. The
non-compete provisions associated with the Retention Bonus Agreements extend
over a six year period.
NOTE 6 - NOTES PAYABLE
On September 30, 1996 the Company obtained a $1,300,000 line of credit from an
investor group. The original terms of the revolving credit facility provided for
an interest rate of 10% per annum and a maturity date of March 1, 1998. The
Company is currently negotiating an amendment to the line of credit which
includes an extension. Interest subsequent to the maturity date has been accrued
at the rate of 12% per annum, in accordance with the agreement. The outstanding
balance under the facility as of June 30, 1998 was $1,113,924.
In connection with the financing of the Manta acquisition the Company issued a
$6,500,000 Convertible Promissory Note to Deere Park Capital. The Note bears
interest at the rate of 5 1/4% per annum, becomes due on May 18, 1999 and is
secured by a pledge of all of the Manta Stock. The Note is convertible into 5
1/4% convertible preferred stock at a conversion price of One Dollar $1.00 per
share, with such convertible preferred stock convertible into USIS common stock
subject to approval of the Company's Stockholders of an amendment to USIS's
charter authorizing the requisite amount of preferred and common stock. On May
4, 1998, the shareholders approved a proposal to establish a class of preferred
stock, and a proposal to effect a 1 for 10 reverse stock split, which was
effected on June 22, 1998.
In February 1998, the Company's subsidiary, JL Manta, signed a $9.5 million
credit facility with LaSalle National Bank. A portion of the facility was used
to refinance certain indebtedness of JL Manta with the remainder available to
meet working capital requirements. The facility is comprised of a $5,500,000 one
year renewable term loan used for capital expenditures and a $4,000,000 working
capital revolving loan and letters of credit. The facility is secured by the
assets of Manta and guaranteed by the Company. Total amounts outstanding under
the capital note on June 30, 1998 were $4,753,000. The total amount outstanding
under the working capital line at June 30, 1998 was $500,000.
Page 7 of 18
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NOTE 7 - RECAPITALIZATION
Effective June 22, 1998, the Company effected a one-for-ten reverse stock split,
reducing the number of shares of outstanding common stock from 24,618,200 to
2,461,820.
Immediately following the reverse-split, the Company completed a
recapitalization and reincorporation through a merger with U.S. Industrial
Services, Inc. (USIS), a newly-formed Delaware corporation, and wholly-owned
subsidiary of EIF. USIS became the surviving company, and all outstanding shares
of EIF common stock were exchanged on a one-for-one basis for shares of USIS
common stock. USIS has 25,000,000 shares of $.01 par value common stock
authorized, and 2,461,820 shares were issued and outstanding at June 30, 1998.
USIS also has 20,000,000 shares of $.01 par value preferred stock authorized,
none of which is outstanding.
NOTE 8 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
3 months ended 9 months ended
June 30, 1998 June 30, 1998
---------------- ----------------
Numerator for basic earnings per
share - Net income $1,001,191 $1,263,947
Effect of dilutive securities:
Convertible debt 51,932 51,932
-------------- ------------
Numerator for diluted earnings
per share 1,053,123 1,315,879
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Denominator:
Denominator for basic earnings
per share-weighted-average shares 2,461,820 2,461,820
Effect of dilutive securities:
Convertible debt 693,711 232,944
------------ -----------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 3,155,531 2,694,764
------------ -----------
Basic earnings per share $.41 $.51
Diluted earnings per share $.33 $.49
At June 30, 1997 and for the quarter and nine months then ended, there were no
dilutive securities outstanding, thus there was no difference between the basic
and diluted earnings per share for those periods.
All earnings per share amounts presented have been restated to reflect the
one-for-ten reverse stock split discussed in NOTE 7 - RECAPITALIZATION.
NOTE 9 - RESERVE FOR CONTINGENCIES
The nature and scope of the Company's business operations bring it into regular
contact with the general public, a variety of businesses and government
agencies. These activities inherently subject the Company to the hazards of
litigation, which are defended in the normal course of business. The Company is
currently involved in several litigations and investigations including
regulatory compliance. Although the outcome of these claims is not clearly
determinable at the present time, Management believes that such proceedings are
adequately covered by the estimated losses it has recorded to date. The
resolution of such claims, however, could have a material effect on the
Company's results of operations and/or cash flows.
