<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: JULY 31, 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 July 31, 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, July 31,
1995 1996
---------- ---------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash ................................................................ $411,197 $85,946
Restricted cash ..................................................... 476,779 --
Accounts receivable ................................................. 1,124,551 568,519
Income tax refunds receivable ....................................... 124,045 --
Secured notes receivable ............................................ 4,848,545 1,103,198
Inventories ......................................................... 7,347,642 2,194,032
Prepaid expenses and other .......................................... 22,834 116,010
----------- -----------
Total current assets ................................................ 14,355,593 4,067,705
Property and equipment
Yard improvements .................................................. 5,444,073 5,446,997
Buildings .......................................................... 698,310 698,310
Machinery and equipment ............................................ 448,862 375,520
Furniture and fixtures ............................................. 77,741 73,484
Less: accumulated depreciation ..................................... (3,850,835) (4,931,589)
----------- -----------
Property and equipment, net ........................................ 2,818,151 1,662,722
Other assets ......................................................... 1,031,801 476,801
Total assets ........................................................ $18,205,545 $6,207,228
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Revolving lines of credit ........................................... 8,599,459 343,247
Checks written not yet presented for payment ........................ 81,434 0
Accounts payable .................................................... 773,956 140,577
Accrued liabilities ................................................. 329,564 1,472,023
Curent maturities of long term debt ................................. -- 6,050,000
----------- -----------
Total current liabilities 9,784,413 8,005,847
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 $2,104,404
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 3,697,409
----------- -----------
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) (6,408,528)
----------- -----------
Total common stockholders' deficit ............................... (1,267,458) (5,496,028)
----------- -----------
Total liabilities and stockholders' investment .................. $18,205,545 $6,207,228
=========== ===========
</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 July 31, Nine Months EndedJuly 31,
--------------------------- ----------------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES ................................... $2,285,605 $1,869,983 $8,694,368 $6,771,663
OPERATING EXPENSES:
Labor and benefits .................................. 861,857 679,596 3,051,254 2,302,168
Operations and maintenance .......................... 887,515 848,948 3,392,403 2,933,021
Selling, general, and administrative expenses ....... 516,275 287,563 1,643,904 1,961,923
Depreciation and amortization expense ............... 152,332 138,600 417,328 456,600
Restructuring reserves and asset writedowns ......... -- 400,000 -- 1,965,000
--------------- --------------- --------------- ---------------
Total costs and operating expenses ................. 2,417,979 2,354,707 8,504,889 9,618,712
--------------- --------------- --------------- ---------------
OPERATING INCOME (LOSS) .............................. (132,374) (484,724) 189,479 (2,847,049)
NET INTEREST EXPENSE ................................. 362,289 202,788 1,032,723 884,702
--------------- --------------- --------------- ---------------
LOSS BEFORE INCOME TAXES ............................. (494,663) (687,512) (843,244) (3,731,751)
Income tax expense (benefit) ........................ (178,012) -- (303,500) 438,000
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) .................................... (316,651) (687,512) (539,744) (4,169,751)
Dividends accrued on Preferred Stock, not yet paid .. 19,607 19,606 58,820 58,819
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK ....... ($336,258) ($707,118) ($598,564) ($4,228,570)
--------------- --------------- --------------- ---------------
Loss per share:
Net loss ............................................ $(.39) $(.85) $(.66) $(5.14)
Dividends accrued on Preferred Stock, not yet paid .. (.02) (.02) (.07) (.07)
--------------- --------------- --------------- ---------------
Net loss attributable to Common Stock ............. ($0.41) ($0.87) ($0.73) ($5.21)
--------------- --------------- --------------- ---------------
COMMON AND COMMON SHARE EQUIVALENTS OUTSTANDING ...... 811,777 813,777 813,777 811,777
--------------- --------------- --------------- ---------------
