FORM 10-Q
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002.
Commission File No. 1-8129.
US 1 INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Indiana 95-3585609
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(State of Incorporation) (I.R.S. Employer Identification No.)
1000 Colfax, Gary, Indiana 46406
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 977-5225
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No ___
As of May 14, 2002, there were 10,618,224 shares of registrant's common stock
were outstanding.
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 (UNAUDITED) AND DECEMBER 31, 2001
ASSETS
March 31, December 31,
2002 2001
---- ----
(Unaudited)
CURRENT ASSETS:
Cash $ 0 $ 322,060
Accounts receivable-trade, less allowance for
doubtful accounts of $524,000 and $518,000
respectively 13,345,662 11,946,382
Other receivables 1,808,363 1,374,835
Deposits 45,200 44,200
Prepaid expenses 369,227 544,143
Current deferred tax asset 600,000 600,000
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Total current assets 16,168,452 14,831,620
FIXED ASSETS:
Equipment 1,555,072 1,542,945
Less accumulated depreciation and amortization (307,591) (250,954)
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Net fixed assets 1,247,481 1,291,991
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ASSETS HELD FOR SALE:
Land 195,347 195,347
Valuation allowance (141,347) (141,347)
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Net assets held for sale 54,000 54,000
Non-current deferred tax asset 600,000 600,000
Other Assets 383,786 383,786
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TOTAL ASSETS $18,453,719 $17,161,397
========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 (UNAUDITED) AND DECEMBER 31, 2001
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
March 31, December 31,
2002 2001
---- ----
(Unaudited)
CURRENT LIABILITIES:
Revolving line of credit $ 6,583,170 $ 6,765,999
Current portion of long-term debt 316,058 399,190
Accounts payable 3,942,273 3,469,666
Bank overdraft 617,196 0
Accrued expenses 265,392 251,859
Insurance and claims 751,434 629,796
Accrued compensation 84,658 79,545
Accrued interest 998,000 974,039
Fuel and other taxes payable 59,574 82,228
Accrued Legal Settlement 500,000 140,000
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Total current liabilities 14,117,755 12,792,322
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LONG-TERM DEBT (primarily to related parties) 4,167,526 4,260,668
Minority Interest 24,888 0
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
Authorized 5,000,000 shares; no par value,
Series A shares issued and outstanding:
2002 and 2001 - 1,094,224
Liquidation preference $0.94 per share 1,131,254 1,102,968
SHAREHOLDERS' DEFICIENCY:
Common stock, authorized 20,000,000 shares;
no par value; shares outstanding 10,618,224 40,871,263 40,844,296
Accumulated deficit (41,858,967) (41,838,857)
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Total shareholders' deficiency ( 987,704) ( 994,561)
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TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIENCY $ 18,453,719 $ 17,161,397
=========== ============
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
MARCH 31, 2002 AND MARCH 31, 2001 (UNAUDITED)
MARCH 31, MARCH 31,
2002 2001
OPERATING REVENUES $22,131,028 $ 15,145,537
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OPERATING EXPENSES:
Purchased transportation 16,829,053 11,399,910
Commissions 2,036,183 1,763,182
Insurance and claims 775,627 410,283
Salaries, wages, and other 1,023,337 540,026
Operating supplies and expense 464,211 480,786
Other expenses 529,387 140,375
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Total operating expenses 21,657,798 14,734,562
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OPERATING INCOME 473,230 410,975
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NON-OPERATING INCOME (EXPENSE):
Legal Settlement (360,000) 0
Interest income 9,950 2,435
Interest (expense) (135,467) (206,916)
Other income(expense) 34,820 (14,869)
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Total non-operating (expense) (450,697) (219,350)
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NET INCOME BEFORE MINORITY INTEREST $ 22,533 $ 191,625
Minority Interest Expense 14,353 0
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NET INCOME $ 8,180 $ 191,625
DIVIDENDS ON PREFERRED SHARES (28,286) (25,714)
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NET INCOME(LOSS)AVAILABLE
TO COMMON SHAREHOLDERS (20,106) 165,911
=========== =============
Basic and Diluted Net Income
Per Common Share $ 0.00 $ 0.02
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 10,618,224 10,618,224
============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 31, 2002 (UNAUDITED) AND MARCH 31, 2001 (UNAUDITED)
Three Months Ended March 31,
2002 2001
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(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 8,180 191,625
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation and amortization 56,637 22,285
Compensation Expense resulting from
issuance of equity in subsidiary 37,500 0
Provision for bad debts 127,307 114,000
Minority interest expense 14,351 0
Changes in operating assets and liabilities:
Accounts receivable - trade (1,526,587) 210,279
Other receivables (433,528) (203,534)
Prepaid expenses 174,916 82,579
Deposits & other assets (1,000) (45,300)
Accounts payable 472,607 74,131
Accrued expenses 13,533 (36,081)
Accrued interest 23,961 53,074
Insurance and claims 121,638 (83,400)
Accrued compensation 5,113 5,999
Fuel and other taxes payable (22,654) (102,442)