Page 8 of 18
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NOTE 10 - STOCK OPTION PLAN
On May 4, 1998, the Company's 1998 Stock Option Plan (the Plan) was adopted,
providing for the grant of options to purchase up to 1,000,000 shares of its
common stock to employees, officers, directors and consultants of the Company.
The Plan provides for the terms of each option granted to be determined by the
Company's Compensation Committee of the Board of Directors, however, the Plan
does require that exercise price of all options granted shall be no less than
the fair market value of the common stock on the date of the grant.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation", requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of the grant, no
compensation expense is recognized.
A summary of the Company's stock option activity, and related information for
the three and nine months ended June 30, 1998 follows:
Weighted-Average
Options Exercise Price
Outstanding-beginning of period -0-
Granted 380,000 $4.77
Outstanding at June 30, 1998 380,000 $4.77
At June 30, 1998, all outstanding options were at an exercise price of $4.77,
and based upon a three year vesting period, no options were exercisable. During
the period ended June 30, 1998, no options were exercised, expired or forfeited.
NOTE 11 - SUBSEQUENT EVENTS
Effective July 14, 1998, AEC, pursuant to a Stock Purchase Agreement dated
February 2, 1996, closed its purchase of 1,000,000 shares of USIS common stock
in exchange for $1 million which reduced the outstanding balance under the
Company's line of credit facility with AEC.
On July 24, 1998, AEC sold the remaining balance outstanding under the line of
credit to USIS Acquisition, LLC, ("UALC"), an outside investor group, which
exercised its rights under the agreement to convert the debt to equity on July
27, 1998. The conversion resulted in the issuance of 5,295,858 shares of common
stock to UALC, thus providing it with ownership of 60.4% of all outstanding USIS
common stock. The following pro-forma financial information illustrates the
effect of the above debt to equity conversions had such conversions taken place
on June 30, 1998:
Total current assets $21,647,286
Total assets 34,970,752
Total current liabilities 20,881,758
Total liabilities 26,410,234
Total stockholders' equity 8,560,518
Total outstanding common shares 7,826,010
See Form 8K filed by the Company on August 17, 1998 for further information.
Page 9 of 18
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
- ---------------------
The Company has included on this Form 10-QSB certain forward-looking statements.
Forward-looking statements are statements relating to the Company's plans,
goals, objectives, strategies, future performance and events as well as any
other statements or representations other than those relating to historical
data. Forward-looking statements inherently possess risks and uncertainties. As
a result, although the Company's forward-looking statements are expressed in
good faith, the Company's actual results could differ materially.
General
The Company currently operates in three primary segments of the specialized
maintenance services industry; Residential provides residential asbestos
abatement services, St. Louis provides environmental remediation services and
Manta provides industrial maintenance services. The other services formerly
provided by the Company have been classified as discontinued operations in the
accompanying financial statements. The following discussion and analysis relate
to the Company's continuing operations. The results of operations for the three
and nine months ended June 30, 1998 are not necessarily indicative of results of
operations to be expected for the full year.
Three Months Ended June 30, 1998
Compared to
Three Months Ended June 30, 1997
Revenue
Consolidated revenue for the three months ended June 30, 1998 increased to
$15,642,000 from $3,562,000 in the same period in the prior year. The increase
in revenue was primarily the result of the inclusion of the activity from the
recently acquired industrial maintenance services operations.
Revenue from the residential asbestos abatement operations decreased 28.2% in
the current quarter compared to the same quarter in the prior year. The decrease
in revenue was the combined result of a decrease in revenue in the San Diego
operations resulting from the turnover of key marketing personnel, and a slow
down in the residential asbestos abatement California markets resulting from
higher than normal weather-related activity recognized in prior quarters.