</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>
Nine Months Ended July 31,
1995 1996
------ ------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss .............................................................. ($539,744) ($4,169,751)
Adjustments to reconcile net loss
to net cash used for operating activities:
Depreciation, amortization and asset writedowns ................... 417,328 1,222,600
Change in deferred tax benefits -- 438,000
Net cash provided by
discontinued operations .......................................... 1,049,487 -
----------- ------------
Operating cash flow before working capital items .................. 927,071 (2,509,151)
Changes in operating assets and liabilities:
Accounts receivable ............................................. (123,805) 556,032
Income tax refunds receivable ................................... (188,251) 124,045
Secured notes receivable ........................................ (2,856,822) 3,745,347
Inventories ..................................................... 363,022 5,153,610
Prepaid expenses and other ...................................... (100,944) (93,176)
Checks written not yet presented for payments ................... (407,959) (81,434)
Accounts payable and other accrued liabilities .................. (385,584) 549,080
----------- -------------
Net cash provided by (used for) operating activities .......... (2,773,272) 7,444,353
----------- -------------
INVESTING ACTIVITIES:
Sales/(Additions) of Property and equipment ..................... (313,122) 9,829
----------- ------------
FINANCING ACTIVITIES:
Net borrowings (payments) under revolving lines of credit .......... 2,574,661 (8,256,212)
Payment of Debt Offering Costs ..................................... (10,000) --
Collection of Stock subscriptions receivable ...................... 308,000 --
----------- ------------
Net cash provided by (used for) financing activities .............. 2,872,661 (8,256,212)
----------- ------------
INCREASE (DECREASE) IN CASH ........................................... (213,733) (802,030)
Cash, beginning of year ............................................ 518,331 887,976
----------- ------------
Cash, end of period ................................................ $304,598 $85,946
----------- ------------
CASH PAID (RECEIVED) DURING THE PERIOD FOR:
Interest ............................................................ $1,021,563 $929,016
----------- ------------
Income taxes ........................................................ ($115,710) ($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 ("UCC"), the Company
purchased cattle and placed 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 July 31, 1996, the Company was out of compliance with the net worth
and other related covenants of its bank credit facility. The Company
continued out of compliance with the net worth and other related covenants
until the credit facilities expired August 15, 1996.
With the current economic circumstances in the cattle industry and the
Company's current financial situation, in April 1996 the Company suspended
financing any new cattle contracts and is currently closing existing accounts
over a period estimated to be through the fiscal year end (10/31/96). On
August 9, 1996, the secured bank loans were fully repaid and the credit
facility expired August 15th.
Since February 29, 1996, 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 defaulted on its quarterly interest payment due September
1st as required by Section 307 of the Indenture.
The Company is delinquent on a portion of 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 those Leases if all payments are
not brought current by September 19, 1996.
The Company is in discussions with the Trustee for Holders of the
Subordinated Notes with the objective of reducing its payment obligations under
the Subordinated Notes. The Company hopes that a restructuring of these notes
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 $6,409,000, including net losses attributable to common stock for
the first three quarters of fiscal 1996 of $4,229,000 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 July 31, 1996, and
for the three and nine month periods ended July 31, 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 losses, 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
are as follows:
<TABLE>
<CAPTION>
Three Months Ended July 31, Nine Months Ended July 31,
-------------------------- -------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
FINANCIAL SERVICES
Non-interest income
Program fees .................................... $150,193 $71,533 $677,404 $346,897
Interest margin
Interest income and service fees ................ 303,112 145,466 879,370 730,240
Interest expense on lines of credit ............. 218,571 59,072 601,567 453,546
--------- --------- --------- ---------
Net interest margin .......................... 84,541 86,394 277,803 276,694
Direct operating costs and expenses ............... 328,832 72,769 829,981 1,356,176
