UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 0-22388
U.S. Industrial Services, Inc.
------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 99-0273889
-------- ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
11011 Jones Road, Houston, Texas 77070
-------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(281) 774-7010
--------------
(Registrant's Telephone Number, Including Area Code)
N/A
---------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 31, 1999
----- ------------------------------
Common stock, $.01 par value 8,763,978
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
US INDUSTRIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 835,511 $ 2,349,491
Accounts receivable 2,401,999 15,829,040
Notes receivable 1,928,869 --
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 268,693 1,381,950
Prepaid expenses and other current assets 2,231,435 1,220,118
Deferred income taxes 3,123,823 3,603,480
----------- -----------
Total current assets 11,208,917 24,914,986
Property, plant and equipment, net 1,525,403 6,591,677
Other noncurrent assets:
Goodwill 673,184 2,844,419
Receivable officer 340,107 304,148
Notes receivable 5,287,369 --
Investments 852,000 246,000
Prepaid expenses and other assets 8,582 611,359
----------- -----------
7,161,242 4,005,926
Total assets $19,895,562 $35,512,589
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,404,526 $ 9,731,197
Notes payable 2,060,306 8,704,380
Billings in excess of costs and estimated earnings on
contracts in progress 160,625 629,736
Reserve for contingencies --- 510,000
Net liabilities for discontinued operations --- 266,216
Total current liabilities
----------- -----------
3,625,457 19,841,529
Long-term debt 602,000 3,598,577
----------- -----------
Total liabilities
4,227,457 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 (6,055,665) (9,763,607)
----------- -----------
Total stockholders' equity
Total liabilities and stockholders' equity 15,668,105 12,072,483
----------- -----------
$19,895,562 $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 Nine Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $2,520,609 $15,642,309 $20,094,920 $36,658,878
Cost of revenue 2,026,955 12,853,531 16,504,826 28,861,339
---------- ----------- ----------- -----------
Gross profit 493,654 2,788,778 3,590,094 7,797,539
Selling, general and administrative expenses 658,732 1,833,280 3,412,508 5,839,715
---------- ----------- ----------- -----------
(165,078) 955,498 177,586 1,957,824
Other:
Gain on sale of assets --- --- 4,573,970 ---
Other income 147,767 684,619 245,023 1,109,292
Interest expense --- (609,926) --- (1,754,169)
---------- ----------- ----------- -----------
Income before income taxes (17,311) 1,030,191 4,996,579 1,312,947
Income taxes --- 29,000 1,288,637 49,000
---------- ----------- ----------- -----------
Net (loss) income $ (17,311) $ 1,001,191 $ 3,707,942 $ 1,263,947
========== =========== =========== ===========
Net (loss) income per share $(0.01) $0.41 $0.42 $0.51
========== =========== =========== ===========
Weighted average number of common shares outstanding 8,763,978 2,461,820 8,763,978 2,461,820
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
US INDUSTRIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1999 1998
---- ----
<S> <C> <C>
Net cash used in operating activities, net $ (165,051) $(3,006,076)
of effects of business acquired
Cash flow from investing activities:
Proceeds from sale of marketable securities --- 4,200,000
Purchase of machinery and equipment (1,064,668) (1,010,463)
Proceeds from sale of equipment --- 237,129
Acquisition of business, net of cash acquired --- 192,253
Increase in investment (606,000) ---
Net advances in notes receivable (1,101,991) ---
Net proceeds from the sale of assets 7,307,099 ---
----------- -----------
Net cash provided by investing activities 4,534,440 3,618,919
----------- ------------
Cash flow from financing activities:
Net (payments) advances on notes payable and long-
term debt (5,883,369) 589,958
----------- ------------
Net cash (used in) provided by financing activities (5,883,369) 589,958
----------- ------------
Net (decrease) increase in cash (1,513,980) 1,202,801
Cash, beginning of period 2,349,491 304,678
----------- ------------
Cash, end of period $ 835,511 $ 1,507,479
=========== ============
</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-K 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
nine months ended June 30, 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 subsidiaries, 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-Q. 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-Q.