Revenue from the environmental remediation services operations decreased 14.4%
in the current quarter compared to the same quarter in the prior year. The
decrease in revenue was primarily due to an unexpected temporary postponement of
work with a major customer. The customer has postponed all work until its
ongoing labor disputes are resolved. The Company cannot estimate when work under
the contract will resume.
Page 10 of 18
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Gross Profit
Gross profit as a percentage of revenue for the three months ended June 30, 1998
was 17.8% compared to 43.4% for the same period in 1997. The decrease in the
gross profit margin was primarily due to the inclusion of the industrial
maintenance services operations which recognized a gross profit margin of 14.6%.
Industrial maintenance services operations achieve lower margins due to a higher
mix of "cost plus" contracts, which provide a lower margin, but have
significantly less profit risk than "fixed price" contracts.
The residential asbestos abatement operations experienced a decrease in gross
margin percentage for the three months ended June 30, 1998 to 46.1% from 61.1%
for the same period in 1997. The decrease was the combined result of an increase
in the number of lead abatement projects requiring subcontractors, an increase
in insurance premiums and related costs, and consistent indirect costs compared
to reduced revenue.
The results for environmental remediation for the three months ended June 30,
1998 reflected a decrease in its gross margin to 20.0% compared to 23.4% for the
same period in 1997. The lower profit margins resulted from the decrease in
revenue discussed above, and an increase in competitive bidding practices.
Selling, General And Administrative Expenses
Consolidated selling, general and administrative expenses (sg&a)for the three
months ended June 30, 1998 were $1,833,000 compared to $1,475,000 for the same
period in 1997. Consolidated sg&a as a percentage of revenue for the three
months ended June 30, 1998 decreased to 11.7% from 41.4% for the same period in
1997. The increase in the expenses and the decrease in the sg&a percentages was
the result of the inclusion of the industrial maintenance services activity in
the current period. In addition, the three month period in 1997 included
$300,000 of management fees with AEC.
Residential asbestos abatement sg&a expenses for the three months ended June 30,
1998 compared to the same period in 1997 remained consistent. As a percentage of
revenue, sg&a increased by 11.8% due to the decrease in revenue.
Environmental remediation services reflected a decrease in the current quarter
sg&a as a percentage of revenue of 3.6% compared to the same period in 1997. The
decrease in the sg&a percentage was the result of the continued savings
recognized by the prior year restructuring efforts and the continued cost
containment efforts made by those operations.
Other Income and Expenses
Other income for the three months ended June 30, 1998 includes the recognition
of realized gains on the sale of marketable equity securities totaling
approximately $393,000, and $200,000 of income recognized from the Company's
existing consulting agreement. Other income also includes interest income
accrued on a note receivable issued in connection with the sale of a business in
the prior year.
The increase in other income was partially offset by an increase in interest
expense in the current period. Interest expense for the three months ended June
30, 1998 was $610,000 compared to $348,000 for the same period in 1997. The
increase in interest expense in the current period was primarily due to the
increased amounts outstanding under the line of credit with AEC. Additional
interest was recognized in the current period from notes issued to finance a
business acquisition in a prior period, service outstanding borrowings from an
investor group and from a bank in support of the industrial maintenance
operations. As a result of the debt to equity conversion as discussed in NOTE 5
- - TRANSACTIONS WITH AFFILIATES and NOTE 11 - SUBSEQUENT EVENTS, interest expense
will decrease significantly in future periods. Also see ITEM 2 - LIQUIDITY for
further discussion.
Page 11 of 18
<PAGE>
Net Income From Discontinued Operations
The $1,951,000 net income from discontinued operations recognized in the three
months ended June 30, 1997 resulted from the recognition of a $2.4 million gain
on the sale of Kelar Controls, Inc., partially offset by other losses from
discontinued operations.
Net Income
The net income for the three months ended June 30, 1998 was $1,001,000 compared
to $1,651,000 for the same period in 1997. Net income from continuing operations
for the three months ended June 30, 1998 was $1,001,000 compared to a net loss
from continuing operations for the three months ended June 30, 1997 of $300,000.