--------- --------- --------- ---------
Operating income .................................. (94,098) 85,158 125,226 (732,585)
LIVESTOCK MARKETING
Operating revenues ................................ 1,832,300 1,652,985 7,137,594 5,694,527
Operating costs and expenses
Direct operating costs and expenses ............. 1,660,213 1,519,764 6,210,837 5,023,463
Depreciation .................................... 115,690 99,600 307,402 339,600
--------- --------- --------- ---------
Total operating costs and expenses ........... 1,775,903 1,619,364 6,518,239 5,363,063
--------- --------- --------- ---------
Operating income .................................. 56,397 33,621 619,355 331,464
CORPORATE
Costs and expenses
General and administrative expenses ............. 276,602 223,572 1,046,743 817,473
Restructuring reserve and asset writedown -- 400,000 -- 1,965,000
Interest expenses on long term debt ............. 143,718 143,719 431,156 431,157
Amortization .................................... 36,64 239,000 109,926 117,000
--------- --------- --------- ---------
Total costs and expenses ..................... 456,962 806,291 1,587,825 3,330,630
--------- --------- --------- ---------
Loss before income taxes ......................... (494,663) (687,512) (843,244) (3,731,751)
Income tax provision (benefit) ............... (178,012) -- (303,500) 438,000
--------- --------- --------- ---------
Net loss .......................................... (316,651) (687,512) (539,744) (4,169,751)
Dividends accrued on Preferred Stock, not yet paid 19,607 19,606 58,820 58,819
Net loss attributable to Common Stock ............. ($336,258) ($707,118) ($598,564) ($4,228,570)
========= ========= ========= ==========
CAPITAL EXPENDITURES
Livestock marketing
Additions (Sales) to property and equipment, net.. $126,703 ($18,625) $313,122 ($9,829)
========= ========= ========= ==========
</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 (liabilities) .. $ 4,177,235 $ 3,422,029 $(5,228,132) $ 2,371,132
========== ========== ========== ==========
<CAPTION>
July 31, 1996
----------------
Financial Livestock
Services Marketing Corporate Total
--------- --------- ---------- -----
<S> <C> <C> <C> <C>
Identifiable net assets
Cash ................................... $ -- $ -- $ 85,946 $ 85,946
Accounts receivable .................... 156,343 412,176 -- 568,519
Secured notes receivable ............... 1,103,198 -- -- 1,103,198
Inventories ............................ 2,157,360 36,672 -- 2,194,032
Prepaid expenses ....................... 550 115,460 -- 116,010
Property and equipment, net ............ -- 1,662,722 -- 1,662,722
Other assets, net ...................... -- -- 476,801 476,801
---------- ---------- ---------- ----------
Total assets ......................... $ 3,417,451 $ 2,227,030 $562,747 $ 6,207,228
---------- ---------- ---------- ----------
Revolving lines of credit ................ $ 343,247 $ -- $ -- $ 343,247
Accounts payable ......................... -- -- 140,577 140,577
Accrued liabilities ...................... -- -- 1,472,023 1,472,023
Long term debt, less current maturities .. -- -- 6,050,000 6,050,000
---------- ---------- ---------- ----------
Identifiable net assets (liabilities) .. $ 3,074,204 $ 2,227,030 $(7,099,853) $ (1,798,619)
========== ========== ========== ==========
</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, Nine Months Ended July 31,
---------------------------- --------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATION DATA:
Financial Services
Non-interest income $ 150,193 $71,533 $677,404 $346,897
Net interest margin ............................... 84,541 86,394 277,803 276,694
Direct operating costs and expenses 328,832 72,769 829,981 1,356,176
---------- --------- --------- ----------
Operating income .................................. (94,098) 85,158 125,226 (732,585)
Livestock marketing
Operating revenues ................................ 1,832,300 1,652,985 7,137,594 5,694,527
Direct operating costs and expenses 1,775,903 1,619,364 6,518,239 5,363,063
---------- --------- --------- ----------
Operating income .................................. 56,397 33,621 619,355 331,464
Corporate Costs and expenses 456,962 806,291 1,587,825 3,330,630
---------- --------- --------- ----------
Income (loss) ..................................... (494,663) (687,512) (843,244) (3,731,751)
Income tax expense ................................ (178,012) -- (303,500) 438,000
---------- --------- --------- ----------
Net income (loss) ................................. (316,651) (687,512) (539,744) (4,169,751)
Dividends accrued on Preferred Stock, not yet paid 19,607 19,606 58,820 58,819
---------- --------- --------- ----------
Net income (loss) attributable to Common Stock (336,258) (707,118) (598,564) (4,228,570)
Earnings (loss) per share attributable to Common Stock ($0.41) ($0.87) ($0.73) ($5.21)
=========== ============ ========== ============
Weighted average common and common-equivalent
