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 March 31, 2005.
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 ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes ___ No _X_
As of May 13, 2005, there were 12,018,224 shares of registrant's common
stock outstanding.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
ASSETS
March 31, December 31,
2005 2004
(Unaudited)
CURRENT ASSETS:
Accounts receivable-trade, less allowances
for doubtful accounts of $998,000
and $1,023,000, respectively $22,468,902 $22,051,059
Other receivables, including receivables due
from affiliated entities of $147,000 and
$175,000, respectively 1,885,842 1,362,631
Prepaid expenses and other current assets 574,191 513,069
Current deferred tax asset 600,000 600,000
----------- ----------
Total current assets 25,528,935 24,526,759
FIXED ASSETS:
Equipment 1,250,836 1,315,233
Less accumulated depreciation and amortization (777,184) (768,821)
----------- ----------
Net fixed assets 473,652 546,412
----------- -----------
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 deferred tax asset 600,000 600,000
Other Assets 392,068 392,357
----------- -----------
TOTAL ASSETS $27,048,655 $26,119,528
=========== ===========
<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, 2005 (UNAUDITED) AND DECEMBER 31, 2004
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
2005 2004
(Unaudited)
CURRENT LIABILITIES:
Revolving line of credit $ 5,236,663 $ 5,513,360
Accounts payable 8,500,507 8,092,664
Accrued expenses 728,043 684,068
Insurance and claims 1,621,766 1,341,855
Accrued compensation 283,633 296,681
Accrued interest 1,233,571 1,274,510
Fuel and other taxes payable 174,163 95,467
Accrued legal settlements 1,891,667 2,083,333
----------- ------------
Total current liabilities 19,670,013 19,381,938
----------- ------------
LONG-TERM DEBT (primarily to related parties) 2,889,708 2,889,708
MINORITY INTEREST 179,414 254,946
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, authorized 20,000,000 shares;
no par value; 12,018,224 shares outstanding 42,396,639 42,396,639
as of March 31, 2005 and December 31, 2004.
Accumulated deficit (38,087,119) (38,803,703)
----------- -----------
Total shareholders' equity 4,309,520 3,592,936
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 27,048,655 $ 26,119,528
=========== ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
MARCH 31, 2005 AND MARCH 31, 2004 (UNAUDITED)
MARCH 31, MARCH 31,
2005 2004
______________ ______________
OPERATING REVENUES $37,761,400 $ 30,730,053
------------ ------------
OPERATING EXPENSES:
Purchased transportation 28,024,977 22,621,721
Commissions 3,547,754 3,120,077
Insurance and claims 1,606,090 1,316,963
Salaries, wages, and other 2,083,404 1,926,887
Other operating expenses 1,639,409 1,444,460
------------ ------------
Total operating expenses 36,901,634 30,430,108
------------ ------------
OPERATING INCOME 859,766 299,945
------------ ------------
NON-OPERATING INCOME (EXPENSE):
Interest income 24,032 5,464
Interest expense (123,830) (97,689)
Other income 64,828 54,273
------------ ------------
Total non-operating expense (34,970) (37,952)
------------ ------------
NET INCOME BEFORE MINORITY INTEREST $ 824,796 $ 261,993
Minority Interest Expense 44,468 30,054
------------ ------------
NET INCOME BEFORE INCOME TAXES $ 780,328 $ 231,939
Income Taxes 63,744 0
------------ ------------
NET INCOME AVAILABLE TO COMMON SHARES 716,584 231,939
------------ ------------
Basic Net Income
Per Common Share $ 0.06 $ 0.02
==== ====
Diluted Net Income
Per Common Share $ 0.06 $ 0.02
==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC 12,018,224 11,618,224
============ =============
WEIGHTED AVERAGE SHARES OUTSTANDING/
DILUTED 12,018,224 11,922,014
============ =============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005
Total
Common Common Accumulated Shareholders'
Shares Stock Deficit Equity
------------------------------------------------------
Balance, December 31, 2004 11,618,224 $42,396,639 $(38,803,703) $3,592,936
Common shares issued to
employees 400,000 0 0 0
Net income for the three months ended
March 31, 2005 0 0 716,584 716,584
Balance, March 31, 2005 12,018,224 $42,396,639 $(38,087,119) $4,309,520
<FN>
The accompanying notes are in integral part of the consolidated financial
statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 31, 2005 AND MARCH 31, 2004 (UNAUDITED)
Three Months Ended March 31,
2005 2004
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 716,584 231,939
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 58,489 78,799
Gain on disposal of assets (13,829) 0
