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, 2007.
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.)
336 W. US 30,Valparaiso, Indiana 46385
________________________________________ _________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219)476-1300
________________________
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 8, 2007, there were 12,169,187 shares of registrant's common
stock outstanding.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2007 (UNAUDITED) AND DECEMBER 31, 2006
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
ASSETS
June 30, December 31,
2007 2006
(Unaudited)
CURRENT ASSETS:
Accounts receivable-trade, less allowances for
doubtful accounts of $1,309,000 and $992,000,
respectively 28,983,121 25,764,263
Other receivables, including receivables due
from affiliated entities of $297,000 and
$691,000, respectively 3,601,600 3,159,640
Prepaid expenses and other current assets 1,027,994 875,834
Current deferred tax asset 717,400 717,400
----------- ----------
Total current assets 34,330,115 30,517,137
FIXED ASSETS:
Land 195,347 195,347
Equipment 1,181,716 952,675
Less accumulated depreciation and amortization (641,280) (573,501)
----------- ----------
Net fixed assets 735,783 574,521
----------- -----------
Non-current deferred tax asset 717,400 717,400
Notes Receivable - Long Term 427,726 368,754
Other Assets 386,037 386,037
----------- -----------
TOTAL ASSETS $36,597,061 $32,563,849
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2007 (UNAUDITED) AND DECEMBER 31, 2006
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31,
2007 2006
(Unaudited)
CURRENT LIABILITIES:
Revolving line of credit $ 3,675,509 $ 3,633,784
Related Party Convertible subordinated debt,
Net of Unamortized discount of $102,000
and $313,000 as of June 30, 2007 and
December 31, 2006, respectively 3,847,970 3,637,037
Accounts payable 12,513,642 9,594,681
Accrued expenses 861,237 988,823
Accrued remediation costs 141,347 141,347
Insurance and claims 1,705,594 1,507,980
Accrued compensation 53,501 127,381
Accrued interest 63,974 32,595
Fuel and other taxes payable 847,997 353,853
----------- ------------
Total current liabilities 23,710,771 20,019,481
----------- ------------
MINORITY INTEREST 592,341 1,159,542
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, authorized 20,000,000 shares; 42,970,288 42,970,288
no par value; 12,169,187 and 12,169,739
shares outstanding as of June 30, 2007
and December 31, 2006.
Treasury Stock, 552 shares and 0 shares at (999) 0
June 30, 2007 and December 31, 2006,
respectively.
Accumulated deficit (30,675,340) (31,585,462)
----------- -----------
Total shareholders' equity 12,293,949 11,384,826
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 36,597,061 $ 32,563,849
=========== ============
<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, 2007 AND 2006 (UNAUDITED)
Three Months Ended Six Months Ended
2007 2006 2007 2006
OPERATING REVENUES $47,910,105 $48,326,531 $ 93,821,565 $92,901,772
----------- ---------- ----------- ----------
OPERATING EXPENSES:
Purchased transportation 34,436,341 35,390,419 67,686,478 67,494,278
Commissions 5,582,913 5,478,234 11,131,957 10,574,838
Insurance and claims 1,465,652 1,529,599 3,126,836 3,063,006
Salaries, wages, and
other 2,842,546 3,106,621 5,601,518 6,109,922
Other operating expenses 1,909,824 2,363,656 3,824,410 4,078,488
----------- ---------- ---------- ----------
Total operating expenses 46,237,276 47,868,529 91,371,199 91,320,532
----------- ---------- ---------- ----------
OPERATING INCOME 1,672,829 458,002 2,450,366 1,581,240
----------- ---------- ---------- ----------
NON-OPERATION INCOME (EXPENSE)
Interest income 3,237 4,335 15,105 13,310
Interest (expense) (258,827) (184,627) (500,539) (358,233)
Other income 95,473 10,060 136,865 38,421
----------- ---------- ---------- ----------
Total non-operating
(expense) (160,117) (170,232) (348,569) (306,502)
----------- ---------- ---------- ----------
INCOME BEFORE
MINORITY INTEREST $ 1,512,712 $ 287,770 $2,101,797 $ 1,274,738
Minority Interest Expense 289,149 88,681 488,799 215,375
---------- ---------- ---------- ----------
INCOME BEFORE
INCOME TAXES $ 1,223,563 $ 199,089 $1,612,998 $ 1,059,363
Income taxes expense
(benefit) 109,187 (117,842) 127,876 47,125
----------- ---------- ---------- ----------
NET INCOME AVAILABLE
TO COMMON SHARES 1,114,376 316,931 1,485,122 1,012,238
Basic Net Income Per $0.09 $0.03 $0.12 $0.08
