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 June 30, 2005.
Commission File No. 1-8129.
US 1 INDUSTRIES, INC.
-------------------------
(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
- --------------------------------------- ----------
(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 August 9, 2005, there were 12,018,224 shares of registrant's common
Stock outstanding.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2005 (UNAUDITED) AND DECEMBER 31, 2004
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
ASSETS
June 30, December 31,
2005 2004
(Unaudited)
CURRENT ASSETS:
Cash $ 0 $ 0
Accounts receivable-trade, less allowances for
doubtful accounts of $1,079,000 and $1,023,000
respectively 23,306,292 22,051,059
Other receivables, including receivables due
from affiliated entities of $148,000 and
$175,000, respectively 2,207,590 1,362,631
Prepaid expenses and other current assets 556,426 513,069
Current deferred tax asset 600,000 600,000
----------- ----------
Total current assets 26,670,308 24,526,759
FIXED ASSETS:
Equipment 1,205,918 1,315,233
Less accumulated depreciation and amortization (797,031) (768,821)
----------- ----------
Net fixed assets 408,887 546,412
----------- -----------
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 391,780 392,357
----------- -----------
TOTAL ASSETS $28,124,975 $26,119,528
=========== ===========
<F1>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2005 (UNAUDITED) AND DECEMBER 31, 2004
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31,
2005 2004
(Unaudited)
CURRENT LIABILITIES:
Revolving line of credit $ 4,535,201 $ 5,513,360
Accounts payable 9,076,978 8,092,664
Accrued expenses 1,189,830 684,068
Insurance and claims 1,476,306 1,341,855
Accrued compensation 477,742 296,681
Accrued interest 1,213,702 1,274,510
Fuel and other taxes payable 296,171 95,467
Accrued legal settlements 1,891,667 2,083,333
----------- ------------
Total current liabilities 20,157,597 19,381,938
----------- ------------
LONG-TERM DEBT (primarily to related parties) 2,889,708 2,889,708
MINORITY INTEREST 252,074 254,946
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, authorized 20,000,000 shares;
no par value; 12,018,224 and 11,618,224 42,396,639 42,396,639
shares outstanding as of June 30, 2005
and December 31, 2004, respectively.
Accumulated deficit (37,571,043) (38,803,703)
----------- -----------
Total shareholders' equity 4,825,596 3,592,936
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 28,124,975 $ 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
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED)
Three Months Ended Six Months Ended
2005 2004 2005 2004
OPERATING REVENUES $41,890,073 $35,974,840 $ 79,651,473 $66,704,893
----------- ---------- ----------- ----------
OPERATING EXPENSES:
Purchased transportation 30,863,950 26,546,376 58,888,927 49,168,097
Commissions 4,570,095 3,790,592 8,117,849 6,910,669
Insurance and claims 1,664,009 1,627,351 3,270,099 2,944,314
Salaries, wages, and other 2,493,159 2,074,753 4,576,564 4,001,640
Other operating expenses 1,620,094 1,760,115 3,259,503 3,204,576
----------- ---------- ---------- ----------
Total operating expenses 41,211,307 35,799,187 78,112,942 66,229,296
----------- ---------- ---------- ----------
OPERATING INCOME 678,766 175,653 1,538,531 475,597
----------- ---------- ---------- ----------
NON-OPERATION INCOME (EXPENSE)
Interest income 7,960 0 31,992 4,469
Interest (expense) (136,013) (100,332) (259,841) (197,025)
Other income 124,952 62,178 189,780 116,451
----------- ---------- ---------- ----------
Total non-operating (expense)
(3,101) (38,154) (38,069) (76,105)
----------- ---------- ---------- ----------
NET INCOME BEFORE MINORITY INTEREST
$ 675,665 $ 137,499 $1,500,462 $ 399,492
Minority Interest Expense (72,660) (37,616) (117,128) (67,670)
----------- ---------- ---------- ----------
NET INCOME BEFORE INCOME TAXES
$ 603,005 $ 99,883 $1,383,334 $ 331,822
Income taxes 86,930 0 150,674 0
----------- ---------- ---------- ----------
NET INCOME 516,075 99,883 1,232,660 331,822
Basic Net Income $0.04 $0.01 $0.10 $0.03
Per Common Share
Diluted Net Income $0.04 $0.01 $0.10 $0.03
Per Common Share
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 12,018,224 11,618,224 12,018,224 11,618,224
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 12,018,224 11,946,664 12,018,224 11,934,339
<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 SIX MONTHS ENDED JUNE 30, 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 six
months ended June 30, 2005 0 0 1,232,660 1,232,660
Balance, June 30, 2005 12,018,224 $42,396,639 $(37,571,043) $4,825,596
<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
JUNE 30, 2005 AND JUNE 30, 2004 (UNAUDITED)
six Months Ended June 30,
2005 2004
------ ------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 1,232,660 331,822
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 118,862 158,111
Gain on disposal of assets (29,033) 0
Compensation Expense resulting from
issuance of restricted stock 0 62,857
Compensation Expense resulting from
issuance of equity in subsidiary 0 50,000