Accrued Legal Settlement 360,000 0
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Net Cash(used in)provided by operating activities (568,026) 283,215
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (12,127) (613,573)
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Net cash used in investing activities (12,127) (613,573)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under line of credit (182,829) 447,993
Proceeds from equipment line of credit 0 385,126
Principal payments on long term debt (126,274) (73,024)
Repayments of shareholder loans (50,000) (217,311)
Increase(Decrease) in bank overdraft 617,196 (212,426)
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Net cash provided by financing activities 258,093 330,358
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NET DECREASE IN CASH (322,060) 0
CASH, BEGINNING OF PERIOD 322,060 0
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CASH, END OF PERIOD 0 0
========= ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of March 31, 2002, and the
consolidated statements of operations and cash flows for the three month
periods ended March 31, 2002 and 2001 are unaudited, but, in the opinion of
management, include all adjustments (consisting of normal, recurring accruals)
necessary for a fair presentation of the financial position and the results of
operations for such periods. The year-end balance sheet data was derived from
audited financial statements. These statements should be read in conjunction
with the Company's audited consolidated financial statements for the year ended
December 31, 2001, and the notes thereto included in the Company's annual
report on Form 10-K. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted, as permitted by the requirements of
the Securities and Exchange Commission, although the Company believes that the
disclosures included in these financial statements are adequate to make the
information not misleading. The results of operations for the three months
ended March 31, 2002 and 2001 are not necessarily indicative of the results for
a full year.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported 2001
financial statement to conform with the 2002 presentation.
3. EARNINGS PER COMMON SHARE
The Company calculates earnings per share ("EPS") in accordance with
Statement of Financial Accounting Standards No. 128. Following is the
reconciliation of the numerators and denominators of the basic and diluted EPS.
There were no outstanding common stock equivalents in these periods.
Three Months Ended
Numerator 2002 2001
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Net income $ 8,180 $ 191,625
Dividends on preferred shares (28,286) (25,714)
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Net income(loss) available to common
shareholders for basic and diluted EPS (20,106) 165,911
Denominator
Weighted average common shares 10,618,224 10,618,224
outstanding for basic and diluted EPS
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
4. REVOLVING LINE OF CREDIT
The Company has a $7.0 million line of credit that matures on October 1,
2003. Advances under this revolving line of credit are limited to 70% of
eligible accounts receivable. The interest rate is based upon certain financial
covenants and may range from prime to prime plus .5%. At March 31, 2002, the
interest rate on this line of credit was $5.0%. The Company's accounts
receivable, property, and other assets collateralize advances under the
agreement. Borrowings up to $1 million are guaranteed by the Chief Executive
Officer and Chief Financial Officer of the Company. At March 31, 2002, the
outstanding borrowings on this line of credit were $6.6 million.
This line of credit is subject to termination upon various events of
default, including failure to remit timely payments of interest, fees and
principal, any adverse change in the business of the Company or failure to meet
certain financial covenants. Financial covenants include: minimum net worth
requirements, total debt service coverage ratio, capital expenditure
limitations, and prohibition of additional indebtedness without prior
authorization.
5. MINORITY INTEREST
The Company entered into an agreement with certain key employees of
Carolina National Transportation, Inc. ("Carolina"), a wholly owned subsidiary
of the Company, in which these employees will earn up to 40% ownership interest
in Carolina over a three year period, beginning in the year following which
Carolina achieves positive retained earnings, contingent upon certain
restrictions, including continued employment at Carolina. In 2001, Carolina
achieved positive retained earnings. As a result, the Company will incur total
compensation expense of $400,000 over the three-year vesting period. These
employees will receive 15% ownership in Carolina at December 31, 2002, an
additional 15% at December 2003, and a 10% ownership interest at December 31,
2004. For the three months ended March 31, 2002, the Company incurred
compensation expense of $37,500 as a result of this agreement. The Company also
recognized minority interest expense of $14,353 relating to the employees'
portion of Carolina's net income for the three months ended March 31, 2002.
6. LEGAL SETTLEMENT
Cam Regional Transport and Laurel Mountain Leasing, Inc. filed a complaint
against the Company in 1994, which alleged breach of contract, claiming that
Trailblazer Transportation, Inc. a subsidiary of the Company which filed
bankruptcy, failed to abide by a purchase agreement entered into with Cam
Regional Transport, Inc. and Laurel Mountain Leasing, Inc. In addition, two
individuals affiliated with these companies claimed breach of employment
contracts against the Company.