Common Share
Diulted Net Income Per $0.09 $0.03 $0.12 $0.08
Common Share
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 12,169,187 12,018,224 12,169,187 12,018,224
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 14,838,106 12,018,224 12,169,187 12,018,224
<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, 2007
Total
Common Common Treasury Accumulated Shareholders'
Shares Stock Stock Deficit Equity
_______________________________________________________________
Balance, January
1, 2006 12,169,739 $42,970,288 $0 $(31,585,462) $11,384,826
Treasury stock
repurchase (552) (999) (999)
Cumulative effect of
adoption of FIN 48 (575,000) (575,000)
Net income for the
six months ended
June 30, 2007 1,485,122 1,485,122
Balance, June
30, 2007 12,169,187 $42,970,288 $(999) $(30,675,340) $12,293,949
<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, 2007 AND JUNE 30, 2006 (UNAUDITED)
Six Months Ended June 30,
2007 2006
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 1,485,122 1,012,238
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 75,332 72,677
Gain on disposal of assets (1,668) (2,322)
Provision for bad debts 353,610 708,883
Amortization of discount on convertible debt 210,933 0
Minority interest expense 488,799 215,375
Deferred tax expense 0 387,348
Changes in operating assets and liabilities:
Accounts receivable - trade (3,572,468) (1,715,661)
Other receivables (441,960) (125,853)
Notes receivable 167,170 0
Prepaid expenses and other assets (378,302) (559,539)
Accounts payable 2,918,961 630,288
Accrued expenses (127,586) 723,738
Accrued interest 31,379 (33,344)
Insurance and claims 197,614 287,322
Accrued compensation (73,880) (197,157)
Fuel and other taxes payable (82,856) (377,408)
Accrued Legal 0 317,000
--------- --------
Net cash provided by operating activities 1,250,200 1,343,585
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (240,926) (146,096)
Proceeds from sales of fixed assets 6,000 5,327
-------- ---------
Net cash used in investing activities (234,926) (140,769)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under the line of credit 41,725 (1,182,232)
Repayments of shareholder loans 0 (20,584)
Purchase of treasury stock (999) 0
Distributions to minority interest (1,056,000) 0
--------- ---------
Net cash used in financing activities (1,015,274) (1,202,816)
--------- ---------
NET CHANGE IN CASH 0 0
CASH, BEGINNING OF PERIOD 0 0
--------- ---------
CASH, END OF PERIOD 0 0
========= =========
Cash paid for interest $469,160 $392,000
========= =========
<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, 2007 AND 2006
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of June 30, 2007 and the
consolidated statements of income, shareholders' equity and cash flows for the
three and six month periods ended June 30, 2007 and 2006 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, 2006, 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, 2007 and 2006 are not necessarily
indicative of the results for a full year.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported 2006
financial statement to conform with the 2007 presentation.
3. 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 2007 2006 2007 2006
Net income available to $1,114,376 $316,931 $1,485,122 $1,012,238
common Shareholder
for basic EPS
Interest expense on
convertible debt 71,398 0 0 0
Discount amortization on
convertible debt 107,600 0 0 0
____________________________________________________
Net income available to $1,293,374 $316,931 $1,485,122 $1,012,238
common Shareholders for
diluted EPS
Denominator
Weighted average common
shares outstanding
for basic EPS 12,169,187 12,018,224 12,169,187 12,018,224
Shares issuable upon
conversion of convertible
debt 2,668,919 0 0 0
__________________________________________________
Weighted average common
shares outstanding for
diluted EPS 14,838,106 12,018,224 12,169,187 12,018,224
4. REVENUE RECOGNITION
Revenue for freight is recognized upon delivery. The Company accounts for
its revenue in accordance with EITF 99-19, "Reporting Revenue Gross as a
Principal Versus Net as an Agent". Amounts payable for purchased
transportation, commissions and insurance are accrued when incurred. The
Company follows guidance of EITF 99-19 and records revenues at the gross
amount billed to customers because the Company (1) determined it operates as
the primary obligor, (2) typically is responsible for damages to goods and (3)
bears the credit risk.