Provision for bad debts 441,020 253,000
Minority interest expense 117,128 67,670
Changes in operating assets and liabilities:
Accounts receivable - trade (1,696,253) (2,571,830)
Other receivables (844,959) (160,261)
Prepaid expenses and other current assets (42,780) (203,618)
Accounts payable 984,314 836,508
Accrued expenses 505,762 (24,892)
Accrued interest (60,808) 63,790
Insurance and claims 134,451 390,121
Accrued compensation 181,061 175,858
Fuel and other taxes payable 200,704 193,679
Accrued Legal (191,666) 0
--------- --------
Net cash provided by (used in) operating activities 1,050,463 (377,185)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (33,004) (116,654)
Proceeds from sales of fixed assets 80,700 32,500
-------- ---------
Net cash provided by (used in)investing activities 47,696 (84,154)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (borrowings) repayments under line of credit (978,159) 553,695
Principal borrowings on long-term debt 0 62,172
Distributions to minority interest (120,000) (154,528)
--------- ---------
Net cash (used in) provided by financing activities (1,098,159) 461,339
--------- ---------
NET CHANGE IN CASH 0 0
CASH, BEGINNING OF PERIOD 0 0
--------- ---------
CASH, END OF PERIOD 0 0
========= =========
Cash paid for interest $320,000 $133,000
========= =========
<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
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of June 30, 2005 and the
consolidated statements of income, shareholders' equity and cash flows for
the three and six month periods ended June 30, 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 and
six months ended June 30, 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 Six Months Ended
Numerator 2005 2004 2005 2004
------ ------ ------ ------
Net income $ 516,075 $ 99,883 $ 1,232,660 $ 331,822
Net income attributable to
unvested minority interest
shares in subsidiary 0 (10,009) 0 (19,260)
----------- ----------- ----------- ---------
Net income available to common
shareholders for diluted
EPS 516,075 89,874 1,232,660 312,562
Denominator
Weighted average common
shares outstanding for
basic EPS 12,018,224 11,618,224 12,018,224 11,618,224
Effect of diluted securities
Unvested restricted stock granted
to employees 0 328,440 0 316,115
--------------------------------------------------
Weighted average shares
Outstanding for diluted
EPS 12,018,224 11,946,664 12,018,224 11,934,339
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 $5.3 million at June 30, 2005. The interest rate is
based upon certain financial covenants and may range from prime to prime
less .50%. At June 30, 2005, the interest rate on this line of credit was
at prime (6.0%). 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 June 30, 2005 the outstanding borrowings on this
line of credit were $4.5 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.
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 June 30, 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 June 30, 2005 or December 31, 2004 for the
amount which could possibly be covered under the auto liability policy.
The Company has orally negotiated a settlement with the plaintiff, which
the Company believes it will be able to recover from its insurance carrier.
Should the Company successfully complete the settlement and obtain
reimbursement from its insurer the accrued legal settlement of $1.7 million
would be reversed resulting in a gain. However, the settlement agreement
has not yet been signed and there can be no assurance that it will. In
addition, the Company's insurer still has a declaratory judgment action
asserting that it is not obligated to provide coverage on this matter.
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 and six months ended June 30, 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.
Six months ended June 30, 2005 compared to the six months ended June 30, 2004
The following table sets forth the percentage relationships of expense items to
revenue for the six months ended June 30, 2005 and June 30, 2004:
2005 2004
------ ------
Revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 73.9 73.7
Commissions 10.2 10.4
Insurance and claims 4.1 4.4
Salaries, wages and other 5.8 6.0
Other operating expenses 4.1 4.8
------- ------
Total operating expenses 98.1 99.3
------ ------
Operating income 1.9 0.7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (Continued)
The Company's operating revenues increased to $79.7 million for the six
months ended June 30, 2005 from $66.7 million for the same period in 2004.
This is an increase of 19.4%. 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.
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 slightly to 73.9% of revenue
for the six months ended June 30, 2005 from 73.7% for the six months ended
June 30, 2004. 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 slightly to 10.2%
of revenue for the six months ended June 30, 2005 from 10.4% of revenue for
the six months ended June 30, 2004. In total, purchased transportation and
commissions remained constant at 84.1% of revenue in both 2005 and 2004.
