<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: APRIL 30 1996
-------------------
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: 33-75432C
-------------
UNITED MARKET SERVICES COMPANY
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 41-1642910
- --------------------------------------- ------------------------------------
(State of incorporation or organization) (IRS Employer Identification Number)
204 LIVESTOCK EXCHANGE BUILDING
SOUTH ST. PAUL, MINNESOTA 55075
----------------------------------------
(Address of principal executive offices)
612/451-0752
---------------------------
(Issuer's telephone number)
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 issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days:
X YES NO
------- ------
The number of shares outstanding of each of the issuer's
classes of capital stock as of April 30, 1996 was:
1,568,500 SHARES OF CUMULATIVE REDEEMABLE CONVERTIBLE
PREFERRED STOCK ($0.001 PAR VALUE)
60,000 SHARES OF 1994 SERIES REDEEMABLE CONVERTIBLE
PREFERRED STOCK ($0.01 PAR VALUE)
451,000 SHARES OF 1995 SERIES REDEEMABLE CONVERTIBLE
PREFERRED STOCK ($0.01 PAR VALUE)
811,777 SHARES OF COMMON STOCK ($0.001 PAR VALUE)
Transitional Small Business Issuer Disclosure Format: YES X NO
------ -------
<PAGE> 2
PART I, ITEM 1. FINANCIAL STATEMENTS
UNITED MARKET SERVICES COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, April 30,
1995 1996
---------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $411,197 $113,209
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476,779 --
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,124,551 1,904,105
Income tax refunds receivable . . . . . . . . . . . . . . . . . . . . . . . . . 124,045 --
Secured notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,848,545 1,916,847
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,347,642 5,593,750
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . 22,834 79,739
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,355,593 9,607,650
Property and equipment
Yard improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,444,073 5,444,997
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698,310 698,310
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448,862 421,329
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,741 73,484
Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . (3,850,835) (4,053,173)
----------- -----------
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . 2,818,151 2,586,947
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,031,801 515,801
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,205,545 $12,710,398
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Revolving lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . 8,599,459 5,349,981
Checks written not yet presented for payment . . . . . . . . . . . . . . . . . 81,434 172,841
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 773,956 493,594
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329,564 1,755,089
Curent maturities of long term debt . . . . . . . . . . . . . . . . . . . . . . -- 6,050,000
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 9,784,413 13,821,505
Long-term debt, less current maturities . . . . . . . . . . . . . . . . . . . . 6,050,000 --
----------- -----------
Preferred stockholders' investment
Cumulative Redeemable Convertible Preferred Stock, including
unpaid dividends, $0.001 par value, 1,568,500 shares authorized,
issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,045,585 $2,084,798
Series 1994 Redeemable Convertible Preferred Stock, $0.01 par
value, 60,000 shares authorized, issued and outstanding . . . . . . . . . . . 240,000 240,000
Series 1995 Redeemable Convertible Preferred Stock, $0.01 par
value, 451,000 shares authorized, issued, and outstanding . . . . . . . . . . 1,353,005 1,353,005
----------- ------------
Total preferred stockholders' investment . . . . . . . . . . . . . . . . . . 3,638,590 3,677,803
----------- ------------
Common stockholders' deficit
Common Stock, $0.001 par value, 10,000,000 shares
authorized, 811,777 shares issued and outstanding . . . . . . . . . . . . . . . 812 812
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 911,688 911,688
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,179,958) (5,701,410)
----------- ------------
Total common stockholders' deficit . . . . . . . . . . . . . . . . . . . . . (1,267,458) (4,788,910)
----------- ------------
Total liabilities and stockholders' investment . . . . . . . . . . . . . $18,205,545 $ 12,710,398
=========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
2
<PAGE> 3
PART I, ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNITED MARKET SERVICES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
---------------------------- --------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . 3,000,629 $2,372,582 $6,408,762 $4,901,680
OPERATING EXPENSES:
Labor and benefits . . . . . . . . . . . . . . . . . . 1,070,036 770,864 2,189,397 1,622,572
Operations and maintenance . . . . . . . . . . . . . . 1,206,110 1,080,919 2,504,888 2,084,073
Selling, general, and administrative expenses . . . . . 692,090 1,186,964 1,127,629 1,674,360
Depreciation and amortization expense . . . . . . . . . 132,498 159,000 264,996 318,000
Restructuring reserves and asset writedowns . . . . . . -- 1,565,000 -- 1,565,000
---------- ------------ ---------- ------------
Total costs and operating expenses . . . . . . . . . 3,100,734 4,762,747 6,086,910 7,264,005
---------- ------------ ---------- ------------
OPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . . (100,105) (2,390,165) 321,852 (2,362,325)
NET INTEREST EXPENSE . . . . . . . . . . . . . . . . . . 346,751 326,913 670,434 681,914
---------- ------------ ---------- ------------
LOSS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . (446,856) (2,717,078) (348,582) (3,044,239)
Income tax expense (benefit) . . . . . . . . . . . . . (160,688) 438,000 (125,488) 438,000
--------- ------------ ---------- ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . (286,168) (3,155,078) (233,094) (3,482,239)
Dividends accrued on Preferred Stock, not yet paid . . 19,607 19,607 39,213 39,213
---------- ------------ ---------- ------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK . . . . . ($305,775) ($3,174,685) ($262,307) ($3,521,452)
========== ============ =========== ============
Loss per share:
Net income (loss) . . . . . . . . . . . . . . . . . . (.35) (3.87) (.27) (4.29)
Dividends accrued on Preferred Stock, not yet paid . . (.02) (.04) (.05) (.05)
----- ----- ----- -----
Net income (loss) attributable to Common Stock . . ($0.37) ($3.91) ($.32) ($4.34)
======= ======= ====== =======
COMMON AND COMMON SHARE EQUIVALENTS OUTSTANDING . . . . . 813,777 811,777 813,777 811,177
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
PART I, ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNITED MARKET SERVICES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended April 30,
1995 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($223,094) ($3,482,239)
Adjustments to reconcile net loss
to net cash used for operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 264,996 318,000
Change in deferred tax benefits . . . . . . . . . . . . . . . . . . . . . . -- 438,000
Net cash provided by (used for)
discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . 1,049,487 --
----------
Operating cash flow before working capital items . . . . . . . . . . . . . 1,091,389 (2,726,239)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . (1,414,758) (779,554)
Income tax refunds receivable . . . . . . . . . . . . . . . . . . . . . (8,180) 124,045
Secured notes receivable . . . . . . . . . . . . . . . . . . . . . . . -- 2,931,698
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,060,035) 1,753,892
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . (130,811) (56,905)
Checks written not yet presented for payments . . . . . . . . . . . . . (38,048) 91,407
Accounts payable and other accrued liabilities . . . . . . . . . . . . 5,388 1,145,163
---------- ----------
Net cash provided by (used for) operating activities . . . . . . . . (2,555,055) 2,483,507
----------
INVESTING ACTIVITIES:
Additions to Property and equipment . . . . . . . . . . . . . . . . . . (186,419) (8,796)
---------- ----------
FINANCING ACTIVITIES:
Net borrowings (payments) under revolving lines of credit . . . . . . . . . . 2,215,240 (3,249,478)
Collection of Stock subscriptions receivable . . . . . . . . . . . . . . . . 240,000 -
---------- ----------
Net cash provided by (used for) financing activities . . . . . . . . . . . $2,455,240 (3,249,478)
---------- ----------
INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . (286,234) (774,767)
Cash, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . 518,331 887,976
---------- ----------
Cash, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $232,097 $113,209
========== ==========
CASH PAID DIRING THE PERIOD FOR:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $661,353 $695,490
========== ==========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($117,309) ($129,069)
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
4
<PAGE> 5
PART I, ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNITED MARKET SERVICES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. ORGANIZATION AND NATURE OF BUSINESS
United Market Services Company (the "Company") provides financial services
to the cattle business and operates five stockyards in the Midwestern part of
the United States.