shares outstanding ................................. 813,777 811,777 813,777 811,777
========== ========= ======= ==========
OTHER DATA:
Cattle placed during period 12,570 -- 41,026 15,774
Cattle owned at period end 25,731 8,742 25,731 8,742
Animal marketing united handled 247,568 211,953 1,001,273 747,900
Consolidated EBITDA ........................................ $ 122,737 $154,232 $915,140 $(1,689,383)
<CAPTION>
October 31, July 31,
1995 1996
---- ----
<S> <C> <C>
BALANCE SHEET DATA
Financial Services
Assets $12,776,694 $3,417,451
Liabilities 8,599,459 343,247
---------- ---------
Net Assets 4,177,235 3,074,204
Livestock marketing
Net assets 3,422,029 2,227,030
---------- ---------
Corporate
Cash and other assets 2,006,822 562,747
Current liabilities 1,184,954 1,612,600
Long term debt, less current maturities 6,050,000 6,050,000
Preferred stockholder's investment 3,638,590 3,697,409
Common stockholder's investment (deficit) (1,267,458) (5,496,028)
---------- ---------
Net identifiable assets 2,371,132 (1,798,619)
Total assets $18,205,545 $6,207,228
========== =========
</TABLE>
9
<PAGE> 10
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RECENT DEVELOPMENTS
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. Animal unit volumes were 14.4% lower than last
year's third quarter. The extreme pressure on producer costs principally
higher corn prices has caused severe distress for some of Company's cattle
customers, resulting in actual losses to the Company.
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 and the Company expects that all
financing contracts will be completed by October 31st, 1996.
During the third quarter, the Company recorded an additional $400,000
reserve reflecting a ruling by the Minnesota Court of Appeals allowing punitive
damages related to a September 1995 jury award (See Part II, Item I Legal
Proceedings). An appeal to the Minnesota Supreme Court has been filed, but,
the outcome will not be known for several months.
The Company is delinquent on a portion of its May-August 1996, and all of
the September 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 these leases if all
payments are not brought current by September 19, 1996.
The Company is in default on payment of its quarterly interest payment due
September 1, 1996, to subordinated note holders. The Company remains out of
compliance with the Indenture regarding the minimum net worth covenant. The
trustee for holdlers of the subordinated notes has notified the current
subordinated note holders of the event of default and provided them several
options for remedy.
The Company is in discussion with the Trustee for Holders of the
Subordinated Notes, with the objective of reducing its payment obligations
under the Subordinated Notes 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
Company will prepare a proposal for the subordinated note holders to
restructure and/or forgive a portion of the Subordinated Notes. The proposal
will outline recent industry trends, recent company developments, possibility
of bankruptcy, and repayment proposals.
10
<PAGE> 11
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of the Third Quarter of Fiscal 1995 and the Third Quarter of Fiscal
1996
Financial Services
Non-Interest Income. During the quarter ended July 31, 1996, non-interest
income, consisting of per head program fees associated with the Company's
financial services, was $71,533, down 52.4% from the comparable figure of
$150,193 earned in the 1995 period, primarily due to reduced placements, lower
program fees and lengthened feeding periods. In the third quarter of 1996, the
Company recorded no placements, compared to 12,570 placements in 1995,
reflecting management's decision to cease the cattle feeding program in April
1996.
Net Interest Margin. For the quarter ended July 31, 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 $86,394.
This figure represents an increase of 2.1% when compared to the net interest
margin of $84,541 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 $72,769 during the third quarter of 1996 compared to
$328,832 for the same period in 1995, down 77.9%. Costs decreased primarily due
to reduced salaries, lower volumes and price protection expense reflecting
management's decision to discontinue the cattle feeding program.
Operating Income. Due to the above factors, in the third quarter of 1996,
the Company recognized an operating profit of $85,158 in its financial services
business compared to an operating loss of $94,098 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 July 31, 1996, the Company's
livestock marketing revenues, principally yardage and commission revenues, were
$1,652,985, down 9.8% from the $1,832,300 of such business recorded in the
comparable 1995 period. This decrease in revenues relates primarily to a14.4%
reduction in the number of animal marketing units handled from 247,568 for the
third quarter of 1995 to 211,953 for the same period in 1996, principally due
to lower volumes at our Sioux City and St. Joseph locations.