Compensation Expense resulting from
issuance of restricted stock 0 31,430
Compensation Expense resulting from
issuance of equity in subsidiary 0 25,000
Provision for bad debts 242,000 136,116
Minority interest expense 44,468 30,054
Changes in operating assets and liabilities:
Accounts receivable - trade (659,843) (73,764)
Other receivables (523,211) (344,042)
Prepaid expenses and other assets (60,833) 33,343
Accounts payable 407,843 209,883
Accrued expenses 43,975 (74,365)
Accrued interest (40,939) 27,111
Insurance and claims 279,911 152,123
Accrued compensation (13,048) 193,899
Fuel and other taxes payable 78,696 50,892
Accrued legal (191,666) 0
--------- --------
Net cash provided by operating activities 368,597 708,418
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (4,900) (137,757)
Proceeds from sales of fixed assets 33,000 0
-------- ---------
Net cash provided by (used in)investing activities 28,100 (137,757)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under line of credit (276,697) (518,821)
Principal payments on long-term debt 0 (51,840)
Repayments of shareholder loans 0 0
Distributions to minority interest (120,000) 0
--------- ---------
Net cash used in financing activities (396,697) (570,661)
--------- ---------
NET CHANGE IN CASH 0 0
CASH, BEGINNING OF PERIOD 0 0
--------- ---------
CASH, END OF PERIOD 0 0
========= =========
Cash paid for interest $164,769 $70,578
========= =========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of March 31, 2005 and the
consolidated statements of income, shareholders' equity and cash flows for the
three month periods ended March 31, 2005 and 2004 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 at such date and for such periods. The year-end balance
sheet data was derived from audited financial statements. These statements
should be read in conjunction with US 1 Industries, Inc. and Subsidiaries'
("the Company") audited consolidated financial statements for the year ended
December 31, 2004, 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, 2005 and 2004 are not necessarily
indicative of the results for a full year.
2. EARNINGS PER SHARE
The Company calculates earnings per share ("EPS") in accordance with SFAS
No. 128. Following is the reconciliation of the numerators and denominators
of basic and diluted EPS.
Three Months Ended March 31,
Numerator 2005 2004
Net income $ 716,584 $ 231,939
Dividends on preferred shares 0 0
--------- ----------
Net income available to common
shareholders for basic EPS 716,584 231,939
Net income attributable to unvested minority
interest shares in subsidiary 0 (6,947)
--------- ----------
Net income available to common
shareholders for diluted EPS 716,584 224,992
Denominator
Weighted average common shares
outstanding for basic EPS 12,018,224 11,618,224
Effect of diluted securities
Unvested restricted stock granted
to employees 0 303,790
_____________________________
Weighted average shares outstanding
for diluted EPS 12,018,224 11,922,014
3. BANK LINE OF CREDIT
The Company and its subsidiaries have a $10.0 million line of credit
that matures on October 1, 2005. Advances under this revolving line of
credit are limited to 75% of eligible accounts receivable. Unused
availability under this line of credit was $4.6 million at March 31, 2005.
The interest rate is based upon certain financial covenants and may range
from prime to prime less .50%. At March 31, 2005, the interest rate on
this line of credit was at prime (5.75%). The Company's accounts receivable,
property, and other assets collateralize advances under the agreement.
Borrowings up to $1.5 million are guaranteed by the Chief Executive Officer
and Chief Financial Officer of the Company. At March 31, 2005 the outstanding
borrowings on this line of credit were $5.2 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. At March 31, 2005, the Company was in violation of certain
financial covenants. The Company has subsequently received a waiver from
its lender for this violation.
4. LEGAL PROCEEDINGS
On March 16, 2005, a jury entered a verdict against a subsidiary of the
Company, Cam Transport, Inc. ("CAM") in the amount of $1.7 million in a
personal injury case relating to an auto accident which occurred on March
22, 2001 entitled Lina Bennett vs. Toby M. Ridgeway and Cam Transport, Inc.
in the Court of Common Pleas of Allendale County, South Carolina. As a
result, the Company recorded a charge of $1.7 million related to this
litigation for the year-ended December 31, 2004. This amount is included
in accrued legal settlements at March 31, 2005 and December 31, 2004.