In connection with its financial services business which is operated
through its wholly-owned subsidiary, United Cattle Company, and which has
recently been suspended, the Company purchases cattle and places them with
customers pursuant to certain contracts and joint venture agreements. Upon
termination of such agreements, the animals are sold, the Company's capital is
returned together with certain fees, and the balance of the proceeds is paid to
the customer.
The Company operates five major stockyards located in Sioux Falls, South
Dakota; Sioux City, Iowa; Omaha, Nebraska; St. Joseph, Missouri; and Milwaukee,
Wisconsin. The Company's stockyards include four of the eight markets that
provide price and volume information for the daily report published by the
Agricultural Marketing Service of the U.S. Department of Agriculture.
The Company was formed in June 1989, and in October 1989, acquired the
United Stockyards Division of Canal Capital Corporation, a business with over
100 years of history in livestock marketing.
As of April 30, 1996, the Company was out of compliance with the net worth
and other related covenants of its bank credit facility but has received a
waiver of compliance with those covenants for that period. The Company
continues to be out of compliance with the net worth and other related
covenants. The credit facilities had a scheduled expiration date of May 15,
1996 but have been extended to June 15, 1996.
With the current economic circumstances in the cattle industry and the
Company's current financial situation, the Company has suspended financing any
new cattle contracts and is running-off existing accounts over a period
estimated to be six months. Management believes that the bank will continue to
grant one month extensions of the credit facility which supports this business
until the loans are fully repaid as a result of the run-off of the existing
accounts. At this point it is uncertain if the bank will reestablish a credit
facility to enable the Company to reenter the cattle finance business in the
foreseeable future.
Since February 29, 196, the Company has continued to be out of compliance
with Article Ten, Section 1012 of the Indenture governing the terms of its
outstanding Subordinated Notes with respect to maintenance of a minimum net
worth. The Company was in compliance with all other covenants contained in the
Indenture as of April 30, 1996.
The Company is delinquent on a portion of its May, and all of the June,
1996 payments due to Canal Capital Corporation ("Canal") under the Master
Ground Lease and other facilities leases relating to the stockyards. Canal has
advised the Company that it is in default and that Canal intends to terminate
the Leases if all payments are not brought current by June 19, 1996.
The Company is in discussions with the Trustee for Holders of the
Subordinated Notes and with Canal, with the objective of reducing its payment
obligations under the Subordinated Notes and Canal Lease agreements. The
Company hopes that a restructuring of these agreements and a further
restructuring of the Company's operations will allow it to return to a positive
cash flow in fiscal 1997. There can be no assurance that these restructuring
efforts will be successful, and if not, it is doubtful the Company can continue
as a going concern.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has incurred cumulative
net losses of $5,701,000, including net losses attributable to common stock for
the first half of fiscal 1996 of $3,521,000 and for all of fiscal 1995 of
$1,177,000. Significant uncertainties exist regarding the Company's ability to
comply with its existing debt covenants, continue or replace its revolving
credit facilities and secure adequate financing to support future operations.
These factors cause substantial doubt about the Company's ability to continue
as a going concern. The accompanying financial statements do not include any
adjustments that might result should the company be unable to continue as a
going concern.
5
<PAGE> 6
PART I, ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNITED MARKET SERVICES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles and pursuant to the rules and regulations of the Securities and
Exchange Commission for interim financial information. They should be read in
conjunction with the annual audited financial statements and accompanying notes
included in the Company's Annual Report on Form 10-KSB for the fiscal year
ended October 31, 1995.
The interim financial statements presented herein as of April 30, 1996,
and for the three and six month periods ended April 30, 1995 and 1996, reflect,
in the opinion of management, all adjustments necessary for a fair presentation
of financial position and the results of operations for the periods presented.
The preparation of financial statements in conformity with generally accepted
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates. The Company's significant estimates
include reserves for inventory loses, accounts receivable and litigation
settlement.
Quarterly operating results are typically affected by seasonal factors
related to the cattle production cycle. As a consequence of these factors, the
results of operations for any interim period are not necessarily indicative of
results for the full year.