In May 2002, judgment was rendered on these claims in favor of the
plaintiff. Under the terms of the initial court filing, the Company must pay
damages of $500,000. As a result, the Company increased its accrual for this
litigation to $500,000 by recording a charge of $360,000 relating to this
litigation for the three months ended March 31, 2002.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
7. CONVERSION OF REDEEMABLE PREFERRED STOCK
On February 19, 2002, the company's board of directors approved the
conversion of all of the outstanding Series A redeemable preferred stock
(1,094,224 shares) plus all accrued dividends, into 1,000,000 shares of the
Company's common stock. As of May 14, 2002, the conversion has not yet been
finalized and therefore is not reflected on the balance sheet at March 31,
2002. The following shows proforma earning per common share assuming the
preferred stock has been converted as of the earliest date presented.
Three Months ended March 31, 2002 2001
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Basic and Diluted Net Income per
Common share $0.00 $0.02
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
Results of Operations
You should read the following discussion regarding the Company along with
the Company's consolidated financial statements and related notes included in
this quarterly report. The following discussion contains forward-looking
statements that are subject to risks, uncertainties and assumptions. The
Company's actual results, performance and achievements in 2002 and beyond may
differ materially from those expressed in, or implied by these forward-looking
statements. See cautionary note regarding forward-looking statements.
The financial statements and related notes contained elsewhere in this
Form 10-Q as of and for the three months ended March 31, 2002 and 2001 and in
the Company's Form 10-K for its fiscal year ended December 31, 2001, are
essential to an understanding of the comparisons and are incorporated by
reference into the discussion that follows.
Three months ended March 31, 2002 Compared to the three months ended March 31,
2001
The Company's operating revenues increased from $15.1 million for the
three months ended March 31, 2001 to $22.1 million for the same period in 2002.
This is an increase of 46.1%. This increase is attributable to the continued
growth at Carolina National Transportation, the opening of a new operation that
specialized in over-size loads at Keystone Lines, the addition of new inter
modal operations at Keystone Lines, and the new operations of Transport
Leasing, Inc. and ERX Transportation.
Purchased transportation represents the amount an independent contractor
is paid to haul freight and is primarily based on a contractually agreed-upon
percentage of revenue generated by the haul for truck capacity provided by
independent contractors. Purchased transportation is the largest component of
operating expenses. Purchased transportation plus commission expense increases
or decreases in proportion to the revenue generated through independent
contractors. At March 31, 2001 purchased transportation was 75.3% of revenue in
comparison to 76.0% at March 31, 2002. The increase in purchased transportation
is offset by the decrease in commission.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (continued).
Three months ended March 31, 2002 Compared to the three months ended March 31,
2001 (continued)
Commissions to agents and brokers are primarily based on contractually
agreed-upon percentages of revenue. At March 31, 2001 commission was 11.6% of
revenue in comparison to 9.2% at March 31, 2002. This decrease of 2.4% resulted
partially from revenues reported for several new offices that opened last year
that do not have offsetting commission expense as related to revenue. Several
of these new offices hire employees as opposed to agents, who would receive
commission based on a percentage of revenue. The additional decrease in
commission is offset by the increase in purchased transportation.
A majority of the insurance and claims expense is based on a percentage of
revenue and, as a result, will increase or decrease, on a consolidated basis
with the company's revenue. Potential liability associated with accidents in
the trucking industry is severe and occurrences are unpredictable. A material
increase in the frequency or severity of accidents or the unfavorable
development of existing claims could adversely affect the Company's operating
income. Insurance and claims increased slightly at 3.5% of revenue for March
31, 2002 verses 2.7% of revenue at March 31, 2001. The slight increase can be
attributed mainly to the increase of certain operations' insurance rates.
Salaries, wages, fringe benefits, and other operating expenses are
principally non-variable expenses and therefore will not typically vary
directly as a percentage of the Company's revenue. Salaries, wages, and fringe
benefits were 3.6% of revenue at March 31, 2001 but increased as a percentage
of revenue at March 31, 2002 to 4.6%. This is an increase of 1.0% as a
percentage of revenue and can be attributed to two newer divisions who utilize
employees that are paid a salary instead of agents who would be paid
commissions. Other operating expenses as a percentage of revenue increased by
...4% of revenue. At March 31, 2001 operating expenses were 4.1% of revenue in
comparison to 4.5% at March 31, 2002. The increase can be attributed to higher
operating expenses in connection with new offices that opened in the fourth
quarter of 2001.
The following table set forth the percentage relationships of expense items to
revenue for the three months ended March 31, 2002 and March 31, 2001:
2002 2001
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Revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 76.0 75.3
Commissions 9.2 11.6
Insurance and claims 3.5 2.7
Salaries, wages and fringe benefits 4.6 3.6
Other operating expenses 4.5 4.1
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Total operating expenses 97.8 97.3
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Operating income 2.2 2.7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (continued).
