FORM 10-Q
________________________________________________
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 September 30, 2002.
Commission File No. 1-8129.
US 1 INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Indiana 95-3585609
(State of Incorporation) (I.R.S. Employer Identification No.)
1000 Colfax, Gary, Indiana 46406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 977-5225
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 November 15, 2002, there were 11,618,224 shares of registrant's
common stock were outstanding.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
ASSETS
September 30, December 31,
2002 2001
(Unaudited)
CURRENT ASSETS:
Cash $ 0 $ 322,060
Accounts receivable-trade, less allowance for
doubtful accounts of $561,000 and $518,000
respectively 16,363,252 11,946,382
Other receivables 1,643,425 1,374,835
Deposits 45,200 44,200
Prepaid expenses 172,395 544,143
Current deferred tax asset 600,000 600,000
----------- ----------
Total current assets 18,824,272 14,831,620
FIXED ASSETS:
Equipment 1,720,062 1,542,945
Less accumulated depreciation and amortization (460,432) (250,954)
----------- ----------
Net fixed assets 1,259,630 1,291,991
----------- -----------
ASSETS HELD FOR SALE:
Land 195,347 195,347
Valuation allowance (141,347) (141,347)
----------- -----------
Net assets held for sale 54,000 54,000
Non-current deposits 126,461 126,461
Non-current deferred tax asset 600,000 600,000
Other Assets 270,066 257,325
----------- -----------
TOTAL ASSETS $21,134,429 $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
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
September 30, December 31,
2002 2001
(Unaudited)
CURRENT LIABILITIES:
Revolving line of credit $ 5,925,027 $ 6,765,999
Current portion of long-term debt 431,947 399,190
Accounts payable 6,696,304 3,469,666
Accrued expenses 368,848 251,859
Insurance and claims 925,652 629,796
Accrued compensation 132,100 79,545
Accrued interest 1,028,099 974,039
Fuel and other taxes payable 67,574 82,228
Accrued Legal Settlement 500,000 140,000
----------- ------------
Total current liabilities 16,075,551 12,792,322
----------- ------------
LONG-TERM DEBT (primarily to related parties) 3,652,362 4,260,668
Minority Interest 121,073 0
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 0 1,102,968
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock, authorized 20,000,000 shares;
no par value; shares outstanding 11,618,224 42,071,495 40,844,296
and 10,618,224 outstanding as of
September 30, 2002 and December 31, 2001,
respectively.
Accumulated deficit (40,786,052) (41,838,857)
----------- -----------
Total shareholders' equity (deficiency) 1,285,443 ( 994,561)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY) $ 21,134,429 $ 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 INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
Three Month Ended Nine Months Ended
2002 2001 2002 2001
OPERATING REVENUES $30,404,198 $17,718,992 $80,616,749 $49,628,605
----------- ---------- ---------- ----------
OPERATING EXPENSES:
Purchased transportation 22,869,616 13,815,127 60,888,679 38,728,103
Commissions 2,887,016 1,607,551 7,590,037 4,659,831
Insurance and claims 1,309,381 521,960 3,128,462 1,377,348
Salaries, wages, and other 1,301,874 506,283 3,545,633 1,576,047
Operation supplies/ other 1,384,261 824,602 3,694,400 2,191,074
----------- ---------- ---------- ----------
Total operating expenses 29,752,148 17,275,523 78,847,211 48,532,403
----------- ---------- ---------- ----------
OPERATING INCOME 652,050 443,469 1,769,538 1,096,202
----------- ---------- ---------- ----------
NON-OPERATION INCOME (EXPENSE)
Legal Settlement 0 0 (350,964) 0
Interest income 6,609 1,251 23,135 4,145
Interest (expense) (155,213) (162,908) (431,067) (535,864)
Other income 70,516 36,573 174,967 157,117
----------- ---------- ---------- ----------Total non-operating
(expense) (78,088) (125,084) (583,929) (374,602)
----------- ---------- ---------- ----------NET INCOME BEFORE
MINORITY INTEREST $ 573,962 $ 318,385 $1,185,609 $ 721,600
Minority Interest Expense (31,393) (76,231) 0
----------- ---------- ---------- ----------
NET INCOME $ 542,569 $ 318,385 $1,109,378 $ 721,600