Insurance and claims decreased slightly to 4.1% of revenue for the six
months ended June 30, 2005 compared to 4.4% of revenue for the six months
ended June 30, 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. The decrease of 0.3% of revenue for the six
months ended June 30, 2005 can be attributed to the decrease in claims
incurred by certain operations of the Company.
Salaries, wages, and fringe benefits were 5.7% of revenue for the six
months ended June 30, 2005 compared to 6.0% of revenue for the six months
ended June 30, 2004. This decrease of 0.3% can primarily be attributed to
revenue growth at newer terminals.
Other operating expenses as a percentage of revenue decreased to 4.1% of
revenue for the six months ended June 30, 2005 from 4.8% for the six months
ended June 30, 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. While not all operating expenses are
directly variable with revenue, the increased revenue directly impacts several
components of operating expenses due to the Company adding new locations.
During 2005, the Company focused more on growing existing locations rather than
adding new locations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (Continued)
Based on the changes in revenue and expenses described above, operating
income increased by $1,062,936. Operating income for the six months ended
June 30, 2005 was $1,538,533 compared to $475,597 for the six months ended
June 30, 2004.
Interest expense increased by $62,816 in 2005. Interest expense for the
six months ended June 30, 2005 was $259,841 compared to interest expense of
$197,025 for the six months ended June 30, 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 June 30, 2005, the interest rate charged
on the loan with US Bank was prime (6.0%). At June 30, 2004 the interest
rate charged on the loan with US Bank was 4.0%.
Non-operating (income) expense, exclusive of interest expense, includes
income from rental property, storage and equipment usage fees. Non-
operating (income) expense, exclusive of interest expense, was ($221,772)
for the six months ended June 30, 2005 versus ($120,920) for the six months
ended June 30, 2004. This is an increase of ($100,852).
The Company also recognized minority interest expenses of $117,128 and
$67,670 for the six months ended June 30, 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 six months
ended June 30, 2005 was $1,232,660 compared with $331,822 for the same period
in 2004.
Three months ended June 30, 2005 compared to the three months ended June 30,
2004.
The following table sets forth the percentage relationships of expense items
to revenue for the three months ended June 30, 2005 and June 30, 2004:
2005 2004
------ ------
Revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 73.7 73.8
Commissions 10.9 10.5
Insurance and claims 4.0 4.5
Salaries, wages and fringe benefits 5.9 5.8
Other operating expenses 3.9 4.9
------- ------
Total operating expenses 98.4 99.5
------ ------
Operating income 1.6 0.5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (Continued)
The Company's operating revenues increased to $41.9 million for the three
months ended June 30, 2005 from $36.0 million for the same period in 2004.
This is an increase of 16.4%. 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.
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 decreased slightly to
73.7% of revenue for the three months ended June 30, 2005 from 73.8% for
the three months ended June 30, 2004. The slight decrease was offset by
the increase in commissions.
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 revenues.
Commissions to agents and brokers are primarily based on contractually
agreed-upon percentages of revenue. Commissions increased to 10.9% of
revenue for the three months ended June 30, 2005 from 10.5% of revenue for
the three months ended June 30, 2004. As previously described, the increase
in commissions of 0.4% of revenue was partially offset by the decrease in
purchased transportation of 0.1%. In total, purchased transportation and
commission increased as a percentage of revenue by 0.3%. Minor fluctuations
in these percentages can be expected as each agent has slightly different
negotiated rates and as the mix of our business changes, these percentages
may fluctuate slightly.
Insurance and claims decreased to 4.0% of revenue for the three months
ended June 30, 2005 from 4.5% of revenue for the three months ended June
30, 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. The decrease of 0.5% of revenue can
be attributed to the decrease in insurance costs by one of the Company's
operations that were able to negotiate lower insurance rates upon renewal
of their policy. The decrease can also be attributed to a decrease in
claims incurred by certain operations of the Company.
Salaries, wages, and fringe benefits were 5.9% of revenue for the three
months ended June 30, 2005 compared to 5.8% of revenue for the three months
ended June 30, 2004.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (Continued)
Other operating expenses as a percentage of revenue decreased to 3.9%
for the three months ended June 30, 2005 from 4.9% for the same period in
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. While not all operating expenses are directly
variable with revenue, the increased revenue directly impacts several
components of operating expenses due to the Company adding new locations.
During 2005, the Company focused more on growing existing locations rather
than adding new locations.
Based on the changes in revenue and expenses described above, operating
income increased by $503,113. Operating income for the three months ended
June 30, 2005 was $678,766 compared to $175,653 for the three months ended
June 30, 2004.