5. NOTES RECEIVABLE
The Company makes advances under notes receivable to certain agents and
owner operators in the normal course of its business. Currently, the
Company has a note receivable with an agent in the original amount of $500,000
which is repayable in monthly installments of $8,333 with the final payment
due in June 2011. The balance on this note was approximately $414,000 and
$470,000 at June 30, 2007 and December 31, 2006, respectively.
The remainder of the balance of notes receivable consists of 13 notes
resulting from advances to agents and owner operators. The remaining
balance on these notes is $341,765 and $124,896 as of June 30, 2007 and
December 31, 2006, respectively. These notes bear interest at rates
ranging from 9.5% TO 17% with weekly payments ranging from approximately $100
- - $400. Maturity on these notes receivable ranges from November 2007 through
July 2011.
The current portion of these notes receivable totals $328,511 and $226,142
at June 30, 2007 and December 31, 2006, respectively and is classified in
other receivables in the Company's consolidated balance sheet.
6. BANK LINE OF CREDIT
The Company and its subsidiaries have a $10.0 million line of credit that
matures on October 1, 2007. Advances under this revolving line of credit are
limited to 75% of eligible accounts receivable. Unused availability under
this line of credit was $6.3 million at June 30, 2007. The interest rate is
based upon certain financial covenants and may range from prime to prime
less .50%. At June 30, 2007, the interest rate on this line of credit was
at prime less .50% (7.75%). 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 June 30, 2007 the outstanding
borrowings on this line of credit were $3.7 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, and prohibition of
additional indebtedness without prior authorization. At June 30, 2007, the
Company was in compliance with these financial covenants. The balance
outstanding under this line-of-credit agreement is classified as a current
liability at June 30, 2007.
On July 12, 2007, the Company renewed its line of credit that was due to
mature on October 1, 2007. The Company and its subsidiaries now have a
$15.0 million line of credit that matures on October 1, 2008. Advances
under this revolving line of credit are limited to 75% of eligible accounts
receivable. The interest rate under the new line of credit will be based
upon certain financial covenants and may range from prime less .25% to
prime less .75%.
6. BANK LINE OF CREDIT (Continued)
The Company's accounts receivable, property, and other assets collateralize
advances under the agreement.
On October 20, 2005, the Company and its subsidiaries entered into an
Interest Rate Swap Agreement with U.S. Bank effective November 1, 2005
through November 1, 2008. This agreement is in the notional amount of
$3,000,000. The agreement caps the interest rate at 7.71% through the term
of the agreement. The fair value of the interest rate swap was minimal at
June 30, 2007.
7. LEGAL PROCEEDINGS
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.
In October 2006, the Company and the general manager of Patriot Logistics,
Inc. a wholly owned subsidiary of the Company, entered into an agreement
under which the Company granted the individual the option to purchase 100%
of the outstanding stock of Patriot for a purchase price equal to the book
value of Patriot. The option is immediately exercisable and may be exercised
in whole (not in part) at any time prior to October 2008. In the event the
option were exercised, based upon the actual results of Patriot Logistics,
our revenue would have declined by $20,354,891 and $23,712,748 (a decrease
of 21.70% and 25.54%, respectively) for the six months ended June 30, 2007
and 2006, respectively. Patriot Logistics had pre-tax income (loss) of $18,769
and ($471,417) for the six months ended June 30, 2007 and 2006, respectively.
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 2007 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, 2007
and 2006 and in the Company's Form 10-K for its fiscal year ended December
31, 2006, are essential to an understanding of the comparisons and are
incorporated by reference into the discussion that follows.