DIVIDENDS ON PREFERRED SHARES 0 (25,714) (56,573) (77,142)
Redemption of redeemable
preferred stock 609,541 0 609,541 0
----------- ---------- ---------- ----------
NET INCOME AVAILABLE
TO COMMON SHAREHOLDERS 1,152,110 292,671 1,662,346 644,458
=========== ========== ========== ==========
Basic and Diluted Net income
Per Common Share $ 0.10 $ 0.03 $ 0.15 $ 0.06
=========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING BASIC
AND DILUTED 11,433,441 10,618,224 10,892,949 10,618,224
=========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
US 1 Industries
Consolidated Statement of Shareholders' Equity (Deficiency)
(Unaudited)
Total
Shareholders'
Common Common Accumulated Equity
Shares Stock Deficit (Deficiency)
Balance, December 31, 2002 10,618,224 $40,844,296 $(41,838,857) $(994,561)
Cumulative Dividends on
Preferred Stock (56,573) (56,573)
Conversion of redeemable
preferred stock into common
stock 1,000,000 1,159,541 1,159,541
Minority interest in subsidiary 67,658 67,658
Net income for the nine months ended
September 30, 2002 1,109,378 1,109,378
Balance, September 30, 2002 11,618,224 $42,071,495 $(40,786,052) $1,285,443
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SEPTEMBER 30, 2002 (UNAUDITED) AND SEPTEMBER 30, 2001 (UNAUDITED)
Nine Months Ended
September 30,
2002 2001
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 1,109,378 721,600
cash used in operating activities
Depreciation and amortization 209,478 123,930
Compensation Expense resulting from
issuance of equity in subsidiary 112,500 0
Provision for bad debts 489,513 269,490
Minority interest expense 76,231 0
Changes in operating assets and liabilities:
Accounts receivable - trade (4,906,383)(1,071,612)
Other receivables (268,590) (751,402)
Prepaid expenses 371,748 62,543
Deposits & other assets (13,741) (4,000)
Accounts payable 3,226,638 782,827
Accrued expenses 116,989 (50,554)
Accrued interest 54,060 107,071
Insurance and claims 295,856 (31,897)
Accrued compensation 52,555 2,754
Fuel and other taxes payable (14,654) (76,772)
Accrued Legal Settlement 360,000 0
--------- --------
Net Cash provided by operating activities 1,271,578 83,978
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (177,117)(1,112,751)
-------- --------
Net cash used in investing activities (177,117)(1,112,751)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under line of credit (840,972) 896,038
Proceeds from equipment loans 0 669,393
Principal payments on long term debt (363,076) (250,091)
Repayments of shareholder loans (212,473) (286,567)
--------- --------
Net cash(used in)provided by financing activities (1,416,521) 1,028,773
--------- --------
NET DECREASE IN CASH (322,060) 0
CASH, BEGINNING OF PERIOD 322,060 0
--------- --------
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
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of September 30, 2002,
and the consolidated statements of income and cash flows for the three month
and nine month periods ended September 30, 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 and nine months ended September 30, 2002 and 2001 are not
necessarily indicative of the results for a full year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, 'Rescission of
FASB Statements No.4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. 'This Statement rescinds SFAS No. 4, 'Reporting Gains
and Losses from Extinguishment of Debt' and an amendment of that Statement, SFAS
No. 64, 'Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements.'
This Statement also rescinds SFAS No. 44, 'Accounting for Intangible Assets of
Motor Carriers.' This Statement amends SFAS No. 13, 'Accounting for Leases,' to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings or describe their applicability
under changed conditions. The Company believes that the adoption of this
standard will have no impact on its financial statements.
In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ('SFAS') No. 146, 'Accounting for Costs
Associated with Exit or Disposal Activities' ('SFAS 146'). This Statement
addresses financial accounting and reporting for costs associated with exit
or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No.