CAM maintains auto liability insurance up to a maximum of $1 million per
occurrence for litigation related to such accidents. However, CAM's insurer,
American Inter-fidelity Exchange, has filed a declaratory judgment action
asserting that it is not obligated to provide insurance coverage on this
matter. As a result of the uncertainty regarding the insurance coverage for
this claim, the expense recorded for this litigation has not been reduced by
any expected amounts to be recovered from the insurance company and there is
no receivable established at December 31, 2004 for the amount which could
possibly be covered under the auto liability policy.
The Company and its subsidiaries are involved in other litigation in the
normal course of its business. Management intends to vigorously defend
these cases. In the opinion of management, the other litigation now pending
will not have a material adverse affect on the consolidated financial
statements of the Company.
5. STOCK COMPENSATION
In March 2003, the Company granted 400,000 shares (200,000 each) of
common stock to the Company's Chief Executive Officer and Chief Financial
Officer, subject to the continued employment of these employees through
December 2004. In December 2004, the Board of Directors extended the
vesting period until March 2005. As a result, the Company incurred total
compensation expense of $220,000 (based on the quoted market price of the
Company's common stock on the date of grant) over the initial vesting
period ending in December 2004. The shares were issued during the first
quarter of 2005.
Results of Operations
You should read the following discussion regarding the Company and its
subsidiaries 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 2005 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 months ended March 31, 2005 and 2004 and
in the Company's Form 10-K for its fiscal year ended December 31, 2004, 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.
Three months ended March 31, 2005 Compared to the three months ended
March 31, 2004
The following table sets forth the percentage relationships of expense items
to revenue for the three months ended March 31, 2005 and March 31, 2004:
2005 2004
------ ------
Revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 74.2 73.6
Commissions 9.4 10.1
Insurance and claims 4.3 4.3
Salaries, wages and other 5.5 6.3
Other operating expenses 4.3 4.7
------- ------
Total operating expenses 97.7 99.0
------ ------
Operating income 2.3 1.0
The Company's operating revenues increased to $37.8 million for the
three months ended March 31, 2005 from $30.7 million for the same period
in 2004. This is an increase of 22.9%. This increase is attributable to
the continued growth of Patriot Logistics, Inc. (f/k/a Keystone Intermodal,
Inc.) Keystone Logistics, Inc., and Keystone Lines Inc. The growth of these
subsidiaries is primarily attributable to the addition of new terminals
and growth of existing terminals.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (Continued)
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 and commission expense
increase or decrease in proportion to the revenue generated through
independent contractors. Purchased transportation increased to 74.2% of
revenue for the three months ended March 31, 2005 from 73.6% for the three
months ended March 31, 2004. This increase was somewhat offset by the
decrease in commission expense. Many agents negotiate a combined percentage
payable for purchased transportation and commission. The mix between the
amounts of purchased transportation paid versus commissions paid may vary
slightly based on agent negotiations with independent owner operators.
However, in total, commissions and purchased transportation would typically
be expected to remain relatively consistent as a percentage of revenue.
Commissions to agents and brokers are primarily based on contractually
agreed-upon percentages of revenue. Commissions decreased to 9.4% of
revenue for the three months ended March 31, 2005 from 10.1% of revenue for
the three months ended March 31, 2004. In total, purchased transportation and
commissions were 83.6% of revenue in 2005 compared to 83.7% of revenue in 2004.
Insurance and claims remained constant at 4.3% of revenue for the three
months ended March 31, 2005 and March 31, 2004. 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.
Salaries, wages, and fringe benefits were 5.5% of revenue for the three
months ended March 31, 2005 compared to 6.3% of revenue for the three months
ended March 31, 2004. This decrease of 0.8% can primarily be attributed to
revenue growth at newer terminals. A significant portion of salaries, wages
and other is a fixed expense, which does not fluctuate proportionately with
revenue. Overall, the increase of $156,517 from 2004 to 2005 is due to
additional personnel hired to accommodate the growth of the Company.