Historically salaries, wages, fringe benefits, and other operating
expenses had been principally non-variable expenses and remained relatively
fixed with slight changes in relationship to revenue. However, since the
Company has added certain operations, which utilize employees rather than
independent agents, these non-variable expenses may not be directly
comparable.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
Six months ended June 30, 2007 compared to the six months ended June 30, 2006
The following table sets forth the percentage relationships of expense items
to revenue for the six months ended June 30, 2007 and June 30, 2006:
2007 2006
------ ------
Revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 72.1 72.7
Commissions 11.9 11.4
Insurance and claims 3.3 3.3
Salaries, wages and other 6.0 6.6
Other operating expenses 4.1 4.4
------- ------
Total operating expenses 97.4 98.4
------ ------
Operating income 2.6 1.6
The Company's operating revenues increased to $93.8 million for the
six months ended June 30, 2007 from $92.9 million for the same period in
2006. This is an increase of 1.0%. The increase was attributable to the
continued growth of Carolina National Transportation, LLC., US1 Logistics,
LLC., and Thunderbird, LLC. The growth of these subsidiaries is primarily
attributable to the addition of new terminals and growth of existing terminals.
Purchased transportation and commission expense generally increase
or decrease in proportion to the revenue generated through independent
contractors. Many agents negotiate a combined percentage payable for
purchased transportation and commission. In addition, pay on certain types
of revenue may be higher than for other types of revenue. Thus a change in
the mix of revenue can cause some variation in the percent paid out for
purchased transportation and commission. However, in total, commissions and
purchased transportation would typically be expected to remain relatively
consistent as a percentage of revenue. Purchased transportation and
commission together decreased 0.1% from 84.1% as a percentage of revenue for
the six months ended June 30, 2006 to 84.0% as a percentage of revenue for
the same period of time in 2007. Purchased transportation expense decreased
0.6% as a percentage of operating revenue from 72.7% for the six months
ended June 30, 2006 to 72.1% for the six months ended June 30, 2007.
This decrease was offset by a portion of the increase in commission expense.
Commission expense increased 0.5% as a percentage of operating revenue
from 11.4% for the six months ended June 30, 2006 compared to 11.9% for the
six months ended June 30, 2007. Increases in operating revenue at
operations that utilize independent agents as opposed to employees has
resulted in an increase in the Company's commission expense as a percentage
of operating revenue and a decrease in salaries expense as a percentage of
operating revenue.
Salaries expense decreased 0.6% as a percentage of operating revenue
from 6.6% for the six months ended June 30, 2006 to 6.0% for the six
months ended June 30, 2007. This decrease in salaries expense is the
result of one of the operations closing an office that utilized employees
rather than independent commissioned agents and also due to the downsizing
at certain operations and the reduction of management bonuses. The result
of operations utilizing employees as opposed to commissioned agents is
that salaries will tend to run higher at these offices and do not fluctuate
directly with the operation's revenue. As a result, the decrease in
salaries expense as a percentage of revenue somewhat offsets the increase
in the Company's commission expense as a percentage of revenue.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (continued)
Six months ended June 30, 2007 compared to the six months ended
June 30, 2006 (continued)
Insurance and claims remained consistent at 3.3% of revenue for the six
months ended June 30, 2007 and for the same period of time in 2006. 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.
Other operating expenses decreased to 4.1% of revenue for the six
months ended June 30, 2007 from 4.4% of revenue for the six months ended
June 30, 2006. The Company booked an accrual for a potential litigation
judgment in June, 2006. This accrual resulted in an increase to other
operating expenses for the six months ended June 30, 2006 of $0.31 million
or 0.34% of revenue. The Company had no such accrual for the six months
ended June 30, 2007. Another factor that decreased operating expenses for
the six months ended June 30, 2007 compared to the same period of time in
2006 was improved collections of old debts at one of the Company's
terminals whose improved efforts reduced bad debt expense by $0.35 million
or 0.37% of revenue.
Interest expense increased by $142,306, from $358,233 for the six
months ended June 30, 2006 to $500,539 for the six months ended June 30, 2007.
This increase in interest expense is primarily attributable to an increase in
interest on related party debt.