The improvement in the results of continuing operations is the combined result
of the contribution of $1,271,000 from the industrial maintenance business and
the recognition of other income, partially offset by increases in interest
expense and consolidated sg&a.
The decrease in net income for the quarter reflects the $1,951,000 of net income
recognized from discontinued operations during the quarter ended June 30, 1997,
as described above.
Nine Months Ended June 30, 1998
Compared to
Nine Months Ended June 30, 1997.
Revenue
Consolidated revenue for the nine months ended June 30, 1998 increased to
$36,659,000 from $9,158,000 in the same period in the prior year. The increase
in revenue was primarily the result of the inclusion of eight months activity
from the industrial maintenance services operations.
Revenue from the residential asbestos abatement operations remained consistent
with the same period in the prior year. The decrease in the current quarter
revenue was offset by the increase in second quarter revenue, resulting from
increased weather related insurance claims in the California markets.
Revenue from the environmental remediation services operations decreased 4.0% in
the nine months ended June 30, 1998 compared to the same period in the prior
year. The decrease was primarily due to the postponement of work under a major
contract in the current quarter as described above. Although the Company is
unable to estimate when the work will commence, this contract is not expected to
have a material impact on Environmental's long-term revenue.
Gross Profit
Gross profit as a percentage of revenue for the nine months ended June 30, 1998
was 21.3% compared to 39.8% for the same period in 1997. The decrease in the
gross profit margin was primarily due to the inclusion of the industrial
maintenance services operations which generated a profit margin of 16.3%.
The residential asbestos abatement operations experienced a decrease in gross
margin percentage in the first nine months of 1998 to 47.1% from 55.9% for the
same period in 1997. The decrease is the result of an increase in the insurance
premiums and related costs of the operations in the current year, and an
increase in the number of lead abatement projects entered into in the current
quarter, which earn lower margins, as described above.
The results for environmental remediation for the first nine months of 1998
reflected an increase in its gross margin to 26.5% compared to 23.6% for the
same period in 1997 due primarily to gains recognized on several projects that
were completed in the first quarter of the current year, partially offset by the
lower margins earned during the current quarter, as described above.
Selling, General And Administrative Expenses
Consolidated selling, general and administrative expenses (sg&a)for the nine
months ended June 30, 1998 were $5,840,000 compared to $5,674,000 for the same
period in 1997. Consolidated sg&a as a percentage of revenue for the nine months
ended June 30, 1998 decreased to 15.9% from 62.0% for the same period in 1997.
The decrease was due to the inclusion of management fees of $2.3 million in
1997, offset primarily by the inclusion of the industrial maintenance services
activity in the current period. The management fees were incurred from AEC as a
result of a management agreement with the Company to help stabilize its
operations.
Residential asbestos abatement sg&a expenses were consistent for the nine months
ended June 30, 1998 and 1997.
Environmental remediation services has reflected a decrease in the current year
sg&a as a percentage of revenue of 4.4% compared to 1997. The decrease in the
sg&a percentage is the result of the prior year restructuring and continued cost
containment efforts made by those operations.
Page 12 of 18
<PAGE>
Other Income and Expenses
Other income for the nine months ended June 30, 1998 includes the recognition of
realized gains on the sale of marketable equity securities totaling
approximately $393,000, and $200,000 of income recognized from the Company's
existing consulting agreement. Other income also includes interest income
accrued on a note receivable issued in connection with the sale of a business in
the prior year.
The increase in other income was partially offset by an increase in interest
expense in the current period. Interest expense for the nine months ended June
30, 1998 was $1,754,000 compared to $1,091,000 for the same period in 1997. The
increase in interest expense in the current period was primarily due to the
increased amounts outstanding under the line of credit with AEC. Additional
interest was recognized in the current period from notes issued to finance a
business acquisition in a prior period, outstanding borrowings from an investor
group and from a bank in support of the industrial maintenance operations. As a
result of the debt to equity conversion as discussed in NOTE 5 - TRANSACTIONS
WITH AFFILIATES and NOTE 11 - SUBSEQUENT EVENTS, interest expense will decrease
significantly in future periods. Also see ITEM 2 - LIQUIDITY for further
discussion.