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 third quarter of fiscal 1996, these costs and expenses totaled
$1,619,364, a decrease of 8.8% from 1995's comparable period of $1,775,903,
reflecting the decreased volume of business. Depreciation expense decreased
13.9% from $115,690 in third quarter 1995 to $99,600 in 1996's third quarter,
primarily due to second half 1995 capital expenditures related to the South St.
Paul and St. Joseph market consolidations, offset by the writedown of fixed
assets at Sioux City resulting in reduced depreciation in second half 1996.
Operating Income. Overall, as a result of the aforementioned factors,
operating income from livestock marketing operations of $33,621 in the third
quarter of 1996 represented a decrease of 40.4% from the $56,397 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 third quarter of 1996 were $806,291, up
76.4% from the $456,962 of such cost recorded in the comparable period in 1995.
General and administrative expenses for the third quarter of 1996 totaled
$223,572, a decrease of 19.2% from the $276,602 of such costs reported in the
third quarter of 1995. An additional $400,000 reserve for litigation was
recorded in third quarter 1996.
Interest expense on long-term debt totaled $143,719 in each of the third
quarters of 1996 and 1995. Amortization expense was $39,000 for the third
quarter of 1996 and $36,642 for the third quarter of 1995.
Loss Before Income Taxes. Due to the factors discussed above, the pre-tax
loss reported for the third quarter of 1996 was $687,512, compared to a pre-tax
loss of $494,663 reported in the third quarter of 1995.
Income Taxes. The Company recorded an income tax benefit during the third
quarter of 1995 of $178,012. For the three months ended July 31, 1996, the
Company did not record a tax provision, reflecting management's opinion that
any deferred tax benefit is not realizable in the near future.
Net Loss; Net Loss Attributable to Common Stock. The net loss reported for
the third quarter of 1996 was $707,118, compared to a net loss of $336,258
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 July 31,
1995 and 1996. Total dividends of $0.05 per share or $19,607 in aggregate were
accrued in both the third quarters 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 Nine Months Ended July 31, 1995 and the Nine Months Ended
July 31, 1996
Financial Services
Non-Interest Income. During the nine months ended July 31, 1996,
non-interest income, consisting of per head program fees associated with the
Company's financial services, was $346,897, down 48.8% from $677,404 earned in
the comparable 1995 period, primarily due to reduced placements, lower program
fees and lengthened feeding periods. In the first three quarters of fiscal
1996, the Company recorded 15,774 placements compared to 41,026 placements in
the first three quarters of fiscal 1995.
Net Income Margin. For the nine months ended July 31, 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 $276,694.
This figure represents a decrease of .4% when compared to the net interest
margin of $277,803 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 $1,356,176 during the first three quarters of fiscal 1996
compared to $829,981 for the same period in 1995, up 63.4%. 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 three quarters
of fiscal 1996, the Company recognized an operating loss of $732,585 in its
financial services business compared to an operating profit of $125,226
recorded in the first three quarters 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 nine months ended July 31, 1996, the
Company's livestock marketing revenues, principally yardage and commission
revenues, were $5,694,527, down 20.2% from the $7,137,594 of such business
recorded in the comparable 1995 period. This decrease in revenues relates
primarily to a 25.3% reduction in the number of animal marketing units handled
from 1,001,273 for the first three quarters of fiscal 1995 to 747,900 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 13.6% 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 three quarters of fiscal 1996, these costs and expenses
totaled $5,363,063, a decrease of 17.7% from 1995's comparable figure of
$6,518,239, partially reflecting the decreased volume of business.
Depreciation expense increased 10.5% from $307,402 in the first three quarters
of fiscal 1995 to $339,600 in the first three quarters 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 $331,464 in the first
three quarters of fiscal 1996 represented a decrease of 46.5% from the $619,355
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 three quarters of fiscal 1996
were $3,330,630, up 109.8% from the $1,587,825 of such cost recorded in the
comparable period in fiscal 1995. General and administrative expenses for the
first three quarters of fiscal 1996 totaled $817,473, a decrease of 21.9% from
the $1,046,743 of such costs reported in 1995. Interest expense on long-term
debt totaled $431,157 in the first nine months of fiscal 1996 and fiscal 1995.