The Company also recognized minority interest expense of $488,799 for
the six months ended June 30, 2007 and $215,375 for the six months ended
June 30, 2006 relating to the minority shareholders' portion of its
subsidiary's, Carolina National Transportation, LLC, net income for the
six months ended June 30, 2007 and 2006, respectively. Carolina National
Transportation, LLC, is a 60% owned subsidiary of the Company.
Federal and state income taxes increased $80,751 from $47,125 for the
six months ended June 30, 2006 to $127,876 for the six months ended June
30, 2007. The Company has net operating loss carry-forwards of
approximately $9.0 million at December 31, 2006. These carry-forwards
are available to offset taxable income in future years and substantially all
of these carry-forwards will expire in the years 2007 through 2010. This
increase in tax expense relates to increased state taxes.
As a result of the factors discussed above, including increases in
purchased transportation, increases in commissions that were offset by
the decrease in salaries, increases in interest, and increases in federal
and state income taxes, net income for the six months ended June 30, 2007
increased by $472,884 from $1,012,238 for the six months ended June 30,
2006 to $1,485,122 for the six months ended June 30, 2007.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (Continued)
Three months ended June 30, 2007 compared to the three months ended
June 30, 2006.
The following table sets forth the percentage relationships of expense
items to revenue for the three months ended June 30, 2007 and June 30,
2006:
2007 2006
------ ------
Revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 71.9 73.2
Commissions 11.7 11.3
Insurance and claims 3.1 3.2
Salaries, wages and fringe benefits 5.9 6.4
Other operating expenses 4.0 4.9
------- ------
Total operating expenses 96.6 99.0
------ ------
Operating income 3.4 1.0
The Company's operating revenues decreased to $47.9 million for the
three months ended June 30, 2007 from $48.3 million for the same period in
2006. This is a decrease of 0.4%. The decrease is attributable to the
closing of offices at the Patriot Logistics, Inc. terminal, and a decrease
in revenues from one of the larger customers for both the Harbor Bridge and
Keystone Wilmington offices. These changes have decreased the volume of
loads during the second quarter of 2007.
Purchased transportation and commission expense generally increase or
decrease in proportion to the revenue generated through independent
contractors. Many agents negotiate a combined percentage payable for
purchased transportation and commission. In addition, pay on certain types
of revenue may be higher than for other types of revenue. Thus a change in
the mix of revenue can cause some variation in the percent paid out for
purchased transportation and commission. However, in total, commissions
and purchased transportation would typically be expected to remain relatively
consistent as a percentage of revenue. Purchased transportation expense
decreased 1.3% as a percentage of operating revenue from 73.2% for the
three months ended June 30, 2006 to 71.9% for the three months ended June
30, 2007. This decrease in purchased transportation is somewhat offset by
an increase in commission expense. Another factor contributing to the
decrease in purchased transportation is the closing of one of Company's
offices that paid out purchased transportation at a higher rate than is
customary.
Commission expense increased 0.4% as a percentage of operating
revenue from 11.3% for the three months ended June 30, 2006 compared to
11.7% for the three months ended June 30, 2007. The increase in commission
was more than offset by the decrease in purchased transportation.
Salaries expense decreased 0.5% as a percentage of operating revenue
from 6.4% for the three months ended June 30, 2006 to 5.9% for the three
months ended June 30, 2007. This decrease in salaries expense is largely
the result of decreases in bonuses at one of the Company's operations.
Insurance and claims decreased slightly to 3.1% of revenue for the three
months ended June 30, 2007 from 3.2% for the same period of time in 2006. 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
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (Continued)
unfavorable development of existing claims could adversely affect the
Company's operating income. The decrease of 0.1% of revenue can be
attributed to the decrease of certain operations' claim activity.
Other operating expenses decreased to 4.0% of revenue for the three
months ended June 30, 2007 from 4.9% of revenue for the three months ended
June 30, 2006. The Company booked an accrual for a potential litigation
judgment in June, 2006. This accrual resulted in an increase to other
operating expenses for the three months ended June 30, 2006 of $0.31 million
or 0.65% of revenue. The Company had no such accrual for the three months
ended June 30, 2007. Another factor that decreased operating expenses for
the three months ended June 30, 2007 compared to the same period of time in
2006 was improved collections of old debts at one of the Company's terminals
whose improved efforts reduced bad debt expense.