Interest expense increased by $36,676, from $136,012 for the three
months ended June 30, 2005 to $99,336 for the three months ended June 30,
2004. This increase in interest expense is primarily attributable to an
increase in interest rates charged on the Company's line of credit. 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 June
30, 2005, the interest rate charged on the loan with US Bank was 6.0%. At
June 30, 2004 the interest rate on this loan was 4.0%.
Non-operating (income) expense, exclusive of interest expense, includes
income from rental property and storage fees as well as gain on disposal of
equipment. Non-operating (income) expense, exclusive of interest expense,
was ($132,912) for the three months ended June 30, 2005 versus ($62,178) for
the three months ended June 30, 2004. This is an increase of ($70,734).
Minority interest expense was $72,660 and $37,616 for the three months
ended June 30, 2005 and 2004, respectively, 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 June 30, 2005 was $516,075 compared with $99,883 for the
same period in 2004.
Liquidity and Capital Resources
Net cash provided by (used in) operating activities increased 1.4
million from ($377,185) for the six months ended June 30, 2004 to $1,050,463
for the six months ended June 30, 2005. The increase in net cash provided by
operating activities is attributable to continued profitability during 2005
combined with decreased working capital needs to fund continued growth of the
Company. Cash provided by operations before changes in working capital
increased $1.0 million from $0.9 million at June 30, 2004 to $1.9 million at
June 30, 2005. Because the Company continues to experience growth, 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 decreased approximately $0.5 million from $1.3 million for the
six months ended June 30, 2004 to $0.8 million for the six months ended June
30, 2005 as the impact of increased accounts receivable was only partially
offset by increased accounts payable and accrued expenses. Typically, the
Liquidity and Capital Resources (Continued)
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 $47,696 for the
six months ended June 30, 2005 compared to ($84,154) for the six months
ended June 30, 2004. Net cash provided by investing activities increased due
to the sale of certain trailers at one of the Company's operations that was
closed in 2004.
Net cash used in financing activities increased $1,559,498 from $461,339
for the six months ended June 30, 2004 to ($1,098,159) for the six months
ended June 30, 2005. The Company repaid $978,159 of the outstanding balance
on the revolving line of credit during 2005 versus borrowing $553,695 on the
revolving line of credit during 2004. Borrowings on long-term debt decreased
$62,172 for the six months ended June 30, 2005 compared to the six months
ended June 30, 2004. Contributing to the cash usage was the distribution to
the minority interest shareholders of $120,000 and $154,528 for the six
months ended June 30, 2005 and 2004, respectively.
The Company has 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 $5.3 million at June 30, 2005. The interest rate is based upon certain
financial covenants and may range from prime to prime less .50%. At June 30,
2005, the interest rate on this line of credit was at prime (6.0%). 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 June 30, 2005 the outstanding borrowings on this line of credit were $4.5
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.
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. The Company
anticipates it will be able to extend this line of credit for at least an
additional twelve months prior to its maturity in October 2005.
The Company believes it has a system of internal controls designed to
enable it to produce accurate and timely financial reports. As a result of
the Sarbanes-Oxley Act and the recently adopted rules of the Securities &
Exchange Commission and the Public Company Accounting Oversight Board, in
connection with the audit of the Company's consolidated financial statements
for the fiscal year ending December 31, 2006, the Company will be required
to furnish the SEC with management's and the Company's independent auditors'
attestation with regard to the operation of its internal controls. In order
to provide those attestations, the Company will have to revise, replace and
Liquidity and Capital Resources (Continued)
supplement portions of its internal controls and will have to comprehensively
document all of its internal controls. The Company has not yet developed
plans to fully accomplish this, although preliminarily it has concluded that
it will require substantial work likely to cost in excess of $500,000 plus
the time of management and several employees. Further, given the limited
resources of the Company, it is not entirely clear whether the Company will
be able to meet this deadline.
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 June 30, 2005 the rate was
6.0%). 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 $4,000 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 $148,000 of other accounts receivable due
from entities that could be deemed to be under common control as of June 30,
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.
Certain Relationships and Related Transactions (Continued)
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 June 30, 2005 and for the three and six months ended
June 30, 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 and six months ended June 30, 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 and six months ended June 30, 2005 or 2004. For
fiscal 2004, the Company accounted for approximately 85% of the total premium
revenue of AIFE. At December 31, 2004, AIFE had net worth of approximately
$6.9 million, part 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 $354,000 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.
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 June 30, 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.
Item 4. Controls and Procedures (Continued)
(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 11, 2005, announcing the Board of Directors
Accepting the resignation of William Sullivan as a director of US1
Industries, Inc.
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
August 15, 2005