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 nine months ended June 30,1998 have been restated to give effect to a
1-for-10 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.
4
<PAGE>
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
June 30, 1999, American Eco owned 7,175,858 shares of the Company's Common
Stock, representing 81.9% of the outstanding shares.
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 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.
In June 1999, the Company entered into a letter of intent with Spruce
MacIntyre, Inc. to sell its wholly-owned environmental services subsidiary, P.W.
Stephens, Inc. ("P.W. St. Louis"). The closing of this proposed transaction is
contingent on entry into a definitive agreement and may be subject to
the approval of the Company's shareholders.
The Company had entered into an arrangement with a group of insurance
executives to explore strategic opportunities in the insurance industry. In June
1999, the Company entered into a letter of intent to acquire Unistar Insurance
Company, a Texas-based property and casualty insurer, subject to shareholder and
regulatory approval. Based upon regulatory and strategic considerations, the
Company and the selling party mutually agreed not to proceed with the
transaction. Management is continuing to explore several other acquisition
prospects.
RESULTS OF OPERATIONS
GENERAL
The Company currently operates primarily in the environmental remediation
services industry through its P.W. St. Louis subsidiary. As mentioned above,
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 or nine months ended June 30, 1999 are not
necessarily indicative of results of operations to be expected for the full
year.
REVENUE
Revenue during the three and nine months ended June 30, 1999 decreased to
$2.5 million and $20.1 million, respectively, from $15.6 million and
$36.7 million for the same periods in 1998. This decrease was caused by the
sale of the assets of P.W. Residential and Manta in the first quarter of
fiscal 1999.
5
<PAGE>
The second and third quarter revenues for fiscal 1999 were derived solely from
P.W. St. Louis.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
SG&A during the three and nine months ended June 30, 1999 decreased to
$659,000 and $3.4 million, respectively, from $1.8 million and $5.8 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 nine months ended June 30, 1999 of
approximately $148,000 and $245,000, respectively, represents interest earned on
notes receivable advanced by the Company.
NET INCOME
Net income during the nine months ended June 30, 1999, increased to
$3.7 million, from $1.3 million for the same period in fiscal 1998. This
increase was attributed to the gain realized from the sale of the assets
of P.W. Residential and Manta late in the first quarter of fiscal 1999.
The net loss of approximately $17,000 for the three months ended
June 30, 1999 represents the break-even nature of the Company's operations
at its current size.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that the proceeds from the sale of assets and the
cash flows from the existing operations of P. W. St. Louis should be
sufficient throughout the next twelve months to finance its working capital
needs, planned capital expenditures, debt service and any outstanding
obligations from the 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-Q
This Form 10-Q 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 this
Form 10-Q 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 June 30, 1998, the Company believes that it had
6
<PAGE>
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.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. INDUSTRIAL SERVICES, INC.
September 21, 1999 By: /s/ DAVID L. NORRIS
--------------------
Chief Executive Officer
September 21, 1999 By: /s/ C. THOMAS MULLIGAN
-----------------------
Chief Financial Officer
8
<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-Q FOR THE PERIOD ENDED
JUNE 30, 1999 AND IS QUALIFIED IN IT'S ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 835,511
<SECURITIES> 298,080
<RECEIVABLES> 4,451,375
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,208,917
<PP&E> 1,525,403
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,895,562
<CURRENT-LIABILITIES> 3,625,457
<BONDS> 0
0
0
<COMMON> 87,640
<OTHER-SE> 22,636,302
<TOTAL-LIABILITY-AND-EQUITY> 19,845,562
<SALES> 2,520,609
<TOTAL-REVENUES> 2,520,609
<CGS> 2,026,955
<TOTAL-COSTS> 2,026,955
<OTHER-EXPENSES> 658,078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,311
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,311
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