Net Income From Discontinued Operations
The $3,633,000 net loss from discontinued operations recognized in the nine
months ended June 30, 1997 resulted from the net losses of PW Stephens
Contractors, Inc., partially offset by the recognition of a $2.4 million gain on
the sale of Kelar Controls, Inc.
Net Income (Loss)
The net income for the nine months ended June 30, 1998 was $1,264,000 compared
to a net loss of $6,775,000 for the same period in 1997. Net income from
continuing operations for the nine months ended June 30, 1998 was $1,264,000
compared to a net loss from continuing operations for the nine months ended June
30, 1997 of $3,142,000.
The improvement in the results of continuing operations is the combined result
of the contribution of $2,506,000 from the industrial maintenance business and
the recognition of other income, partially offset by increases in interest
expense and consolidated sg&a.
The increase in net income for the nine months ended June 30, 1998 reflects the
recognition of a net loss from discontinued operations of $3,633,000 for the
nine months ended June 30, 1997, as described above.
Page 13 of 18
<PAGE>
Liquidity and Capital Resources:
- --------------------------------
During the nine months ended June 30, 1998 the Company used net cash of
$3,006,000 in operating activities, compared to net cash used in operations of
$4,642,000 for the same period in 1997. The decrease in negative cash flow is
primarily the result of the inclusion of the profitable industrial maintenance
operations, the shut down in the prior year of the commercial asbestos
operations which were experiencing significant losses, and the efficiencies
gained from company-wide cost containment initiatives.
During the nine months ended June 30, 1998, the Company has received proceeds of
$4,200,000 from the sale of a portion of its AEC securities the Company received
in lieu of cash under the line of credit facility with AEC. The proceeds
received from the sale of securities was allocated to reduce existing debt and
to settle certain of the Company's outstanding obligations.
In February 1998, the Company's subsidiary, JL Manta, signed a $9.5 million
credit facility with LaSalle National Bank. A portion of the facility was used
to refinance certain indebtedness of JL Manta with the remainder available to
meet working capital requirements. The facility is comprised of a $5,500,000 one
year renewable term loan used for capital expenditures and a $4,000,000 working
capital revolving loan and letters of credit. The facility is secured by the
assets of Manta and guaranteed by the Company. Total amounts outstanding under
the term loan on June 30, 1998 were $4,753,000. The total amount outstanding
under the working capital line on June 30, 1998 was $500,000.
As described in NOTE 11 - SUBSEQUENT EVENTS of the financial statements, the
conversion of the Company's line of credit debt to equity was completed on July
27, 1998, and resulted in a significant increase in the Company's working
capital. As a result of the conversion, the Company's current ratio improved
from 0.56 as of June 30, 1998, to approximately 1.04. In addition, the
conversion reduced the Company's debt service requirements by approximately
$150,000 per month.
The Company believes, that the proceeds from the sale of its remaining
securities held for sale, the proceeds from the sale of a business received in
August 1998, the cash flows from the existing operations coupled with the
financing arrangements the Company currently has in place, subject to the above
discussion, will be sufficient throughout the next twelve months to finance its
working capital needs, planned capital expenditures, debt service requirements
and the Company's current outstanding obligations.
Page 14 of 18
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 4, 1998, the Company held its Annual Meeting of Stockholders at its
corporate offices located at 54 Stiles Road, Salem NH. At the meeting there were
four matters submitted to a vote of stockholders.
1. A vote was conducted to approve the election of four directors, Frank J.
Fradella, Michael E. McGinnis, Andreas O. Tobler and Michael J. Chakos to
serve for the ensuing year or until their successors are duly elected.
2. A vote was conducted to authorize the Board of Directors to effect a stock
split (any one falling within a range between and including a 1 for 5 and a
1 for 10)of the Company's common stock.
3. A vote was conducted to approve an Article of Amendment to establish a
class of Preferred Stock, $.01 par value, consisting 20,000,000 shares.