Amortization expense was $117,000 for the first three quarters of fiscal 1996
and $109,926 for the first three quarters of fiscal 1995. Restructuring and
asset writedown costs include the following:
<TABLE>
<CAPTION>
Quarter Year To Date
-------- -----------------
<S> <C> <C>
Provision for Litigation and Professional Fees $400,000 $725,000
Writedown of Fixed Assets - Livestock Marketing 0 766,000
Restructuring and Other 0 474,000
-------- ----------
$400,000 $1,965,000
======== ==========
</TABLE>
Loss Before Income Taxes. Due to the factors discussed above, the pre-tax
loss reported for the first three quarters of fiscal 1996 was $3,731,751,
compared to a pre-tax loss of $843,244 reported in the first three quarters of
fiscal 1995.
Income Taxes. The Company recorded an income tax benefit during the first
three quarters of fiscal 1995 of $303,500. For the nine months ended July 31,
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 three quarters of fiscal 1996 was $4,228,570, compared to a net
loss of $598,564 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 July 31,
1995 and 1996. Total annualized dividends of $0.05 per share or $58,820 in
aggregate were accrued in the first three quarters 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 UCC. Substantially all of the current assets of the Company were
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. These facilities were
extended several times with the final extension to August 15, 1996, and with
final payoff completed on August 9, 1996. As of October 31, 1995 and July 31,
1996, advances totaling $8,599,459 and $343,247, respectively were outstanding.
Among other matters, the Company's loan agreements provided that it maintain a
minimum net worth, not incur certain indebtedness, not pay dividends except
under certain conditions, and 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 July
31, 1996 with respect to its revolving credit facilities, including a waiver of
the net worth covenant as of July 31,1996. Due to recurring losses,
significant uncertainties exist regarding the Company's ability to obtain
credit facilities in the future.
The Company's revolving credit facilities, totalling $14,000,000, of which
approximately $13,650,000 was available at July 31, 1996, had an expiration
date of August 15, 1996. 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 discussions 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 in the near future. 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 July 31, 1996, the Company's assets aggregated
$6,207,228, of which 55.1% related directly to financial services and 35.9% to
livestock marketing. The remaining balance represents un-allocated corporate
assets.
As of October 31, 1995 and July 31, 1996, the Company had working capital
(current assets less current liabilities) of $4,571,180 and ($3,938,142)
respectively. As of October 31, 1995 and July 31, 1996, the Company's current
ratio (current assets divided by current liabilities) was 1.47x and .51x,
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 July 31, 1996, the Company generated $7,444,353 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.
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 with 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, July 31,
1995 1996 1995 vs 1996
----------- -------- ------------
% % %
----------- -------- ------------
<S> <C> <C> <C>
Financial services
Assets ............................... 70.2 55.1 (73.3)
Liabilities .......................... 47.2 5.5 (96.0)
------ ------- ------
Net identifiable assets .............. 22.9 49.5 26.4
Livestock marketing
Net identifiable assets .............. 18.8 35.9 (34.9)
Corporate
Cash .................................... 4.9 1.4 (90.3)
Total assets .......................... 11.0 9.1 (72.0)
Current liabilities ..................... 6.5 26.0 36.1
Long-term debt, less current maturities 33.2 97.5 --
Preferred stock ......................... 20.0 59.6 1.6
Common stockholders' investment (deficit) (7.0) (88.5) (336.3)
Net identifiable assets ................. 13.0 (29.0) N/M
</TABLE>
See "Recent Developments" for a discussion concerning the Company's liquidity
portion and capital resources.
16
<PAGE> 17
PART II, ITEM 1. LEGAL PROCEEDING
Phillip L. Kunkel, Trustee v. United Market Services Company d/b/a North
Central Associates, Case No. 4-95-274 (Bankr. D. Minn.). See Part II, Item 1
of the Company's form 10-QSB Quarterly Report for the quarterly period ended
April 30, 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 an appeal with the Minnesota Court of Appeals seeking to overturn the
vacating of the punitive damages, and UCC filed a cross-appeal with respect to
the compensatory damage award. In an order dated July 30, 1996, the Court of
Appeals reversed the trial court's decision to vacate the punitive damages
award and denied UCC's cross-appeal. On August 28, 1996, UCC filed a petition
with the Minnesota Supreme Court for discretionary review of the July 30 order.