94-3, 'Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
restructuring).' This Statement requires that a liability for costs associated
with an exit or disposal activity be recognized and measured initially at fair
value only when the liability is incurred. The provisions of this Statement are
effective for exit or disposal activities that are initiated after December 31,
2002. The Company believes that the adoption of this standard will have no
impact on its financial statements.
3. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported 2001
financial statement to conform with the 2002 presentation.
4. 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 Nine Months Ended
Numerator 2002 2001 2002 2001
Net income $ 542,569 $ 318,385 $1,109,378 $ 721,600
Dividends on preferred shares 0 (25,714) (56,573) (77,142)
Redemption of redeemable
preferred stock 609,541 0 609,541 0
--------- ---------- ---------- ---------
Net income available to common
shareholders for basic and
diluted EPS 1,152,110 292,671 1,662,346 644,458
Denominator
Weighted average common 11,433,441 10,618,224 10,892,949 10,618,224
Shares outstanding for basic
and diluted EPS
5. REVOLVING LINE OF CREDIT
The Company has an $8.5 million line of credit that matures on October 1,
2003. Advances under this revolving line of credit are limited to 75% of
eligible accounts receivable. The interest rate is based upon certain financial
covenants and may range from prime to prime plus .5%. At September 30, 2002,
the interest rate on this line of credit was 4.75%. 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 September 30, 2002, the
outstanding borrowings on this line of credit were $5.9 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.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
6. 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. As a result of this agreement, the company incurred compensation expense
of $37,500 and $112,500 for the three months and nine months ended September 30,
2002, respectively. The Company also recognized minority interest expense of
$31,393 and $76,231 relating to the employees' portion of Carolina's net income
for the three months and nine months ended September 30, 2002, respectively.
7. 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 nine months ended September 30, 2002. The Company is
currently considering appealing this judgment.
In February 2002, one of the Company's subsidiaries, Carolina National
Transportation, was named as a defendant in a suit entitled Hoover
Transportation Services, Inc. vs. Tim A. Frye, Sr. In essences, the suit alleges
that the primary defendant, Mr. Frye, violated a non-competition agreement with,
and confidentiality obligations to, the plaintiff by providing freight related
services in the metropolitan Charlotte area. Mr. Frye's business contracted with
the Company's subsidiary for shipping, and, accordingly, the plaintiff alleges
that the Company's subsidiary is liable for damages as well. During July 2002,
Mr. Frye was enjoined from further violations of the non-competition agreement.
The Company's subsidiary is actively contesting the claims against it. Discovery
is ongoing, and no trial date has been set. At this time, the Company and its
legal counsel are unable to assess the outcome of this complaint. The Company
intends to vigorously defend itself in the matter.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
In October 2002, one of the Company's subsidiaries ('Keystone') was named as
a third party in a lawsuit in which an independent owner operator, leased to the
carrier, fell and injured himself on the property of Cooper Tire. As a result,
the independent owner operator filed suit against Cooper Tire. Cooper Tire
prevailed in their defense of this lawsuit and incurred $200,000 for their
defense. Cooper Tire is currently suing Keystone claiming that Keystone,
pursuant to a transportation rate agreement, is liable to reimburse Cooper Tire
for the defense costs. At this time, the Company and its legal counsel are
unable to assess the outcome of this complaint. The Company intends to
vigorously defend itself in this matter.
The Company is involved in other litigation in the normal course of its
business. Management intends to vigorously defend these cases. In the opinion
of management, the litigation now pending will not have a material adverse
effect on the consolidated financial position of the Company.
8. REDEMPTION OF REDEEMABLE PREFERRED STOCK
On February 19, 2002, the company's board of directors approved the
redemption of all of the outstanding Series A redeemable preferred stock
(1,094,224 shares) plus all accrued dividends through the issuance of 1,000,000
shares of the Company's common stock. The conversion was finalized on July 18,
2002.