6
<PAGE> 7
PART I, ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNITED MARKET SERVICES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3. SEGMENTS OF BUSINESS
Selected data with respect to the Company's principal business segments as
follows:
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
---------------------------- --------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
FINANCIAL SERVICES
Non-interest income
Program fees . . . . . . . . . . . . . . . . . . $253,488 $122,562 $527,210 $275,364
Interest margin
Interest income and service fees . . . . . . . . 297,989 263,802 576,257 584,774
Interest expense on lines of credit . . . . . . . 203,033 183,192 382,996 394,474
---------- ------------ ---------- ------------
Net interest margin . . . . . . . . . . . . . 94,956 80,610 193,261 190,300
Direct operating costs and expenses . . . . . . . . . 253,867 1,007,178 501,149 1,283,407
---------- ------------ ---------- ------------
Operating income . . . . . . . . . . . . . . . . . . 94,577 (804,006) 219,322 (817,743)
LIVESTOCK MARKETING
Operating revenues . . . . . . . . . . . . . . . . . 2,449,152 1,986,217 5,305,294 4,041,542
Operating costs and expenses
Direct operating costs and expenses . . . . . . . 2,190,391 1,773,365 4,550,624 3,503,699
Depreciation . . . . . . . . . . . . . . . . . . 95,856 120,000 191,712 240,000
---------- ------------ ---------- ------------
Total operating costs and expenses . . . . . . 2,286,247 1,893,365 4,742,336 3,743,699
---------- ------------ ---------- ------------
Operating income . . . . . . . . . . . . . . . . . . 162,905 92,852 562,958 297,843
CORPORATE
Costs and expenses
General and administrative expenses . . . . . . . 523,978 258,205 770,141 593,901
Restructuring reserve and asset writedown . . . . -- 1,565,000 -- 1,565,000
Interest expenses on long term debt . . . . . . . 143,719 143,719 287,438 287,438
Amortization . . . . . . . . . . . . . . . . . . 36,642 39,000 73,284 78,000
---------- ------------ ---------- ------------
Total costs and expenses . . . . . . . . . . . 704,339 2,005,924 1,130,863 2,524,339
---------- ------------ ---------- ------------
Loss from continuing operations before income taxes . (446,857) (2,717,078) (348,583) (3,044,239)
Income tax provisions (benefit) . . . . . . . (160,689) 438,000 (125,489) 438,000
---------- ------------ ---------- ------------
Net loss . . . . . . . . . . . . . . . . . . . . . . (286,168) (3,155,078) (223,094) (3,482,239)
Dividends accrued on Preferred Stock,
not yet paid . . . . . . . . . . . . . . . . . 19,607 19,607 39,213 39,213
---------- ------------ ---------- ------------
Net income (loss) attributable to Common Stock . . . ($305,775) ($3,174,685) ($262,307) ($3,521,452)
========== ============ ========== ============
CAPITAL EXPENDITURES
Livestock marketing
Additions to property and equipment, net . . . . $138,492 ($3,864) $186,419 $8,796
========== ============ ========== ============
</TABLE>
7
<PAGE> 8
PART I, ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNITED MARKET SERVICES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3. SEGMENTS OF BUSINESS (CONTINUED)
<TABLE>
<CAPTION>
October 31, 1995
------------------------
Financial Livestock
Services Marketing Corporate Total
-------- --------- --------- -----
<S> <C> <C> <C> <C>
Identifiable net assets
Cash . . . . . . . . . . . . . . . . . . . . . $-- $-- $887,976 $887,976
Accounts receivable . . . . . . . . . . . . . . 612,041 549,510 (37,000) 1,124,551
Income tax refund receivable . . . . . . . . . -- -- 124,045 124,045
Secured notes receivable . . . . . . . . . . . 4,848,545 -- -- 4,848,545
Inventories . . . . . . . . . . . . . . . . . . 7,316,108 31,534 -- 7,347,642
Prepaid expenses . . . . . . . . . . . . . . . -- 22,834 -- 22,834
Property and equipment, net . . . . . . . . . . -- 2,818,151 -- 2,818,151
Other assets, net . . . . . . . . . . . . . . . -- -- 1,031,801 1,031,801
----------- --------- --------- ---------
Total assets . . . . . . . . . . . . . . . . $12,776,694 $3,422,029 $2,006,822 $18,205,545
=========== ========== ========== ===========
Revolving lines of credit . . . . . . . . . . . . . $8,599,459 $-- $-- $8,599,459
Accounts payable . . . . . . . . . . . . . . . . . -- -- 855,390 855,390
Accrued liabilities . . . . . . . . . . . . . . . . -- -- 329,564 329,564
Long term debt, less current maturities . . . . . . -- -- 6,050,000 6,050,000
--------- --------- ---------- ----------
Identifiable net assets . . . . . . . . . . $4,177,235 $3,422,029 ($5,228,132) $2,371,132
========== ========== ============ ==========
</TABLE>
<TABLE>
<CAPTION>
April 30, 1996
-------------------
Financial Livestock
Services Marketing Corporate Total
---------- --------- --------- -----
<S> <C> <C> <C> <C>
Identifiable net assets
Cash . . . . . . . . . . . . . . . . . . . . -- -- 113,209 113,209
Accounts receivable . . . . . . . . . . . . . 2,323,362 477,447 (896,704) 1,904,105
Secured notes receivable . . . . . . . . . . 1,916,847 -- -- 1,916,847
Inventories . . . . . . . . . . . . . . . . . 5,558,428 35,322 -- 5,593,750
Prepaid expenses . . . . . . . . . . . . . . -- 79,739 -- 79,739
Property and equipment, net . . . . . . . . . -- 2,586,947 -- 2,586,947
Other assets, net . . . . . . . . . . . . . . -- -- 515,801 515,801
---------- ---------- ------------ ------------
Total assets . . . . . . . . . . . . . . . $9,798,637 $3,179,455 ($267,694) $12,710,398
---------- ---------- ------------ ------------
Revolving lines of credit . . . . . . . . . . . . $5,349,981 $-- $-- $5,349,981
Accounts payable . . . . . . . . . . . . . . . . -- -- 666,435 666,435
Accrued liabilities . . . . . . . . . . . . . . . -- -- 1,755,089 1,755,089
Long term debt, less current maturities . . . . . -- -- 6,050,000 6,050,000
---------- ---------- ------------ ------------
Identifiable net assets . . . . . . . . . . . $4,448,656 $3,179,455 ($8,739,218) ($1,111,107)
========== ========== ============ ============
</TABLE>
8
<PAGE> 9
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30
---------------------------- -------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATION DATA:
Financial Services
Non-interest income . . . . . . . . . . $253,488 $122,502 $527,210 $275,364
Net interest margin . . . . . . . . . . 94,956 80,610 193,261 190,300
Direct operating costs and expenses . . 253,867 1,007,178 501,149 1,283,407
---------- ------------ --------- -----------
Operating income . . . . . . . . . . . 94,577 (804,006) 219,322 (817,743)
Livestock marketing
Operating revenues . . . . . . . . . . 2,449,152 1,986,217 5,305,294 4,041,542
Direct operating costs and expenses . . 2,286,247 1,893,365 4,742,336 3,743,699
---------- ------------ --------- -----------
Operating income . . . . . . . . . . . 162,905 92,852 562,958 297,843
Corporate Costs and expenses . . . . . . . 704,339 2,005,924 1,130,863 2,524,339
---------- ------------ --------- -----------
Income (loss) . . . . . . . . . . . . . (446,857) (2,717,078) (348,583) (3,044,239)
Income tax expense . . . . . . . . . . (160,689) 438,000 (125,489) 438,000
---------- ------------ --------- -----------
Net income (loss) . . . . . . . . . . . (286,168) (3,155,078) (223,094) (3,482,239)
Dividends accrued on Preferred