Other operating expenses as a percentage of revenue decreased slightly to
4.3% of revenue for the three months ended March 31, 2005 from 4.7% for the
three months ended March 31, 2004. This decrease can be attributed to newer
offices, which opened during 2004 whose fixed expenses have remained
relatively constant while the revenue has continued to increase.
Based on the changes in revenue and expenses described above, operating
income increased by $559,821. Operating income for the three months ended
March 31, 2005 was $859,766 compared to $299,945 for the three months
ended March 31, 2004.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (Continued)
Interest expense increased by $26,141 in 2005. Interest expense for the
three months ended March 31, 2005 was $123,830 compared to interest expense
of $97,689 for the three months ended March 31, 2004. This increase in
interest expense is primarily attributable to the increase in interest rates
in the past year. The rate on the Company's loan with US Bank is currently
based on certain financial covenants and may range from prime to prime
less .50%. At March 31, 2005, the interest rate charged on the loan with US
Bank was prime (5.75%). At March 31, 2004 the interest rate charged on the
loan with US Bank was prime (3.75%).
Non-operating (income) expense, exclusive of interest expense, includes
income from rental property and storage fees. Non-operating (income) expense,
exclusive of interest expense, was ($88,860) for the three months ended March
31, 2005 versus ($59,737) for the three months ended March 31, 2004. This is
an increase of $28,789 and is primarily attributable to the gain associated
with the sale of trailers.
The Company also recognized minority interest expenses of $44,468 and
$30,054 for the three months ended March 31, 2005 and 2004 relating to the
minority shareholders' portion of its subsidiary's, Carolina National
Transportation, Inc., net income. Carolina National Transportation, Inc. is
a 60% owned subsidiary of the company.
As a result of the factors described above, net income for the three
months ended March 31, 2005 was $716,584 compared with $231,939 for the same
period in 2004.
Liquidity and Capital Resources
Net cash provided by operating activities decreased $0.3 million from
$708,418 for the three months ended March 31, 2004 to $368,597 for the three
months ended March 31, 2005. The decrease in net cash provided by operating
activities is attributable to increased working capital needs to fund
continued growth of the Company. This is offset by continued profitability.
Cash provided by operations before changes in working capital increased $0.5
million from $0.5 million at March 31, 2004 to $1.0 million at March 31,
2005. In addition, the Company continues to experience growth and therefore
a significant amount of the cash generated from operations is used to fund
this growth and the related working capital needs. Cash used to fund these
working capital needs increased approximately $0.9 million from ($0.2)
million for the three months ended March 31, 2004 to $0.7 million for the three
months ended March 31, 2005 as the impact of increased accounts receivable
and other receivables was only partially offset by increased accounts payable
and accrued expenses. Typically, the Company pays independent owner operators
and agents in 7 - 15 days. However, the Company's customers typically pay in 30
- - 45 days.
Net cash provided by (used in) investing activities was $28,100 for the
three months ended March 31, 2005 compared to ($137,757) for the three months
ended March 31 2004. Net cash provided by investing activities increased
primarily due to the sale of certain trailers at one of the Company's
operations that was closed in 2004.
Liquidity and Capital Resources (Continued)
Net cash used in financing activities decreased $173,964 from $570,661
for the three months ended March 31, 2004 to $396,697 for the three months
ended March 31, 2005. Net repayments to the line of credit decreased
$242,124 from $518,821 for the three months ended March 31, 2004 to $276,697
for the three months ended March 31, 2005. There were no principal repayments
on long-term debt during the three months ended March 31, 2005. This decrease
was somewhat offset by a distribution to the minority interest share holders
of $120,000 during the three months ended March 31, 2005.
The Company and its subsidiaries have a $10.0 million line of credit that
matures on October 1, 2005. Advances under this revolving line of credit are
limited to 75% of eligible accounts receivable. Unused availability under
this line of credit was $4.6 million at March 31, 2005. The interest rate is
based upon certain financial covenants and may range from prime to prime less
..50%. At March 31, 2005, the interest rate on this line of credit was at
prime (5.75%). The Company's accounts receivable, property, and other assets
collateralize advances under the agreement. Borrowings up to $1.5 million are
guaranteed by the Chief Executive Officer and Chief Financial Officer of the
Company. At March 31, 2005 the outstanding borrowings on this line of credit
were $5.2 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. At March 31, 2005, the Company was in violation of
certain financial covenants. The Company has subsequently received a waiver
for this violation. The Company expects to complete an amendment to its line
of credit prior to October 1, 2005 to extend the term of the line of credit.