If the petition is granted, a ruling on the merits from the Minnesota Supreme
Court may take up to one additional year. If the petition is denied, the order
of the Court of Appeals will become final.
PART II, ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.2 (f) Fifth Addendum to Amended Loan Agreement dated February 2, 1995, by
and between Company and Norwest Agricultural Credit, Inc.
10.2 (g) Sixth 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 July 31, 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: September 13,1996 By: /s/ Dean Bachelor
----------------- ---------------------------------
Dean Bachelor
Chief Executive Officer
(Principal Executive Officer)
Dated: September 13, 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
Exhibit
Number Description Page
- -------- ---------------------------------------------- ----
10.2 (f) Fifth Addendum to Amended Loan Agreement dated 20
February 2, 1995, by and between Company and
Norwest Agricultural Credit, Inc.
10.2 (g) Sixth Addendum to Amended Loan Agreement dated 22
February 2, 1995, by and between Company and
Norwest Agricultural Credit, Inc.
19
<PAGE> 1
EXHIBIT 10.2 (f)
FIFTH ADDENDUM TO AMENDED LOAN AGREEMENT
This Fifth Addendum to Amended Loan Agreement (hereinafter referred to as
"Fifth Addendum") is made and entered into as of this 27th day of June, 1996,
as a Fifth 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 a Fourth
Addendum to Amended Loan Agreement dated May 15, 1996 (hereinafter referred to
as "Fourth 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, Fourth 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 June 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 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, Fourth 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 "June 15, 1996", are hereby modified to a maturity
of "August 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 Fifth Addendum, all of the remaining terms and conditions
of the Agreement, the First Addendum, Second Addendum and Third Addendum,
Fourth Addendum, Assignment, and Addendum to Assignment remain
20
<PAGE> 2
in full force and effect, including, but not limited to, the
obligations of Borrower as set forth therein.
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 MARKET SERVICES COMPANY
By Dean Bachelor
------------------------------
Its Chief Executive Officer
--------------------------
21
<PAGE> 1
EXHIBIT 10.2 (g)
SIXTH ADDENDUM TO AMENDED LOAN AGREEMENT
The Sixth Addendum to Amended Loan Agreement (hereinafter referred to as
"Sixth Addendum") is made and entered into as of this 27th day of June, 1996,
as a Sixth 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"), and with a Fifth Addendum to Amended Loan Agreement
dated May 15, 1996 (hereinafter referred to as "Fifth 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, Fourth Addendum and Fifth 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 June 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 Sixth Addendum the foregoing recitals and
make the same a part of the Sixth Addendum and, similarly, incorporate
by reference, the Agreement, First Addendum, Second Addendum, Third
Addendum, Fourth Addendum and Fifth Addendum referred to hereinabove.
2. EXTENDED DUE DATE: All references to a conditional line of credit
existing through "June 15, 1995", are hereby modified to be references
to "August 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 Sixth Addendum, all of the remaining terms and
conditions of the Agreement, the First Addendum, Second Addendum, Third
Addendum, Fourth Addendum and Fifth 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> 2
IN WITNESS WHEREOF, this Sixth 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
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10 Q SB
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> JUL-31-1996
<CASH> 85,946
<SECURITIES> 0
<RECEIVABLES> 1,780,632
<ALLOWANCES> 108,915
<INVENTORY> 2,194,032
<CURRENT-ASSETS> 4,067,705
<PP&E> 6,594,311
<DEPRECIATION> (4,931,589)
<TOTAL-ASSETS> 6,207,228
<CURRENT-LIABILITIES> 8,005,847
<BONDS> 0
0
3,697,409
<COMMON> 912,500
<OTHER-SE> (6,408,528)
<TOTAL-LIABILITY-AND-EQUITY> 6,207,228
<SALES> 0
<TOTAL-REVENUES> 6,771,663
<CGS> 0
<TOTAL-COSTS> 5,235,189
<OTHER-EXPENSES> 3,553,523
<LOSS-PROVISION> 830,000
<INTEREST-EXPENSE> 884,702
<INCOME-PRETAX> (3,731,751)
<INCOME-TAX> 438,000
<INCOME-CONTINUING> (4,169,751)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,169,751)
<EPS-PRIMARY> (5.21)
<EPS-DILUTED> (5.21)
</TABLE>