Stock, not yet paid. . . . . . . . 19,607 19,607 39,213 39,213
---------- ----------- --------- ----------
Net income (loss) attributable to
Common Stock . . . . . . . . . . . . (305,775) (3,174,685) (262,307) (3,521,452)
Earnings (loss) per share attributable
to Common Stock . . . . . . . . . . . ($0.37) ($3.91) ($.32) ($4.34)
========== =========== ========= ===========
Weighted average common and common-
equivalent shares outstanding . . . . $813,777 811,777 813,777 811,777
========== =========== ========= ===========
OTHER DATA:
Cattle placed during period . . . . . . . . 10,986 6,515 28,456 15,245
Cattle owned at period end . . . . . . . . 25,652 19,637 25,652 19,637
Animal marketing united handled . . . . . . 344,501 262,236 753,705 535,947
Consolidated EBITDA . . . . . . . . . . . . 132,688 (2,130,810) 792,403 (1,843,615)
<CAPTION>
October 31, April 30,
1995 1996
---- ----
<S> <C> <C>
BALANCE SHEET DATA
Financial Services
Assets . . . . . . . . . . . . . . . . $12,776,694 9,798,637
Liabilities . . . . . . . . . . . . . . 8,599,459 5,349,981
----------- -----------
Net Assets . . . . . . . . . . . . . 4,177,235 4,448,656
Livestock marketing
Net assets . . . . . . . . . . . . . . 3,422,029 3,179,455
Corporate
Cash and other assets . . . . . . . . . 2,006,822 629,010
Current liabilities . . . . . . . . . . 1,184,954 3,318,228
Long term debt, less current maturities 6,050,000 6,050,000
Preferred stockholder's investment . . 3,638,590 3,677,803
Common stockholder's investment
(deficit) . . . . . . . . . . . . . (1,267,458) (4,788,910)
----------- -----------
Net identifiable assets . . . . . . 2,371,132 (1,111,107)
Total assets . . . . . . . . . . . . . $18,205,545 $12,710,398
=========== ===========
</TABLE>
9
<PAGE> 10
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RECENT DEVELOPMENTS
Livestock markets continued to deteriorate further in the Company's second
quarter as "nearby spot corn futures" traded at $4.62 per bushel on April 30,
1996 compared to about $4.00 per bushel in February 1996 and $3.50 in October
1995. These corn futures have recently retreated from a high of over $5.25 per
bushel in late May 1996 but still are trading at historically high levels
between $4.25 and 4.75 per bushel in early June 1996. Cattle prices, and
livestock markets in general, continue to react negatively to the extremely
high corn price levels and volatility. Livestock producers are under extreme
financial pressure and in many cases are experiencing significant losses. Many
smaller producers will not return to the business after they sell their
remaining livestock and this will directly impact the Company's businesses.
Stockyard animal unit volumes and revenues continue to decline in direct
response to the difficult markets and corresponding decline in numbers of
smaller farmer/producers. The extreme pressure on producer costs has caused
severe distress for some of United's cattle customers, resulting in actual
losses to United.
With the continued upheaval and uncertainty in the grain and cattle
markets, management judged that it was not economically prudent for the Company
to continue financing new cattle purchases in the current environment.
Consequently, the Company notified its existing customers on May 1 that it was
suspending its cattle finance business until at least September 1, 1996.
The current conditions in the livestock market, and the uncertain outlook
for the remainder of the year, also caused management to increase its allowance
for doubtful accounts in the cattle finance business by $830,000 to reflect
estimated losses relating to the Circle 'S' and Scott Marshall accounts and to
increase the general reserves. Other reserves were established against fixed
assets of about $766,000 to better reflect the current and future economic
ramifications to United of the poor livestock market conditions. Additional
reserves for legal and restructuring costs totalling about $800,000 were also
booked at quarter end.
On May 8, 1996, United's Board of Directors elected Dean Bachelor as Chief
Executive Officer, replacing Gail Tritle, who will remain Chairman of the
Board. Mr. Bachelor is a Minneapolis based business consultant who has
significant experience managing workout situations. As part of a the
restructuring efforts, Craig Johns resigned as President, Chief Operating
Officer and a Director effective May 31, 1996 but has agreed to remain as a
consultant to Mr. Bachelor and the Company for the next several months. To
further support the restructuring efforts, Dana Hansen and Timothy Stepanek
also resigned as Directors effective May 31, 1996. The Board of Directors is
now comprised of Gail Tritle , John Bergstrom, and Dean Bachelor.
The Company is delinquent on a portion of its May, and all of the June,
1996 payments due to Canal Capital Corporation ("Canal") under the Master
Ground Lease and other facilities leases relating to the stockyards. Canal has
advised the Company that it intends to terminate the Leases if all payments are
not brought current by June 19, 1996.
The Company is in discussions with the Trustee for Holders of the
Subordinated Notes and with Canal, with the objective of reducing its payment
obligations under the Subordinated Notes and Canal Lease agreements. The
Company hopes that a restructuring of these agreements and a further
restructuring of the Company's operations will allow it to return to a positive
cash flow in fiscal 1997. There can be no assurance that these restructuring
efforts will be successful, and if not, it is doubtful the Company can continue
as a going concern.
In March and April 1996, the Company had discussions with its Milwaukee
stockyards landlord, Emmber Meats, Inc. (Emmber) about the status of the new
covered stockyard facility which Emmber had planned to construct in order to
bring the stockyards area into compliance with certain storm and sanitary
sewage disposal requirements. Based on recent economic analysis of the project
by Emmber, the construction of the new facility has been placed on hold while
less costly alternatives are being studied. It is not clear at this time how
this will impact the operations and profitability of the Company's Milwaukee
stockyard operation.
10
<PAGE> 11
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of the Second Quarter of Fiscal 1995 and the Second Quarter of
Fiscal 1996
Financial Services
Non-Interest Income. During the quarter ended April 30, 1996, non-interest
income, consisting of per head program fees associated with the Company's
financial services, was $122,562, down 51.6% from the comparable figure of
$253,488 earned in the 1995 period, primarily due to reduced placements, lower
program fees and lengthened feeding periods. In the second quarter of 1996, the
Company recorded 6,515 placements compared to 10,986 placed in 1995.
Net Interest Margin. For the quarter ended April 30, 1996, the Company's
net interest margin, defined as the sum of interest income earned on notes
receivable secured by cattle financed in joint ventures and service fee income
earned on cattle inventories less interest expense accrued on borrowings under
the senior revolving lines of credit used to finance such assets, was $80,610.