Interest expense increased by $74,200, from $184,627 for the three months
ended June 30, 2006 to $258,827 for the three months ended June 30, 2007.
This increase in interest expense is primarily attributable to an increase
in interest on related party debt.
The Company also recognized minority interest expense of $289,149 for the
three months ended June 30, 2007 and $88,681 for the three months ended June
30, 2006 relating to the minority shareholders' portion of its subsidiary's,
Carolina National Transportation, LLC, net income for the three months ended
June 30, 2007 and 2006, respectively. Carolina National Transportation, LLC,
is a 60% owned subsidiary of the Company.
Federal and state income tax expense increased $227,029 from ($117,842)
for the three months ended June 30, 2006 to $109,187 for the three months
ended June 30, 2007. The Company has net operating loss carry-forwards of
approximately $9.0 million at December 31, 2006. These carry-forwards are
available to offset taxable income in future years and substantially all of
these carry-forwards will expire in the years 2007 through 2010. The
Company's state income taxes also increased for the three months ended June
30, 2007 compared to the three months ended June 30, 2006.
As a result of the factors discussed above, including decreases in
purchased transportation, increases in commissions, decrease in salaries,
slight decrease in insurance and claims costs, decreases in other operating
expenses, an increase in interest, and increases in federal and state income
taxes, net income for the three months ended June 30, 2007 increased by
$797,445 from $316,931 for the three months ended June 30, 2006 to
$1,114,376 for the three months ended June 30, 2007.
Liquidity and Capital Resources
Net cash provided by operating activities decreased $93,385 from
$1,343,585 for the six months ended June 30, 2006 to $1,250,200 for
the six months ended June 30, 2007. The decrease in cash provided by
operating activity was primarily due to an increase in accounts receivable
of $3,572,468. The increase in accounts receivable for the six months
ended June 30, 2007 is attributable to an increase in revenue as well as
a decline in the rate of collections.
A substantial amount of our costs are variable and as such the decrease
in cash received from customers was offset by a decrease in cash paid for
certain expenses that are directly related to operations, including
purchased transportation, commissions, and insurance. In addition, there
were decreases in cash paid to vendors for other non-variable obligations.
The Company utilizes a vendor that provides advances to drivers for fuel
purchases. This vendor has granted additional increases in the Company's
credit limit. This increase resulted in the Company being able to reduce
the frequency of payments to this vendor, thus, increasing accounts payable
and cash availability.
Liquidity and Capital Resources (Continued)
Cash provided by operations before changes in working capital increased
$217,929 from $2,394,199 for the six months ended June 30, 2006 to
$2,612,128 for the six months ended June 30, 2007.
Net cash used in investing activities was $234,926 for the six months
ended June 30, 2007 compared to $140,769 for the six months ended June 30,
2006. Net cash used in investing activities increased primarily due to
the purchase of fixed assets.
Net cash used in financing activities decreased $187,542 from
$1,202,816 for the six months ended June 30, 2006 to $1,015,274 for the
six months ended June 30, 2007. For the six months ended June 30, 2007,
net borrowings under the line of credit increased $41,725. For the six
months ended June 30, 2007, the Company distributed $1,056,000 to
shareholders of the Company's majority owned subsidiary, Carolina National
Transportation, LLC.
The Company and its subsidiaries have a $10.0 million line of credit that
matures on October 1, 2007. Advances under this revolving line of credit are
limited to 75% of eligible accounts receivable. Unused availability under
this line of credit was $6.3 million at June 30, 2007. The interest rate is
based upon certain financial covenants and may range from prime to prime
less .50%. At June 30, 2007, the interest rate on this line of credit was at
prime less .50% (7.75%). 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 June 30, 2007 the outstanding borrowings on this
line of credit were $3.7 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, and prohibition of
additional indebtedness without prior authorization. At June 30, 2007, the
Company was in compliance with these financial covenants. The balance
outstanding under this line-of-credit agreement is classified as a current
liability at June 30, 2007.
