UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE EXCHANGE ACT
COMMISSION FILE NUMBER 0-22388
US INDUSTRIAL SERVICES, INC.
(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.)
11011 JONES ROAD
HOUSTON, TEXAS 77070
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(281) 774-7010
(ISSUER'S TELEPHONE NUMBER)
(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 May 17, 1999
----- ---------------------------
Common stock, no par value 8,763,978
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
US INDUSTRIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 850,006 $ 2,349,491
Accounts receivable 2,673,253 15,829,040
Notes receivable 1,712,915 --
Securities available for sale 298,080 410,400
Receivable officer 120,507 120,507
Cost and estimated earnings on contracts in progress
in excess of billings 182,964 1,381,950
Prepaid expenses and other current assets 2,161,026 1,220,118
Deferred income taxes 3,123,823 3,603,480
Total current assets ------------ ------------
11,122,574 24,914,986
Property, plant and equipment, net 1,456,904 6,591,677
Other noncurrent assets:
Goodwill 684,957 2,844,419
Receivable officer 340,107 304,148
Notes receivable 5,110,191 --
Investments 552,000 246,000
Prepaid expenses and other assets 8,611 611,359
------------ ------------
6,695,866 4,005,926
Total assets $ 19,275,344 $ 35,512,589
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,380,878 $ 9,731,197
Notes payable 1,119,599 8,704,380
Billings in excess of costs and estimated earnings
on contracts in progress 89,451 629,736
Reserve for contingencies -- 510,000
Net liabilities for discontinued operations -- 266,216
Total current liabilities ------------ ------------
3,589,928 19,841,529
Non-current liabilities:
Long term debt -- 3,598,577
Total liabilities 3,589,928 23,440,106
Shareholders' equity
Common stock 87,640 87,640
Additional paid-in capital 22,636,302 22,636,302
Unrealized loss on securities available for sale (1,000,172) (887,852)
Accumulated deficit (6,038,354) (9,763,607)
Total stockholders' equity ------------ ------------
Total liabilities and stockholders' equity 15,685,416 12,072,483
------------ ------------
$ 19,275,344 $ 35,512,589
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
1
<PAGE>
US INDUSTRIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
March 31, March 31,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 2,501,656 $ 10,563,169 $ 17,574,311 $ 21,016,569
Cost of revenue 2,054,801 8,199,506 14,477,871 16,007,808
----------- ------------ ------------ ------------
Gross profit 446,855 2,363,663 3,096,440 5,008,761
Selling, general and administrative expenses 513,787 2,126,307 2,753,776 4,006,435
----------- ------------ ------------ ------------
(66,932) 237,356 342,664 1,002,326
Other:
Gain on sale of assets --- --- 4,573,970 ---
Other income 106,273 371,005 106,273 424,673
Interest expense --- (602,608) (9,017) (1,144,243)
----------- ------------ ------------ ------------
Income before income taxes 39,341 5,753 5,013,890 282,756
Income taxes --- --- 1,288,637 20,000
----------- ------------ ------------ ------------
Net income $ 39,341 $ 5,753 $ 3,725,253 $ 262,756
=========== ============ ============ ============
Net income per share $0.01 $0.01* $0.43 $0.11*
=========== ============ ============ ============
Weighted average number of common shares outstanding 8,763,978 2,461,820* 8,763,978 2,461,820*
=========== ============ ============ ============
</TABLE>
() Restated to reflect a 1-for-10 reverse split of the total number of common
shares outstanding that occurred on June 22, 1998.