The carrying value of the preferred stock exceeded the fair value of the
common stock issued. As a result, the difference between the fair value of the
common stock issued and the carrying value of the preferred shares redeemed
totaling $609,541 is reflected as an addition to net income available to common
shareholders for the three month and nine month periods ended September 30,
2002. The Company recorded this addition to net income available to common
shareholders by offsetting charges and credits to common stock without any
effect in total shareholders' equity.
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.
The financial statements and related notes contained elsewhere in this Form
10-Q as of and for the three and nine months ended September 30, 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (continued)
Nine months ended September 30, 2002 Compared to the nine months ended September
30, 2001
The Company's operating revenues increased to $80.6 million for the nine
months ended September 30, 2002 from $49.6 million for the same period in 2001.
This is an increase of 62.4%. This increase is primarily attributable to the new
operations of Keystone Intermodal at Keystone Lines, Transport Leasing, Inc. and
Harbor Bridge 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. For the nine months ending September 30, 2002 purchased
transportation was 75.5% of revenue in comparison to 78.0% for the nine months
ended September 30, 2001. The decrease in purchased transportation of 2.5%
relative to revenue is attributable to new terminals, which have negotiated
lower purchased transportation percentages to be paid out to the owner
operators. In addition, insurance surcharges have been billed at several
operations. 100% of this revenue is retained by the Company to help offset
increased insurance costs. Since no purchased transportation is paid on the
surcharge revenue, purchased transportation, as a percentage of revenue will
decline.
Commissions to agents and brokers are primarily based on contractually
agreed-upon percentages of revenue. Commissions remained relatively consistent
at 9.4% of revenue for both the nine months ended September 30, 2002 and 2001.
Overall, purchased transportation and commissions in total decreased as a
percentage of revenue due to an increase of divisions that utilize employees
rather than agents, as these divisions tend to pay lower purchased
transportation and commissions.
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 to 3.9% of revenue for the nine months
ended September 30, 2002 verses 2.8% of revenue for the nine months ended
September 30, 2001. The increase can be attributed to the increase of certain
operations' liability and cargo insurance rates due to adverse loss experience.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (continued)
Salaries, wages, and fringe benefits were 4.4% of revenue for the nine
months ended September 30, 2002 compared to 3.2% of revenue for the nine months
ended September 30, 2001. This increase of 1.2% can primarily be attributed to
three newer divisions that utilize employees who are paid a salary instead of
agents who would be paid commissions. Other operating expenses as a percentage
of revenue increased by .2% of revenue. For the nine months ended September 30,
2002 operating expenses were 4.6% of revenue in comparison to 4.4% at September
30, 2001. The increase can be attributed to higher operating expenses in
connection with new offices that opened in late 2001 and early 2002.
The following table set forth the percentage relationships of expense items to
revenue for the nine months ended September 30, 2002 and September 30, 2001:
2002 2001
------ ------
Revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 75.5 78.0
Commissions 9.4 9.4
Insurance and claims 3.9 2.8
Salaries, wages and fringe benefits 4.4 3.2
Other operating expenses 4.6 4.4
------- ------
Total operating expenses 97.8 97.8
------ ------
Operating income 2.2 2.2
Based on the changes in revenue and expenses discussed above, operating
income increased by $673,336. Operating income for the nine months ended
September 30, 2002 was $1,769,538 compared to $1,096,202 for the nine months
ended September 30, 2001.
Interest expense decreased by $104,797 in 2002. Interest expense for the
nine months ended September 30, 2002 was $431,067 compared to interest expense
of $535,864 for the nine months ended September 30, 2001. This decrease in
interest expense is attributable to a 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%. At September 30, 2002 the
Company's interest rate on the loan with Firstar was 4.75%.
Non-operating (income) expense, exclusive of interest expense, was an
expense of $152,862 for the nine months ended September 30, 2002 versus income
of ($161,262) for the nine months ended September 30, 2001. This is an increase
in expense of $314,124 and is primarily attributable to a $360,000 expense
incurred for the nine months ended September 30, 2002, relating to a court
ruling on litigation against the Company.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (continued)
Minority interest expense of $76,231 for the nine months ended September 30,
2002 is the result of an agreement with certain key employees of Carolina
National, a wholly owned subsidiary of the Company, in which these employees
will earn up to a 40% ownership interest in Carolina over a 3 year period (see
note 5 to condensed financial statements).