4. A vote was conducted to approve an Agreement and Plan of Merger pursuant to
which the Company would change its state of incorporation from Hawaii to
Delaware and its name through the merger of the Company with and into US
Industrial Services, Inc., a Delaware corporation and wholly-owned
subsidiary of the Company.
The actual voting results for these matters is summarized below:
Authority Broker
1. Board of Directors For Withheld Abstain Non-Votes
---------------------- ------------ ---------- ---------- ----------
Frank J. Fradella 13,015,053 65,890 0 0
Michael E. McGinnis 13,016,553 64,390 0 0
Adreas O. Tobler 13,016,553 64,390 0 0
Michael J. Chakos 13,016,553 64,390 0 0
Broker
2. Proposals For Withheld Abstain Non-Votes
---------------------- ------------ ---------- ---------- ----------
1. Reverse Stock Split 12,819,743 203,200 58,000 0
2. Preferred Stock
Authorization 12,894,828 90,815 95,300 0
3. USIS Merger 12,992,643 49,900 38,400 0
ITEM 5. OTHER INFORMATION
In conjuction with the debt conversions as described in NOTE 5 - TRANSACTIONS
WITH AFFILIATES, and NOTE 11 - SUBSEQUENT EVENTS, Albert V. Furman III became
Chairman of the Board and Chief Executive Officer. Mr. Furman is currently the
manager of USIS Acquisition, LLC, the Director and Chairman of the Investment
Committee of Texas Heritage Bancorp and the President of Georgetown Golf Company
since 1991. Mr. Furman has replaced Frank J. Fradella who has resigned from the
positions of Chairman of the Board and Chief Executive Officer of the Company to
assume the responsibilities of President and Director of AEC. Also in
conjunction with UALC's acquired interest in USIS, C. Thomas Mulligan became
Chief Financial Officer, General Counsel and acting Secretary and Treasurer for
the Company. Prior to joining the Company, Mr. Mulligan specialized in
environmental litigation at the law firm of Dehay & Elliston, LLP. Mr. Mulligan
has replaced J. Drennan Lowell who resigned from the positions of Vice
President, Chief Financial Officer, Treasurer and Secretary.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
A report on Form 8-K for the event of June 22, 1998 was filed with the
Securities and Exchange Commission on June 26, 1998 relating to the
recapitalization and reincorporation of the Company.
Page 15 of 18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
US INDUSTRIAL SERVICES, INC.
------------------
Registrant
August 21, 1998 By: /S/ Albert V. Furman III
-----------------------------
Albert V. Furman III
Chairman and Chief Executive Officer
August 21, 1998 By: /S/ C. Thomas Mulligan
-----------------------------
C. Thomas Mulligan
Chief Financial Officer and
General Counsel
Page 16 of 18
<PAGE>
US INDUSTRIAL SERVICES, INC.
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
Exhibit 27 Financial Data Schedule........................... 18
Page 17 of 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM US INDUSTRIAL
SERVICES, INC. FORM 10-QSB FOR THE PERIOD ENDED June 30, 1998 AND IS QUALIFIED
IN IT'S ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
Page 18 of 18
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,507,479
<SECURITIES> 1,170,000
<RECEIVABLES> 13,293,919
<ALLOWANCES> 313,614
<INVENTORY> 224,578
<CURRENT-ASSETS> 21,647,286
<PP&E> 16,112,304
<DEPRECIATION> 9,234,519
<TOTAL-ASSETS> 34,970,752
<CURRENT-LIABILITIES> 38,905,435
<BONDS> 0
0
0
<COMMON> 3,019,246
<OTHER-SE> (12,482,405)
<TOTAL-LIABILITY-AND-EQUITY> 34,970,752
<SALES> 36,658,878
<TOTAL-REVENUES> 36,658,878
<CGS> 28,861,339
<TOTAL-COSTS> 28,861,339
<OTHER-EXPENSES> 5,839,715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,754,169
<INCOME-PRETAX> 1,312,947
<INCOME-TAX> 49,000
<INCOME-CONTINUING> 1,263,947
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,263,947
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.49
</TABLE>