This figure represents an increase of 15.1% when compared to the net interest
margin of $94,956 in the same period in 1995.
Direct Operating Costs and Expenses. Operating costs and expenses
associated with financial services operations consist of direct operating costs
such as labor and benefits, marketing and operating expenses, and unit-level
general and administrative costs. Direct operating costs and expenses for the
segment aggregated $1,007,178 during the second quarter of 1996 compared to
$253,867 for the same period in 1995, up 296.7%. Costs increased primarily due
to a bad debt provision of $830,000 reflecting anticipated losses on the cattle
portfolio.
Operating Income. Due to the above factors, in the second quarter of 1996,
the Company recognized an operating loss of $804,006 in its financial services
business compared to an operating profit of $94,577 recorded in the comparable
1995 period.
11
<PAGE> 12
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Livestock Marketing
Operating Revenues. For the quarter ended April 30, 1996, the Company's
livestock marketing revenues, principally yardage and commission revenues, were
$1,986,217, down 18.9% from the $2,449,152 of such business recorded in the
comparable 1995 period. This decrease in revenues relates primarily to a 23.9%
reduction in the number of animal marketing units handled from 344,501 for the
second quarter of 1995 to 262,236 for the same period in 1996, principally due
to the cessation of the Company's operating responsibilities for the South St.
Paul market.
Direct Operating Costs and Expenses. Operating costs and expenses in the
Company's livestock marketing segment include labor and benefits, operating and
maintenance expenses, depreciation, and unit-level general and administrative
costs. For the second quarter of fiscal 1996, these costs and expenses totaled
$1,893,365, a decrease of 17.2% from 1995's comparable period of $2,286,247,
partially reflecting the decreased volume of businessoffset by higher sewer
costs at South St. Paul of $60,000. Depreciation expense increased 25.2% from
$95,856 in 1995 to $120,000 in 1996's second quarter, primarily due to second
half 1995 capital expenditures related to the South St. Paul and St. Joseph
market consolidations.
Operating Income. Overall, as a result of the aforementioned factors,
operating income from livestock marketing operations of $92,852 in the
secondfirst quarter of 1996 represented a decrease of 43.0% from the $162,905
of such income recorded in the 1995 period.
Corporate
Total Costs and Expenses. Corporate-level costs and expenses are defined to
include general and administrative costs, interest expense on the Company's
long-term debt, and amortization of the offering costs associated with such
debt. Total costs and expenses for the second quarter of 1996 were $2,005,924,
up 184.8% from the $704,339 of such cost recorded in the comparable period in
1995. General and administrative expenses for the second quarter of 1996
totaled $258,205, a decrease of 50% from the $523,978 of such costs reported in
the second quarter of 1995. Second quarter 1996 restructuring and asset
writedown costs include the following:
<TABLE>
<S> <C>
Provision for Litigation and Professional Fees $325,000
Writedown of Fixed Assets - Livestock Marketing 766,000
Restructuring and Other 474,000
---------
1,565,000
=========
</TABLE>
Interest expense on long-term debt totaled $143,719 in each of the second
quarters of 1996 and 1995. Amortization expense for the second quarter of 1996
was $39,000 and $36,642 for the second quarter of 1995.
Loss Before Income Taxes. Due to the factors discussed above, the pre-tax
loss reported for the second quarter of 1996 was $2,717,078, compared to a
pre-tax loss of $446,856 reported in the second quarter of 1995.
Income Taxes. The Company recorded an income tax benefit during the second
quarter of 1995 of $160,689. For the three months ended April 30, 1996, the
Company recorded a tax provision of $438,000, reflecting management's opinion
that the previously recorded deferred tax benefit was no longer realizable.
Net Loss; Net Loss Attributable to Common Stock. The net loss reported for
the second quarter of 1996 was $3,174,685, compared to a net loss of $305,775
reported in the comparable 1995 period.
Net loss attributable to the Company's Common Stock is affected by
dividends accrued on its Cumulative Redeemable Convertible Preferred Stock (the
"Preferred Stock"), 1,568,500 shares of which were outstanding as of April 30,
1995 and 1996. Total dividends of $0.05 per share or $19,607 in aggregate were
accrued in both the second quarter of 1995 and 1996. There are no current
dividend requirements on either the Company's 1994 Series Redeemable
Convertible Preferred Stock (the "1994 Preferred Stock") or its 1995 Series
Redeemable Convertible Preferred Stock (the "1995 Preferred Stock").
12
<PAGE> 13
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION (CONTINUED)
Comparison of the Six Months Ended April 30, 1995 and the Six Months Ended
April 30, 1996
Financial Services
Non-Interest Income. During the six months ended April 30, 1996,
non-interest income, consisting of per head program fees associated with the
Company's financial services, was $275,364, down 47.8% from $527,210 earned in
the comparable 1995 period, primarily due to reduced placements, lower program
fees and lengthened feeding periods. In the first half of fiscal 1996, the
Company recorded 15,845 placements compared to 28,456 placed in the first half
of fiscal 1995.
Net Income Margin. For the six months ended April 30, 1996, the Company's
net interest margin, defined as the sum of interest income earned on notes
receivable secured by cattle financed in joint ventures and service fee income
earned on cattle inventories less interest expense accrued on borrowings under
the senior revolving lines of credit used to finance such assets, was $190,300.
This figure represents a decrease of 1.5% when compared to the net interest
margin of $193,261 in the comparable 1995 period.
Direct Operating Costs and Expenses. Operating costs and expenses
associated with financial services operations consist of direct operating costs
such as labor and benefits, marketing and operating expenses, and unit-level
general and administrative costs. Direct operating costs and expenses for the
segment aggregated $1,283,407 during the first half of fiscal 1996 compared to
$501,149 for the same period in 1995, up 156.1%. Costs increased primarily due
to a second quarter provision for bad debts of $830,000.
Operating Income. Due to the above factors, in the first half of fiscal
1996, the Company recognized an operating loss of $817,743 in its financial
services business compared to an operating profit of $219,322 recorded in the
first half of fiscal 1995.
13
<PAGE> 14
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Livestock Marketing
Operating Revenues. For the six months ended April 30, 1996, the Company's
livestock marketing revenues, principally yardage and commission revenues, were
$4,041,542, down 23.8% from the $5,305,294 of such business recorded in the
comparable 1995 period. This decrease in revenues relates primarily to a 28.9%
reduction in the number of animal marketing units handled from 753,705 for the
first half of fiscal 1995 to 535,947 for the same period in fiscal 1996,
principally due to the cessation of the Company's operating responsibilities
for the South St. Paul market. On a comparable market base, volume was 13.3%
below 1995 levels.