On July 12, 2007, the Company renewed its line of credit that was due to
mature on October 1, 2007. The Company and its subsidiaries now have a
$15.0 million line of credit that matures on October 1, 2008. Advances
under this revolving line of credit are limited to 75% of eligible accounts
receivable. The interest rate under the new line of credit will be based upon
certain financial covenants and may range from prime less .25% to prime less
..75%. The Company's accounts receivable, property, and other assets
collateralize advances under the agreement.
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 less .50% (at June 30, 2007 the rate was
7.75%). At June 30, 2007 the interest rate was based on certain financial
covenants and ranged from prime to prime less .50%. The Company also has
approximately $3.8 million of debt payable net of unamortized discount of
$0.1 million to the Chief Executive Officer and Chief Financial Officer or
entities under their control which bears interest at prime less 1%.
On October 20, 2005, the Company and its subsidiaries entered into an
Interest Rate Swap Agreement with U.S. Bank effective November 1, 2005
through November 1, 2008. This agreement is in the notional amount of
$3,000,000. The agreement caps the interest rate at 7.71% through the term
of the agreement. The fair value of the interest rate swap was minimal at
June 30, 2007.
Certain Relationships and Related Transactions
One of the Company's subsidiaries provides safety, management, and
accounting services to companies controlled by the Chief Executive Officer
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 $297,000 of other accounts receivable due
from entities that could be deemed to be under common control as of June
30, 2007.
One of the subsidiaries insurance providers, AIFE, is managed by a Director
of the Company and the Company has an investment of $126,461 in the provider.
AIFE provides auto liability and cargo insurance to several subsidiaries of
the Company as well as other entities related to the Company by common
ownership. For the years ended December 31, 2006, 2005 and 2004, cash paid to
AIFE for insurance premiums and deductibles was approximately $8,268,000,
$4,787,000, and $5,673,000, respectively.
The subsidiaries exercised no control over the operations of AIFE. As a
result, the Company recorded its investment in AIFE under the cost method of
accounting for each of the three years in the period ended December 31, 2006.
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 the
investee. There were no dividends declared by AIFE for the three or six months
ended June 30, 2007 and 2006.
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 each of the three years in the period ended December 31, 2006
or the six months ended June 30, 2007. The subsidiaries currently account for
the majority of the premiums of AIFE. For fiscal 2006, the Company through its
subsidiaries accounted for approximately 65% of the total premium revenue of
AIFE. At December 31, 2006, AIFE had net worth of approximately $9.6 million.
For the year ended December 31, 2006, AIFE paid a commission due to
favorable claims experience to a subsidiary insurance agency of US1 Industries,
Inc. for $400,000. There were no such payments for the six months ended June
30, 2007.
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. AIFE incurred
management fees of approximately $505,000, $300,000, and $405,000 for the years
ended December 31, 2006, 2005, and 2004, respectively. As of June 30, 2007,
there have been no management fees received from AIFE for 2007.
In 2006 the Company paid consulting fees of $19,000 to Robert I. Scissors,
one of its directors, relating to insurance services.
Certain Relationships and Related Transactions (Continued)
The Company has notes payable due to its Chief Executive Officer and Chief
Financial Officer that matures in September 2007 and is classified as a current
liability. These notes payable will either be renewed prior to their expiration
date or converted to common stock of the Company.
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 10.15 Amendment to Amended and Restated Loan Agreement with US BANK
and Carolina National, Transportation LLC, Gulfline Transport
Inc.,Five Star Transport, Inc., Cam Transport, Inc., Unity
Logistic Services, Inc., ERX, Inc., Friendly, Transport, Inc.,
Transport Leasing, Inc., Harbor Bridge Intermodal, Inc.,
Patriot Logistics, Inc., Liberty Transport, Inc., Keystone
Lines Corporation, TC Services, Inc., Freedom Logistics, LLC,
Thunderbird Logistics, LLC, Thunderbird Motor Express, LLC,
US1 Logistics, LLC, and US 1 Industries, Inc.
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
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.
/S/ Michael E. Kibler
__________________________
Michael E. Kibler
Chief Executive Officer
/S/ Harold E. Antonson
__________________________
Harold E. Antonson
Chief Financial Officer
August 14, 2007