As a result of the factors discussed above, net income for the nine months
ended September 30, 2002 was $1,109,381 compared with $721,600 for the same
period in 2001.
On February 19, 2002, the company's board of directors approved the
redemption of all of the outstanding Series A redeemable preferred stock
(1,094,224 shares) plus all accrued dividends through the issuance of 1,000,000
shares of the Company's common stock. The conversion was finalized on July 18,
2002. The carrying value of the preferred stock exceeded the fair value of the
common stock issued. As a result, the difference between the fair value of the
common stock issued and the carrying value of the preferred shares redeemed
totaling $609,541 is reflected as an addition to net income available to common
shareholders for the nine month period ended September 30, 2002. The Company
recorded this addition to net income available to common shareholders by
offsetting charges and credits to common stock without any effect in total
shareholders' equity.
Three months ended September 30, 2002 Compared to the three months ended
September 30, 2001
The Company's operating revenues increased by $12.7 million to $30.4 million
for the three months ended September 30, 2002 from $17.7 million for the same
period in 2001. This is an increase of 71.6%. This increase is primarily
attributable to new operations such as Keystone Intermodal at Keystone Lines,
Transport Leasing, Inc. and Harbor Bridge 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. For the three months ended September 30, 2002, purchased
transportation was 75.1% of revenue in comparison to 78.0% for the three months
ended September 30, 2001. The decrease in purchased transportation relative to
revenue is attributable to opening certain new offices that pay a lower
percentage of revenue as purchased transportation. Under certain agreements
with agents, when the independent owner operator is paid a lower amount, the
agent commission is higher. As a result, the decrease in purchased
transportation as a percent of revenues is somewhat offset by an increase in
commission expense. In addition, insurance surcharges have been implemented at
several operations on which 100% of this revenue is retained by the Company to
help offset increased insurance costs. Since no purchased transportation is
paid on the surcharge revenue, purchased transportation, as a percentage of
revenue will decline.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (continued).
Three months ended September 30, 2002 Compared to the three months ended
September 30, 2001 (Continued)
Commissions to agents and brokers are primarily based on contractually
agreed-upon percentages of revenue. For the three months ended September 30,
2002, commission was 9.5% of revenue in comparison to 9.0% for the three months
ended September 30, 2001. This increase of .5% is offset by the decrease in
purchased transportation as discussed above. Overall, purchased transportation
and commissions in total decreased to 84.7% of revenue for the three months
ended September 30, 2002 from 87% of revenue for the three months ended
September 30, 2001. This decrease was due to an increase of divisions that
utilize employees rather than agents, resulting in an overall decrease in
purchased transportation and commissions in total as a percent of revenues, as
these divisions tend to pay lower purchased transportation and commissions.
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 to 4.3% of revenue for the three months
ended September 30, 2002 from 3.0% of revenue for the three months ended
September 30, 2001. The increase can be attributed to the increase of certain
operations' liability and cargo insurance rates due to adverse loss experience.
Salaries, wages, and fringe benefits were 4.3% of revenue for the three months
ended September 30, 2002 compared to 2.9% of revenue for the three months ended
September 30, 2001. This is an increase of 1.4% as a percentage of revenue and
can be attributed to three newer divisions that utilize employees who are paid a
salary instead of agents who would be paid commissions. Operating expenses have
increased $559,659 from $824,602 the three months ended September 30, 2001 to
$1,384,261 for the three months ended September 30, 2002. Expenses related to
the growth of the Company's business (operating supplies, licenses and taxes,
safety/testing expense, depreciation, communications, utilities, and rents) have
increased by $483,284 for the three months ended September 30, 2002 in
comparison to the same period of time for 2001. Bad debt expense increased by
$76,376 from $106,988 for the three months ended September 30, 2001 to $183,364
for the three months ended September 30, 2002.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (continued).