Direct Operating Costs and Expenses. Operating costs and expenses in the
Company's livestock marketing segment include labor and benefits, operating and
maintenance expenses, depreciation, and unit-level general and administrative
costs. For the first half of fiscal 1996, these costs and expenses totaled
$3,743,699, a decrease of 21.1% from 1995's comparable figure of $4,742,336,
partially reflecting the decreased volume of business. Depreciation expense
increased 25.2% from $191,712 in the first half of fiscal 1995 to $240,000 in
the first half of fiscal 1996 primarily due to second half 1995 capital
expenditures related to the South St. Paul and St. Joseph market
consolidations.
Operating Income. Overall, as a result of the aforementioned factors,
operating income from livestock marketing operations of $297,843 in the first
half of fiscal 1996 represented a decrease of 47.1% from the $562,958 of such
income recorded in the comparable 1995 period.
Corporate
Total Costs and Expenses. Corporate-level costs and expenses are defined
to include general and administrative costs, interest expense on the Company's
long-term debt, and amortization of the offering costs associated with such
debt. Total costs and expenses for the first half of fiscal 1996 were
$2,524,339, up 123.2% from the $1,130,863 of such cost recorded in the
comparable period in fiscal 1995. General and administrative expenses for the
first half of fiscal 1996 totaled $593,901, a decrease of 22.9% from the
$770,141 of such costs reported in 1995. Second quarter restructuring and
asset writedown charges of $1,565,000 were discussed in the quarterly results
comparison. Interest expense on long-term debt totaled $287,438 in the first
six months of fiscal 1996 and fiscal 1995. Amortization expense for the first
half of fiscal 1996 was $78,000 and $73,284 for the first half of fiscal 1995.
Loss Before Income Taxes. Due to the factors discussed above, the pre-tax
loss reported for the first half of fiscal 1996 was $3,044,239, compared to a
pre-tax loss of $348,583 reported in the first half of fiscal 1995.
Income Taxes. The Company recorded an income tax benefit during the first
half of fiscal 1995 of $125,489. For the six months ended April 30, 1996, the
Company recorded a tax provision of $438,000, reflecting management's opinion
that the previously recorded deferred tax benefit was no longer realizable.
Net Loss; Net Loss Attributable to Common Stock. The net loss reported for
the first half of fiscal 1996 was $3,521,452, compared to a net loss of
$262,307 reported in the comparable 1995 period.
Net loss attributable to the Company's Common Stock is affected by
dividends accrued on its Cumulative Redeemable Convertible Preferred Stock (the
"Preferred Stock"), 1,568,500 shares of which were outstanding as of April 30,
1995 and 1996. Total dividends of $0.05 per share or $19,607 in aggregate were
accrued in the first half of both fiscal 1995 and fiscal 1996. There are no
current dividend requirements on either the Company's 1994 Series Redeemable
Convertible Preferred Stock (the "1994 Preferred Stock") or its 1995 Series
Redeemable Convertible Preferred Stock (the "1995 Preferred Stock").
14
<PAGE> 15
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On February 2, 1995, the Company completed the consolidation of its senior
credit facilities into two lines : one for the Company and one of its
subsidiary United Cattle Company. Substantially all of the current assets of
the Company are pledged to secure advances under these revolving lines of
credit. Advances under the facilities bear interest at variable rates ranging
from prime plus 1.5%to prime plus 1.75%. On May 17, 1995, these facilities
were amended to provide for a maximum amount outstanding of $14,000,000. On
July 17, 1995, the maturity of the facilities was extended until August 15,
1995 and on August 11, 1995, was further extended to May 15, 1996. As of
October 31, 1995 and April 30, 1996, advances totaling $8,599,459 and
$5,349,981, respectively were outstanding. Among other matters, the Company's
loan agreements provide that it must maintain a minimum net worth, may not
incur certain indebtedness, may not pay dividends except under certain
conditions, and may not, without prior written approval, consolidate or merge
with another entity. The Company was in compliance with all loan covenants or
had obtained waivers of compliance as of October 31, 1995 and April 30, 1996
with respect to its revolving credit facilities, including a waiver of the net
worth covenant as of April 30,1996. Due to recurring losses, significant
uncertainties exist regarding the Company's ability to comply with its existing
debt covenants and maintain its revolving credit facilities in the future.
The Company's revolving credit facilities, totalling $14,000,000, of which
approximately $8,650,000 was available at April 30, 1996, had a scheduled
expiration date of May 15, 1996. However, these facilities were extended to
June 15, 1996 and management believes that the bank will continue to grant one
month extensions of the credit facility until the loans are fully repaid as a
result of the run-off of the existing cattle finance accounts. Due to the
recurring losses, significant uncertainties exist regarding the Company's
ability to comply with its existing debt covenants, replace its revolving
credit facilities and secure adequate financing to support future operations.
Based on recent discussion with the bank providing the Company's credit
facilities, management believes it is unlikely the Company will be able to
renew its existing credit facilities. Even though the Company is attempting to
restructure its management and revise operating plans in order to achieve
successful future operations, there can be no assurances that the Company will
be successful in achieving these initiatives. If the Company is not successful
in meeting these initiatives, the Company may find it necessary to undertake
further actions as may be appropriate to preserve its business as a going
concern. Presently, none of the Company's fixed assets are pledged to secure
any borrowings.
As of October 31, 1995, assets totaled $18,205,545, of which 70.2% and
18.8% were attributable to the financial services and livestock marketing
businesses, respectively. The balance of 11% was accounted for by un-allocated
corporate assets. On April 30, 1996, the Company's assets aggregated
$12,710,398, of which 77.1% related directly to financial services and 25.0% to
livestock marketing. The remaining negative balance represents un-allocated
corporate assets and reserves.
As of October 31, 1995 and April 30, 1996, the Company had working capital
(current assets less current liabilities) of $4,571,180 and ($4,213,855)
respectively. As of October 31, 1995 and April 30, 1996, the Company's current
ratio (current assets divided by current liabilities) was 1.47x and .70x,
respectively. The significant change in working capital reflects the
reclassification of long term debt to current.
For the period ended October 31, 1995, the Company used $2,555,055 of cash
principally to increase cattle inventories within the financial services
business.
For the period ended April 30, 1996, the Company generated $2,483,507 of
cash from its operations, principally to fund the operating loss offset by
collections on lower inventory and notes receivable due to the reduction of the
cattle portfolio.