The Company is dependent upon the funds available under its line of credit
agreement for liquidity. As long as the Company can fund 25% of its accounts
receivable from funds generated internally from operations or otherwise, this
facility has historically provided the Company sufficient liquidity to meet
its needs on an ongoing basis.
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. Rising fuel
prices are generally offset by a fuel surcharge the Company passes onto its
customers. However, due to the highly competitive nature of the truckload
motor carrier industry, it is possible that future freight rates, cost of
purchased transportation, as well as fuel prices may fluctuate, affecting
the Company's profitability.
Interest Rate Risk
The Company has a revolving line of credit with a bank, which currently
bears interest at the prime rate (at March 31, 2005 the rate was 5.75%).
The interest rate is based on certain financial covenants and may range from
prime to prime less .50%. The Company also has subordinated debt with
related parties which bears interest at rates ranging from prime + .75% to
prime plus 1%.
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.
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 and the overhead.
The Company has approximately $147,000 of other accounts receivable due
from entities that could be deemed to be under common control as of
March 31, 2005.
One of the Company's insurance providers, American Inter-Fidelity Exchange
(AIFE), is managed by a director of the Company. The Company has an investment
of $126,461 in AIFE. AIFE provides auto liability and cargo insurance to
several subsidiaries of the Company as well as other entities, some of which
are related to the Company by common ownership.
The Company exercises no control over the operations of AIFE. As a result,
the Company recorded its investment in AIFE under the cost method of accounting
as of March 31, 2005 and for the three months ended March 31, 2005 and 2004.
Under the cost method, the investment in AIFE is reflected at its original
amount and income is recognized only to the extent of dividends paid by AIFE.
There were no dividends declared by AIFE for the three months ended March 31,
2005 or 2004.
If AIFE incurs a net loss, the loss may be allocated to the various
policyholders based on each policyholder's premium as a percentage of the
total premiums of AIFE for the related period. There has been no such loss
assessment for the three months ended March 31, 2005 or 2004. For fiscal
2004, the Company accounted for approximately 85% of the total premium
revenue of AIFE. At December 31, 2003, AIFE had net worth of approximately
$5.6 million, a portion of which is attributable to other policyholders of
AIFE.
In addition, the Chief Executive Officer and Chief Financial Officer, as
well as another director of the Company, are the sole shareholders of American
Inter-Fidelity Corporation (AIFC), which serves as the attorney in fact of AIFE.
AIFC is entitled to receive a management fee from AIFE. During 2004, AIFE paid
management fees of $277,000 to AIFC, which AIFC then paid as dividends to these
officers and directors of the Company.
The Company also pays a consulting fee of $2,000 per month, to a director
of the Company, relating to insurance services.
Certain Relationships and Related Transactions (continued)
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 $2.9 million at
March 31, 2005. In addition, the Company had approximately $1.2 million of
accrued interest due under these notes payable.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their
evaluations as of the end of the period covered by the 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 changes in our internal controls
over financial reporting identified in connection with the evaluations
reported above that occurred during our last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our
internal controls over financial reporting.
(c) Disclosure controls and procedures. Disclosure controls and procedures
are our controls and other procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under
the Exchange Act is accumulated and communicated to our management, including
our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) (1) List of Exhibits
The following exhibits, numbered in accordance with Item 601 of
Regulation S-K, are filed as part of this report:
Exhibit 31.1 Certification 302 of Chief Executive Officer
Exhibit 31.2 Certification 302 of Chief Financial Officer
Exhibit 32.1 Certification 906 of Chief Executive Officer
Exhibit 32.2 Certification 906 of Chief Financial Officer
(b)(1) Reports on Form 8-K
Form 8-K filed on May 5, 2005, furnishing information regarding a waiver the
Company was issued from U.S. Bank, National Association ("U.S. Bank") with
respect to the Company's financial covenant default of the Maximum
Unsubordinated Indebtedness to EBITDA Ratio of 3.25-to-1 being exceeded for
the period ended March 31, 2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
US 1 Industries, Inc.
Michael E. Kibler
Chief Executive Officer
Harold E. Antonson
Chief Financial Officer
May 16, 2005