Based on the changes in revenue and expenses discussed above, operating
income increased by $62,255 from $410,975 for the three months ended March 31,
2001 to $473,230 for the three months ended March 31, 2002. While operating
income increased for the three months ended March 31, 2002 in comparison to the
previous year, operating income as a percentage of revenue actually decreased,
from 2.7% for the three months ended March 31, 2001 to 2.2% for the same period
in 2002. This decrease is due to higher operating expenses relating to
terminals opened in the last quarter of 2001.
Interest expense decreased by $71,449 in 2002. Interest at March 31, 2001
was $206,916 and at March 31, 2002 interest was $135,467. This decrease in
interest expense is attributable to continued decrease in the prime rate. The
rate on the Company's loan with Firstar is currently based on certain financial
covenants and may range from prime to prime plus .5%.
Non-operating expense, exclusive of interest expense, increased from
$12,434 for the three months ended March 31, 2001 to $315,230 for the three
months ended March 31, 2002. The increase was primarily attributable to a
$360,000 expense incurred for the three months ended March 31, 2002, relating
to a court ruling on litigation against the Company.
Net income for the three months ended March 31, 2002 was $8,180 compared
with $191,625 for the same period in 2001.
Liquidity and Capital Resources
As of March 31, 2002, the Company had a net deficiency in shareholder
equity of $1.0 million.
Net cash provided by (used in) operating activities decreased $851,241 from
$283,215 for the three months ended March 31, 2001 to $(568,026) for the three
months ended March 31, 2002. The cash used in operating activities increased
mainly due to an increase in accounts receivable resulting from the Company
opening additional terminals during the last quarter of 2001.
Net cash used in investing activities decreased $601,446 from $613,573 for
the three months ended March 31, 2001 to $12,127 for the three months ended
March 31, 2002. Net cash used in investing activities during the first three
months of 2001 related to the investment in additional equipment.
Net cash provided by financing activities, primarily generated from
additional borrowings, decreased $72,265 from $330,358 for the three months
ended March 31, 2001 to $258,093 for the three months ended March 31, 2002.
Management is currently engaged in negotiations with Firstar to increase
the line of credit from $7.0 million to $10.0 million. We believe this increase
will be adequate for our future working capital needs.
Quantitative and Qualitative Disclosures About Market Risk
Inflation
Changes in freight rates charged by the Company to its customers are
generally reflected in the cost of purchased transportation and commissions
paid by the Company to independent contractors and agents, respectively.
Therefore, management believes that future-operating results of the Company
will be affected primarily by changes in volume of business. However, due to
the highly competitive nature of the truckload motor carrier industry, it is
possible that future freight rates and cost of purchased transportation may
fluctuate, affecting the Company's profitability.
Certain Relationships and Related Transactions.
The Company leases office space for its headquarters in Gary, Indiana, for
$3,000 monthly, from Michael E. Kibler, the president and Chief Executive
Officer and a director of the Company, and Harold E. Antonson, the Chief
Financial Officer, treasurer and a director of the Company. Messrs. Kibler and
Antonson own the property as joint tenants.
One of the Company's subsidiaries provides safety, management, and
accounting services to companies controlled by the President and Chief
Financial Officer of the Company. These services are priced to cover the cost
of the employees providing the services.
The Company has approximately $153,000 of other accounts receivable due
from entities under common control.
One of the Company's insurance providers, American Inter-Fidelity Exchange
(AIFE), is managed by a Director of the Company and the Company has a deposit
with the Provider.
The Company has long-term notes payable due to its Chief Executive
Officer, Chief Financial Officer, and August Investment Partnership, an entity
affiliated through common ownership, totaling approximately $3.5 million.
PART II. OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
Cam Regional Transport and Laurel Mountain Leasing, Inc. filed a complaint
against the Company in 1994, which alleged breach of contract, claiming that
Trailblazer Transportation, Inc. a subsidiary of the Company which filed
bankruptcy, failed to abide by a purchase agreement entered into with Cam
Regional Transport, Inc. and Laurel Mountain Leasing, Inc. In addition, two
individuals affiliated with these companies claimed breach of employment
contracts against the Company.
In May 2002, judgment was rendered on these claims in favor of the
plaintiff. Under the terms of the initial court filing, the Company must pay
damages of $500,000. As a result, the Company increased its accrual for this
litigation to $500,000 by recording a charge of $360,000 relating to this
litigation for the three months ended March 31, 2002.
Item 6(b). Reports on Form 8-K
No Reports on Form 8-K have been filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
US 1 Industries, Inc.
Michael E. Kibler
President
Harold E. Antonson
Chief Financial Officer
May 14, 2002