On October 31, 1995, the Company held a final closing and completed the
offering of its 1995 Preferred Stock at $3.00 per share, raising $1,353,005 of
new capital.
15
<PAGE> 16
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company completed construction of the new hog marketing facility at the
South St. Paul location on July 31, 1995, at a net cost of $336,256. Financing
was provided internally and by the owner of the land underlying the facility.
Together with anticipated future expenditures in connection with a renovation
of the sewer system under the market, the Company expects that its remaining
share of this consolidation project will be approximately $115,000.
The Company is currently in discussions with its Milwaukee stockyards landlord,
Emmber Meats, Inc., and the Milwaukee Livestock Commission Firms, with respect
to prospects for the market, based on Emmber's decision to reevaluate the
construction of new stockyard facilities necessary to comply with certain storm
and sanitary sewage disposal requirements.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth, as of the dates indicated, certain balance
sheet items as a percentage of total assets and the percentage increase or
decrease in such items from the prior date
<TABLE>
<CAPTION>
October 31, April 30,
1995 1996 1995 vs 1996
---- ---- ------------
% % %
- - -
<S> <C> <C> <C>
Financial services
Assets . . . . . . . . . . . . . . . . . 70.2 77.1 (.4)
Liabilities . . . . . . . . . . . . . . 47.2 42.1 (37.8)
---- ---- ------
Net identifiable assets . . . . . . . . 22.9 35.9 6.5
Livestock marketing
Net identifiable assets . . . . . . . . 18.8 25.0 (7.1)
Corporate
Cash . . . . . . . . . . . . . . . . . . . 4.9 .9 (87.3)
Total assets . . . . . . . . . . . . . . 11.0 4.9 --
Current liabilities . . . . . . . . . . . . 6.5 26.1 180.0
Long-term debt, less current maturities . . 33.2 47.6 --
Preferred stock . . . . . . . . . . . . . . 20.0 42.1 1.1
Common stockholders' investment (deficit) . (7.0) (37.7) (277.8)
Net identifiable assets . . . . . . . . . . 13.0 (8.7) (31.2)
</TABLE>
See "Recent Developments" for a discussion concerning the Company's liquidity
portion and capital resources.
16
<PAGE> 17
PART II, ITEM 1. LEGAL PROCEEDINGS
Phillip L. Kunkel, Trustee v. United Market Services Company d/b/a North
Central Associates, Case No. 4-95-274 (Bankr. D. Minn.). On September 13, 1995,
the Trustee in the Morken Bankruptcy brought an adversary complaint against the
Company seeking to void the transfer to the Company of approximately 850 cattle
involved in the Spring Grove Bankruptcy as well as a judgment for the value
thereof. On January 3, 1996, an order was filed allowing the Trustee to amend
the complaint to join the trustee in the Spring Grove Bankruptcy as a
defendant. The trustee in the Spring Grove Bankruptcy has responded to the
complaint and asserted a cross-claim against the Company. The Company's
response to the amended complaint and the cross-claim was filed and served on
March 1, 1996.
Orville Molenaar v. United Cattle Company v. Michael J. Frank, Case No.
C2-94-10225 (Minn. D. Ct.). Orville Molenaar has sued UCC in state court for
conversion of cattle he alleges to own. This action relates to cattle Mr.
Molenaar allegedly placed with Michael J. Frank. Mr. Molenaar claims that
cattle he owned were part of the cattle UCC recovered from Mr. Frank pursuant
to the certain replevin orders dated October 11, 1994. UCC filed a third party
complaint against Mr. Frank in this action. On September 14, 1995, a jury
determined that UCC committed conversion and was liable for $59,375 in
compensatory damages and $400,000 in punitive damages. October 19, 1995, the
punitive damages were vacated by the court and the compensatory claim was
upheld. On December 20, 1995, UCC was granted summary judgment in its third
party action against Mr. Frank for indemnification, and UCC was awarded $59,375
in damages plus $9,000 for attorneys fees. On January 4, 1996, Mr. Molenaar
filed a notice of appeal with the Court of Appeals seeking to overturn the
vacating of the punitive damages. On the same date, UCC initiated a
cross-appeal of the compensatory damage award. Oral argument took place before
the Court of Appeals on May 14, 1996, and a decision will be rendered within 90
days of that date.
PART II, ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.2 (f) Fourth Addendum to Amended Loan Agreement dated February 2, 1995, by
and between Company and Norwest Agricultural Credit, Inc.
10.2 (g) Fifth Addendum to Amended Loan Agreement dated February 2, 1995, by
and between Company and Norwest Agricultural Credit, Inc.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended April 30, 1996.
17
<PAGE> 18
SIGNATURES
In accordance with the requirements of the Exchange Act, the issuer caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED MARKET SERVICES COMPANY
Dated: June 14, 1996 By: /s/ Dean Bachelor
----------------------- ---------------------------
Dean Bachelor
Chief Executive Officer
(Principal Executive Officer)
Dated: June 14, 1996 By: /s/ H. M. Blair
----------------------- ---------------------------
H. M. Blair
Controller and Assistant
Treasurer
(Principal Financial Officer)
18
<PAGE> 19
UNITED MARKET SERVICES COMPANY
QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1996
PART II, ITEM 6(A) - INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C> <C>
10.2 (f) Fourth Addendum to Amended Loan Agreement dated 20
February 2, 1995, by and between Company and
Norwest Agricultural Credit, Inc.
10.2 (g) Fifth Addendum to Amended Loan Agreement dated 22
February 2, 1995, by and between Company and
Norwest Agricultural Credit, Inc.
</TABLE>
19
<PAGE> 20
Exhibit 10.2 (f)
FOURTH ADDENDUM TO AMENDED LOAN AGREEMENT
This Fourth Addendum to Amended Loan Agreement (hereinafter referred to as
"Fourth Addendum") is made and entered into as of this 15th day of May, 1996,
as a Fourth Addendum to the Amended Loan Agreement (hereinafter referred to as
"Agreement") dated February 2, 1995, with a Note Modification Agreement dated
May 15, 1995 (hereinafter referred to as "First Addendum"), with a Second
Addendum to Amended Loan Agreement dated June 15, 1995 (hereinafter referred to
as "Second Addendum"), with a Third Addendum to Amended Loan Agreement dated
July 15, 1995 (hereinafter referred to as "Third Addendum"), with an assignment
and Amendment of Amended Loan Agreement dated September 14, 1995 (hereinafter
referred to as "Assignment"), and with an Addendum to Assignment and Amendment
of Amended Loan Agreement dated October 18, 1995 (hereinafter referred to as
"Addendum to Assignment") by and between Norwest Agricultural Credit, Inc.