The following table sets forth the percentage relationships of expense items
to revenue for the three months ended September 30, 2002 and September 30,
2001:
2002 2001
------ ------
Revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 75.2 78.0
Commissions 9.5 9.0
Insurance and claims 4.3 3.0
Salaries, wages and fringe benefits 4.3 2.9
Other operating expenses 4.6 4.6
------- ------
Total operating expenses 97.9 97.5
------ ------
Operating income 2.1 2.5
Three months ended September 30, 2002 Compared to the three months ended
September 30, 2001 (Continued)
Based on the changes in revenue and expenses discussed above, operating
income increased by $208,581. For the three months ended September 30, 2002,
operating income was $652,050 compared to $443,469 for the three months ended
September 30, 2001.
Interest expense decreased slightly for the three months ended September 30,
2002 compared to the same period in 2001. Interest expense for the three months
ended September 30, 2002 was $155,213 compared to $162,908 for the three months
ended September 30, 2001. This is a decrease of $7,695 and is attributable to a
continued decrease in the prime rate. The impact of lower interest rates is
partially offset by the Company maintaining a higher average balance on the line
of credit to fund continued growth. The rate on the Company's loan with US Bank
is currently based on certain financial covenants and may range from prime to
prime plus .5%.
Non-operating income, exclusive of interest expense, increased by $39,301.
For the three months ended September 30, 2002 non-operating income exclusive of
interest was $77,125. For the three months ended September 30, 2001, non-
operating income exclusive of interest expense was $37,824.
Minority interest expense of $31,393 for the three months ended September
30, 2002 is the result of an agreement with certain key employees of Carolina
National, a wholly owned subsidiary of the Company, in which these employees
will earn up to a 40% ownership interest in Carolina over a 3 year period (see
note 5 to condensed financial statements).
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (continued).
As a result of the factors discussed above, net income for the three months
ended September 30, 2002 was $542,569 compared with $318,385 for the same period
in 2001.
On February 19, 2002, the company's board of directors approved the
redemption of all of the outstanding Series A redeemable preferred stock
(1,094,224 shares) plus all accrued dividends through the issuance of 1,000,000
shares of the Company's common stock. The conversion was finalized on July 18,
2002. The carrying value of the preferred stock exceeded the fair value of the
common stock issued. As a result, the difference between the fair value of the
common stock issued and the carrying value of the preferred shares redeemed
totaling $609,541 is reflected as an addition to net income available to common
shareholders for the three month period ended September 30, 2002. The Company
recorded this addition to net income available to common shareholders by
offsetting charges and credits to common stock without any effect in total
shareholders' equity.
Liquidity and Capital Resources
Net cash provided by operating activities increased $1,187,600 from $83,978
for the nine months ended September 30, 2001 to $1,271,578 for the nine months
ended September 30, 2002. The cash provided by operating activities increased
mainly due to an increase in accounts payable, a decrease in other receivables,
and an increase in accrued expenses. These increases in cash provided by
operating activities were partially offset by an increase in accounts
receivable. The increase in accounts receivable and the corresponding increase
in accounts payable and accrued expenses are due to the opening of additional
terminals in the first half of 2002.
Net cash used in investing activities decreased $935,634 from $1,112,751 for
the nine months ended September 30, 2001 to $177,117 for the nine months ended
September 30, 2002. Net cash used in investing activities during the first nine
months of 2001 related to the investment in additional equipment for new
operations.
Net cash provided by (used in) financing activities decreased $2,445,294
from $1,028,773 for the nine months ended September 30, 2001 to ($1,416,521) for
the nine months ended September 30, 2002. For the nine months ended September
30, 2002, the Company made payments on shareholder loans and other long-term
debt totaling $575,549, and the Company decreased its borrowings on its line of
credit by $840,972. For the nine months ended September 30, 2001, the Company
borrowed $669,394 to fund equipment purchases (primarily trailers)and the
Company also increased borrowings on the line of credit by $896,038 to fund the
operations of the Company. These increases were partially offset by payments on
shareholder loans and other long-term debt totaling $536,658.