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
US INDUSTRIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE SIX MONTHS ENDED MARCH 31
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net cash (used in) provided by operating activities, net
of effects of business acquired $ (185,556) $ 129,346
Cash flow from investing activities:
Purchase of machinery and equipment (1,064,668) (915,868)
Proceeds from sale of equipment --- 233,129
Acquisition of business net of cash acquired --- 192,253
Increase in investment (306,000) ---
----------- ------------
Net cash (used in) provided by investing activities (1,370,668) (490,486)
Cash flow from financing activities:
Proceeds from sale of marketable securities --- 4,200,000
Net (payments) advances on notes payable and long term debt
Net (advances) payments on notes receivable (6,508,369) (302,272)
(741,991) ---
Net proceeds from the sale of assets 7,307,099 ---
----------- ------------
Net cash provided by financing activities 56,739 3,856,432
----------- ------------
Net (decrease) increase in cash (1,499,485) 3,495,292
Cash, beginning of period 2,349,491 304,678
----------- ------------
Cash, end of period $ 850,006 $ 3,799.970
=========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
US INDUSTRIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared by US Industrial Services, Inc., (the "Company"), in accordance with
generally accepted accounting principles pursuant to Regulation S-B 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, 1998. 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
six months ended March 31, 1999 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 subsidiary P.W. Stephens Contractors, Inc. and P.W.
Stephens Services, Inc. (collectively referred to as "St. Louis"). In the first
quarter of 1999 the Company sold the assets of J.L. Manta, Inc. and P.W.
Stephens Residential, Inc. In addition, 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 current 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 periods
reported under this current Form 10-QSB.
Net Income Per Share Information: The net income per share amounts have been
computed by dividing net income by the weighted-average number of common shares
outstanding during the respective periods. The weighted-averages for the quarter
and six months ended March 31,1998 have been restated to give effect to a
1-for10 reverse split that occurred on June 22,1998.
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 securities. 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.
SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of 180,000 common shares of
American Eco Corporation. The Company intends to sell these securities to settle
certain existing obligations.
TRANSACTIONS WITH AFFILIATES
As of July 24, 1998, American Eco sold certain promissory notes owed by
the Company (the "Notes") to USIS Acquisition, L.L.C. (the "Holder") for $5.0
million in cash and a secured promissory note for $12.9 million repayable on
January 29, 1999. The Holder converted the Notes into 5,295,858 shares of the
Company's Common Stock, and secured its promissory note to American Eco with a
pledge of the 5,295,858 shares. In November 1998, the Holder advised American
Eco that the Holder would not be able to pay its note at maturity, and American
Eco took ownership of the pledged shares in discharge of the Holder's note. At
March 31, 1999, American Eco owned 7,175,858 shares of the Company's Common
Stock, representing 81.9% of the outstanding shares.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
In November 1998 the Company adopted a strategic plan to dispose of all
industrial service and environmental companies with the goal of revitalizing the
Company. The Company has entered into an exclusive agreement with a group of
insurance executives to explore strategic opportunities in the insurance
industry. Management is engaged in preliminary negotiations with several
acquisition prospects, however no agreements have been finalized.
The implementation of this strategy began on November 30, 1998 when
the Company sold the assets and transferred the liabilities of J.L. Manta, Inc.
("Manta") to Kenny Industrial Services, L.L.C., for $23,000,000 consisting of a
combination of $3,000,000 of cash, a short term note of $15,000,000 which was
paid December 15, 1998 and $5,000,000 in separate notes at an interest rate of
5.0%. The cost of the transaction was $6,531,950.
The second step was completed on December 31, 1998 when the Company
sold the assets and transferred the liabilities of P.W. Stephens Residential,
Inc. ("P.W. Residential") to American Temporary Sanitation, Inc. for $2,400,000,
consisting of $1,004,000 in cash and a five year promissory note for $1,396,000
payable quarterly through 2004, together with interest at the Prime Rate plus
2.5% per annum. Furthermore, the company has received letters of interest from
various organizations interested in acquiring P.W. Stephens, Inc. ("P.W. St.
Louis"), however no agreements have been finalized.
RESULTS OF OPERATIONS:
General
The Company currently operates primarily in the environmental
remediation services industry through its P.W. St. Louis subsidiary. 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. Historically, second
quarter results are lower than other quarters due to the effects of inclement
weather on the environmental remediation services industry. The results of
operations for the six months ended March 31, 1999 are not necessarily
indicative of results of operations to be expected for the full year.