(hereinafter referred to as "Substitute Lender") and United Market Services
Company (hereinafter referred to as "Borrower"), copies of which Agreement,
First Addendum, Second Addendum, Third Addendum, Assignment, and Addendum to
Assignment are by this reference incorporated as if fully set forth herein.
R E C I T A L S:
WHEREAS, Borrower desires an extension of the May 15, 1995, maturity date of
the Promissory Note referenced in the Second Addendum (also referred to as the
Permanent Line in the Agreement).
WHEREAS, Lender is willing to provide such an extension based on the terms
and conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is agreed by and between the parties as follows:
1. INCORPORATION OF RECITALS AND AGREEMENT: The parties hereto incorporate
as part of the Fourth Addendum the foregoing recitals and make the same
a part of the Fourth Addendum and, similarly, incorporate by reference,
the Agreement, First Addendum, Second Addendum, Third Addendum,
Assignment and Addendum to Assignment referred to hereinabove.
2. EXTENDED DUE DATE: All references in the Second Addendum to a
Promissory Note maturity of "July 15, 1995", are hereby modified to a
maturity of "June 15, 1996".
3. COVENANTS: Borrower acknowledges that it is in default with regard to
covenants concerning stockholders' equity and ratio of EBITDA to interest
and that failure to exercise its remedies relative thereto prior to and
including the date hereof is in no manner to be construed to be a waiver
of such rights by Substitute Lender.
4. INCORPORATION OF TERMS: Except to the extent specifically referenced
and modified by this Fourth Addendum, all of the remaining terms and
conditions of the Agreement, the First Addendum, Second Addendum and
Third Addendum, Assignment, and Addendum to Assignment remain in full
force and effect, including, but not limited to, the obligations of
Borrower as set forth therein.
20
<PAGE> 21
IN WITNESS WHEREOF, this Fourth Addendum has been executed by the parties
hereto the date and year hereinabove. written.
NORWEST AGRICULTURAL CREDIT, INC.
By Peter Atkins
--------------------------------
Its Vice President
---------------------------
UNITED MARKET SERVICES COMPANY
By Dean Bachelor
---------------------------------
Its Chief Executive Officer
---------------------------
21
<PAGE> 22
Exhibit 10.2 (g)
FIFTH ADDENDUM TO AMENDED LOAN AGREEMENT
The Fifth Addendum to Amended Loan Agreement (hereinafter referred to as
"Fifth Addendum") is made and entered into as of this 15th day of May, 1996, as
a Fifth Addendum to the Amended Loan Agreement (hereinafter referred to as
"Agreement") dated February 2, 1995, with an Addendum to Amended Loan Agreement
dated May 17, 1995 (hereinafter referred to as "First Addendum"), with a Second
Addendum to Amended Loan Agreement dated June 15, 1995 (hereinafter referred to
as "Second Addendum"), with a Third Addendum to Amended Loan Agreement dated
July 15, 1995 (hereinafter referred to as "Third Addendum"), and with a Fourth
Addendum to Amended Loan Agreement dated August 11, 1995 (hereinafter referred
to as "Fourth Addendum") by and among United Cattle Company (hereinafter
referred to as "Borrower"), United Market Services Company, and Norwest
Agricultural Credit, Inc. (hereinafter referred to as "NAC"), copies of which
Agreement, First Addendum, Second Addendum, Third Addendum, and Fourth Addendum
are by this reference incorporated as if fully set forth herein.
R E C I T A L S:
WHEREAS, Borrower desires an extension of the May 15, 1996, termination
date of the conditional line of credit; and
WHEREAS, NAC is willing to provide such an extension based on the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is agreed by and between the parties as follows:
1. INCORPORATION OF RECITALS AND AGREEMENT: The parties hereto incorporate
as part of the Fifth Addendum the foregoing recitals and make the same a
part of the Fifth Addendum and, similarly, incorporate by reference, the
Agreement, First Addendum, Second Addendum, Third Addendum, and Fourth
Addendum referred to hereinabove.
2. EXTENDED DUE DATE: All references to a conditional line of credit
existing through "August 15, 1995", are hereby modified to be references
to "June 15, 1996".
3. COVENANTS: Borrower acknowledges that it is in default with regard to
covenants concerning stockholders' equity and ratio of EBITDA to
interest, and that failure to exercise its remedies relative thereto
prior to and including the date hereof is in no manner to be construed
to be a waiver of such rights by NAC.
4. INCORPORATION OF TERMS: Except to the extent specifically referenced
and modified by this Fifth Addendum, all of the remaining terms and
conditions of the Agreements, the First Addendum, Second Addendum,
Third Addendum, and Fourth Addendum remain in full force and the
effect, including, but not limited to, the obligations of Borrower and
Guarantor as set forth therein.
22
<PAGE> 23
IN WITNESS WHEREOF, this Fifth Addendum has been executed by the parties hereto
the date and year hereinabove written.
NORWEST AGRICULTURAL CREDIT, INC.
By Peter Atkins
---------------------------------
Its Vice President
------------------------------
UNITED CATTLE COMPANY
By H. M. Blair
----------------------------------
Its Treasurer & Ass't. Secretary
------------------------------
UNITED MARKET SERVICES COMPANY
By Dean Bachelor
----------------------------------
Its Chief Executive Officer
------------------------------
23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<CASH> 113,209
<SECURITIES> 0
<RECEIVABLES> 4,717,656
<ALLOWANCES> 896,704
<INVENTORY> 5,593,750
<CURRENT-ASSETS> 9,607,650
<PP&E> 6,640,120
<DEPRECIATION> (4,053,173)
<TOTAL-ASSETS> 12,710,398
<CURRENT-LIABILITIES> 13,821,505
<BONDS> 0
0
3,677,803
<COMMON> 912,500
<OTHER-SE> (5,701,410)
<TOTAL-LIABILITY-AND-EQUITY> 12,710,398
<SALES> 0
<TOTAL-REVENUES> 4,901,680
<CGS> 0
<TOTAL-COSTS> 3,706,645
<OTHER-EXPENSES> 2,727,360
<LOSS-PROVISION> 830,000
<INTEREST-EXPENSE> 681,914
<INCOME-PRETAX> (3,044,239)
<INCOME-TAX> 438,000
<INCOME-CONTINUING> (3,482,239)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,482,239)
<EPS-PRIMARY> (4.34)
<EPS-DILUTED> (4.34)
</TABLE>