Liquidity and Capital Resources (continued)
On August 12, 2002, the Company's lender amended the loan agreement,
increasing the line from $7.0 million to $8.5 million. The lender also
increased the company's advance rate from 70% of eligible accounts receivable to
75%. Based on the Company's eligible accounts receivable at September 30, 2002,
unused availability under the line of credit at September 30, 2002 was
$2,575,000. This line of credit requires the Company to maintain certain
financial covenants including minimum net worth requirements, total debt service
requirements, total debt service coverage ratio, capital expenditure
limitations, and prohibition of additional indebtedness without prior
authorization. We are dependent upon the funds available under our loan
agreement for liquidity. The facility generally permits us to borrow up to 75%
of our receivables. As a result, as long as we can fund the remaining 25% from
funds generated internally from operations or otherwise, this facility provides
us sufficient liquidity to meet our needs on an ongoing basis. However, as we
grow, we will need to expand the facility in order to fund our growth.
Critical Accounting Policies and Estimates
Our financial statements reflect the selection and application of
accounting policies, which require management to make significant estimates and
assumptions. We believe that the following are some of the more critical
judgment areas in the application of our accounting policies that currently
affect our financial condition and results of operations.
Preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions affecting the reported amounts of
assets, liabilities, revenues, and expenses and related contingent liabilities.
On an on-going basis, the Company evaluates its estimates, including those
related to revenues, bad debts, income taxes and contingencies and litigation.
The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions.
Revenue for freight in transit is recognized upon delivery. Amounts
payable for purchased transportation, commissions and insurance expense are
accrued when the related revenue is recognized.
Deferred income taxes are recognized for the tax consequences of
'temporary differences' by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities. At September 30, 2002, the
Company's deferred tax asset consists principally of net operating loss carry
forwards. The Company's deferred tax asset has been reduced by a valuation
allowance to the extent such benefits are not expected to be fully utilized.
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 $69,000 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 $3.4 million.
In addition, the Company has approximately $1 million of accrued interest due
under these notes payable.
The Company conducts business with freight companies under the control of a
director of the Company. Accounts receivable at September 30, 2002 includes
$596,000 due from or guaranteed by these companies.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In October 2002, one of the Company's subsidiaries ('Keystone') was named
as a third party in a lawsuit in which an independent owner operator, leased to
the carrier, fell and injured himself on the property of Cooper Tire. As a
result, the independent owner operator filed suit against Cooper Tire. Cooper
Tire prevailed in their defense of this lawsuit and incurred $200,000 for their
defense. Cooper Tire is currently suing Keystone claiming that Keystone,
pursuant to a transportation rate agreement, is liable to reimburse Cooper Tire
for the defense costs. At this time, the Company and its legal counsel are
unable to assess the outcome of this complaint. The Company intends to
vigorously defend itself in this matter.
Item 2. Changes in Securities and Use Of Proceeds
During the Quarter ended September 30, 2002, the Company converted 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.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their
evaluations as of a date within 90 days of the filing of this report, our
principal executive officer and principal financial officer, with the
participation of our full management team, have concluded that our disclosure
controls and procedures (as defined in Rules 13(a)-14(c) and 15(d)-14(c) under
the Securities Exchange Act) are effective to ensure that information required
to be disclosed by us in reports that we file or submit under the Securities
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC.
(b) Changes in controls. There were no significant changes in our internal
controls or in other factors that could significantly affect these internal
controls subsequent to the date of their most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
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
November 15, 2002
Certification Pursuant to SS302 of the Sarbanes-Oxley Act of 2002
I, Michael Kibler, certify that:
1. I have reviewed this quarterly report on Form 10-Q of US 1 Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the 'Evaluation Date'); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: 11/15/2002 /s/Michael Kibler
Michael Kibler
Chief Executive Officer
Certification Pursuant to SS302 of the Sarbanes-Oxley Act of 2002
I, Harold Antonson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of US 1 Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the 'Evaluation Date'); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: 11/15/2002 /s/ Harold Antonson
Harold Antonson
Chief Financial Officer