Revenue
Revenue during the three and six months ended March 31, 1999 decreased
to $2.5 million and $17.6 million, respectively, from $10.6 million and
$21.0 million for the same periods in 1998. This decrease was caused by the sale
of the assets of P.W. Residential and Manta late in calendar 1998. The second
quarter revenues for 1999, derived solely from P.W. St. Louis, represent a
significant increase over its second quarter 1998 revenues of $1.0 million,
resulting from successful efforts to expand its customer base.
Selling, General and Administrative Expenses (SG&A)
SG&A during the three and six months ended March 31, 1999 decreased to
$514,000 and $2.7 million, respectively, from $2.1 million and $4.0 million for
the same periods in 1998. This decrease resulted from the elimination of
expenses attributed to the former operations of P.W. Residential and Manta, and
the consolidation of job duties at the Company.
Other Income
Other income during the three and six months ended March 31, 1999 of
approximately $106,000 represents interest earned on notes receivable advanced
by the Company.
Net Income
Net income during the three and six months ended March 31, 1999,
increased to $39,000 and $3.7 million, respectively, from $5,753 and $262,000
for the same periods in 1998. This increase was attributed to the gain realized
from the sale of the assets of P.W. Residential and Manta late in calendar 1998.
Liquidity and Capital Resources:
The Company believes that the proceeds from the sale of assets, the
cash flows from the existing operations of P. W. St. Louis coupled with the
financing arrangements the Company currently has in place will be sufficient
throughout the next twelve months to finance its working capital needs, planned
capital expenditures, debt service and the outstanding obligations from the
5
<PAGE>
Company's discontinued operations. Implementation of the Company's strategic
plan of expanding into another line of business may require additional capital.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENT INCLUDED IN THIS FORM 10-QSB
This Form 10-QSB contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created thereby. These statements include the plans and objectives of
management for future operations, including plans and objectives relating to
future growth of the Company's business activities and availability of funds.
The forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, regulatory framework, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements included in thi
Form 10-QSB will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
YEAR 2000 MATTERS
In 1998, the Company began converting its computer systems to be year
2000 compliant. The Company has evaluated its internal systems, both hardware
and software, facilities, and interactions with business partners in relation to
year 2000 issues. As of March 31, 1998, the Company believes that it had
completed its efforts to bring the systems in compliance. The total cost to
modify these existing systems, which include both internal and external costs of
programming, coding and testing, was not material. The Company continually
evaluates computer hardware and software upgrades and, therefore, many of the
costs to replace existing items with year 2000 compliant upgrades are not likely
to be incremental costs to the Company. During 1999, the Company will continue
to contact its business partners to determine the status of their compliance and
to assess the impact of noncompliance on the Company. The Company believes that
it is taking the necessary measures to mitigate issues that may arise relating
to the year 2000. To the extent that any additional issues arise, the Company
will evaluate the impact on its business, results of operations and financial
condition and, if material, make the necessary disclosures and take appropriate
remedial action.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. Management
believes that such proceedings are either adequately covered by insurance, or if
uninsured, 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 or cash flows.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.0 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
6
<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.
May 24, 1999 By: /s/ DAVID L. NORRIS
-------------------
David L. Norris
Chairman and Chief Executive Officer
May 24, 1999 By: /s/ C. THOMAS MULLIGAN
----------------------
C. Thomas Mulligan
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description
------- -----------
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACED FROM
U.S. INDUSTRIAL SERVICES, INC. FORM 10-QSB FOR THE PERIOD ENDED
MARCH 31, 1999 AND IS QUALIFIED IN IT'S ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 850,006
<SECURITIES> 298,080
<RECEIVABLES> 4,386,168
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,122,574
<PP&E> 1,456,904
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,275,344
<CURRENT-LIABILITIES> 3,589,928
<BONDS> 0
0
0
<COMMON> 87,640
<OTHER-SE> 22,636,302
<TOTAL-LIABILITY-AND-EQUITY> 19,275,344
<SALES> 2,501,656
<TOTAL-REVENUES> 2,501,656
<CGS> 2,054,801
<TOTAL-COSTS> 2,054,801
<OTHER-EXPENSES> 513,787
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 39,341
<INCOME-TAX> 0
<INCOME-CONTINUING> 39,341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,340
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
